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Buffalo plans new property tax exemption to aid developers

Buffalo officials are preparing to unveil a new – and likely more lucrative – property tax exemption program for real estate projects that would give city officials more control over incentives that could be narrowly tailored to fit a development's needs.

Details of the new program are still being finalized.

But Brendan Mehaffy, executive director of the Office of Strategic Planning, said it would give the city more flexibility than more standard exemptions through the Erie County Industrial Development Agency or the state-governed "485" programs. That's necessary in some cases to ensure that redevelopment activity continues, city officials said.

"It's very important," Buffalo Mayor Byron W. Brown said. "It gives us another tool to move development forward, to create jobs for residents of the City of Buffalo, and we know that the more tools, the more options that we have for the development community, the more projects we can get done and the more opportunity we can create for all residents of the city of Buffalo."

Mehaffy said the program would provide a reduction in taxes for the property owner, but would not be a traditional payment-in-lieu-of-taxes (PILOT) arrangement. A similar version was used more than 30 years ago, but "nothing like we're doing," he added.

He said officials are still working on a standard policy that would apply to each situation, even while the program would allow the city to work with the project sponsor on specific terms.

Even so, Mehaffy added, the tax breaks would have to be approved for each use by the Common Council, so lawmakers – and taxpayers – still retain some degree of authority over it.

Also, standard "community benefits" agreements would also be incorporated each time as appropriate, for affordable housing and including women and minority businesses and employees in the projects. "Those are things that are important priorities to this administration, and to our community as well," Brown said.

Mehaffy said a key component of the new program would require that an analysis by the city concludes that the tax exemption is "necessary, reasonable and sufficient."

"If a project doesn't need it, we wouldn't give it," Mehaffy said. But "we have found that in order to make some of the projects work, the tax exemption will be required. It's not easy to do development in Buffalo."

Brown also rejected any contention that the program would be too generous to developers. "We've spent a significant amount of time reviewing this new tax option, really studying it, looking at how it has worked in other communities, and we feel pretty good about it," Brown said.

TM Montante teams up with Rochester developer on Gates Circle

The Brown administration hopes to unveil the program within a month. It would then have to be approved by the Common Council before it could be put to use for the first time – on TM Montante Development's reuse of the former Millard Fillmore Gates Circle Hospital site.

Mehaffy said the new exemption would be a critical component of the financing for Montante's redevelopment of the 6.7-acre site, expected to cost more than $150 million over several years. Plans call for up to 500 condominiums, market-rate apartments and townhouses, plus a grocery store, a fitness club, and ground-floor retail space throughout the site.

The first building – a six-story mixed-use building at 1299 Delaware – was already approved, but the rest of the project, one of the largest in Buffalo, has been held up by gaps in funding that needed to be overcome.

Montante wants to buy a city-owned parking ramp next to the site as part of its plans, and the $1.7 million sale was already approved by the Common Council. But the city doesn't want to sell the facility if it's not certain that Montante can proceed with the overall project, Mehaffy explained. That's tied up the sale for months.

Developers given year extension to build apartments at Gates Circle

Brown administration officials have been working with the developer to solve the problem and finalize the funding for more than 18 months – ever since the National Park Service threw a monkey wrench into Montante's plans.

The developer had counted on state and federal historic tax credits for its reuse of the historic homeopathic hospital building that remains standing, but the Park Service rejected the application because the developer had to demolish other buildings on the campus that couldn't be reused.

"That was a real disappointment and a surprise, given that it's the oldest structure on the site," Mehaffy said. "But that speaks a lot to the delay at the project site. When that occurred, the development team needed to look at other sources of financing in order to complete the project."

Mehaffy said the new incentive would not be a "blanket" tax exemption for the entire site. Rather, the city would first designate a specific area that would qualify, with the final amount dependent upon the actual projects and when they are proposed.

In exchange for the tax exemption, Montante agreed to city demands for including affordable apartments in the mix and ensuring the participation of minority and women-owned businesses and employees in the construction work. Mehaffy would not divulge details of those agreements yet, but said the Buffalo Urban Renewal Agency will actively monitor compliance.

"The reason that we're doing this is because the project would not have been built without it," Mehaffy said. "We don't give tax exemptions to enrich the developer. We give tax exemptions to make the project happen. And not only do we make the project move forward, but we are able to include components that are important to the community."

Officials have now reached a "term sheet" for the final agreement, clearing the way for the project to proceed and for Montante to acquire the ramp.

"We are getting very close with TM Montante on the Gates Circle site," Mehaffy said. "The City of Buffalo is very committed to seeing that project go forward."

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