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Editorial: State tax incentive is successful, but misused

Critics say that a state tax incentive known as 485-a is abused by Buffalo real estate developers, who use it to reap tax break windfalls.

Defenders of the program – including developers and Buffalo city officials – maintain that 485-a encourages the restoration of dilapidated buildings, bringing neglected or empty properties back onto the tax rolls, and therefore is a net gain for cities in which it is used.

What’s apparent is that the program – created by state legislation 16 years ago – is itself in need of a few repairs. The law needs stronger language on what qualifies for a tax break, to eliminate some gaping loopholes, and mechanisms for firmer oversight procedures, to make sure that the projects granted the tax breaks are living up to their obligations.

Known as “485-a” for the section of the state tax code that created it, the program provides qualifying projects with a tax exemption for 12 years after the developer completes the work.

In Buffalo, the developers of the downtown building known as One Canalside received $5.9 million in subsidies because the project meets the mixed-use qualification of 485-a by containing one 900-square-foot apartment inside an eight-story building.

Assemblyman Sean Ryan, D-Buffalo, and Sam Magavern, executive director of the Partnership for the Public Good, held a news conference recently to denounce the use of the tax break as an abuse by the developers, the Benderson Development Co.

The 485-a program was created in 2002 to mimic a similar program in New York City. Buffalo, Syracuse and Albany opted to participate. Rochester did not.

In Syracuse, The Post-Standard has reported on an apartment building that qualified for more than $3 million in property tax breaks solely by putting three vending machines in the basement. The machines were the sole commercial activity in the sprawling apartment complex, but that was enough for the developer to claim a 485-a exemption.

In another Syracuse project, Peak Campus demolished three small commercial buildings on a site on which it was building a new complex.

Rep. Brian Higgins, D-Buffalo, sponsored the 485-a legislation in 2002, when he was a state Assembly member. Higgins told The Post-Standard that demolition was not what lawmakers had in mind when they created the tax exemption.

“It defeats the purpose,” Higgins said. “The idea is to redevelop these older buildings, not demolish them.”

In Buffalo, the Public Accountability Initiative issued a report this year on the program, pointing out that 485-a allowed local developers to cut property taxes on at least 85 properties by more than $63.5 million over 12 years.

Ryan says the city should withdraw from the program, calling it “a way for developers to shift their cost of doing business onto the taxpayers of the City of Buffalo.”

Benderson Vice President Eric Recoon told The News that the tax breaks “unquestionably spur economic development.”

“Ours was the first private-sector investment in the entire Canalside District, and a catalyst for much of the momentum which has followed,” he said.

A 2015 study by Higgins found the 485-a tax incentive resulted in $91 million in new taxes for Buffalo on 46 properties – even after taking out the taxes that were not paid because of the exemption.

Ryan, the assemblyman, disagrees with the developers’ claims that their projects would not get built without 485-a incentives. Ryan points out that developers have to plan a building project, get their financing in place, and then do the construction before applying for the tax exemption, which may or may not get approved.

It’s unlikely that the city will heed Ryan’s call and withdraw from the 485-a program, but clearly the process could use more oversight for which projects get approved.

Higgins, speaking to The News in August, called the overall program a “resounding success," but said that “Certainly, things could be tightened, and I would support legislative or regulatory fixes to that end,” Higgins said.

When one modest apartment in a $32 million commercial building, or three vending machines in a large residential complex, are found to follow the letter of the law, it’s time for the law to be changed.

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