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Editorial: Legal, but inappropriate to use 485-a tax break loophole

Uniland Development Co. must be careful not to give opponents fodder by including a single apartment in a proposed downtown project. That might comply with the letter of the 485-a property tax break, which needs to be amended, but it abuses its spirit, along with the taxpayers who fund it.

To be sure, businesses are going to take advantage of tax breaks that are available, and Uniland is doing only what the law allows. Still, the public will pay for what amounts to an end-run around the law’s intent, which is to support multiuse projects.

The company’s plan is certainly intriguing. It anticipates downtown demand by proposing to create a high-tech building on Ellicott Street. It’s a true spec project that would nearly double the size of a one-story building at 505 Ellicott St., just south of the Buffalo Niagara Medical Campus.

The Amherst-based developer is hoping to persuade the Erie County Industrial Development Agency and the City of Buffalo to approve a package of tax breaks to help fund the $7.88 million project, which includes interior and exterior renovations, a new brick façade to match the neighborhood and a mezzanine level to create additional space. Other features include 31,363 square feet of flexible office space and plans for a café or other retail. It sounds promising.

Here is where opponents of development incentives might have a field day: The plans call for a single residential apartment of 882 square feet. That one apartment would rent between $1,000 to $1,100 per month and, to the developer’s great advantage, qualify the project for the 485-a property tax break, which is controlled by the city.

This is the same tax break that caused a commotion last year, and rightly so. It is named for the section of the state tax code that created it, and provides qualifying, mixed-use 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. Why? The project met the mixed-use qualification of 485-a simply by including one 900-square-foot apartment inside the eight-story building. It was a perfectly legal, wholly inappropriate end run around taxpayers.

Last year, Assemblyman Sean Ryan, D-Buffalo, joined with the Partnership for the Public Good to denounce the use of the tax break. They called it an abuse by the developers, Benderson Development Co.

The program has come under a hail of criticism. It was patterned after a similar program misused in Syracuse, where an apartment building qualified for more than $3 million in property tax breaks just by putting three vending machines in the basement. Abusive? You bet.

Criticism of the 485-a property tax break has been fierce – so much so that it makes one wonder why any developer would intentionally draw negative attention to an otherwise worthwhile project.

In fairness, the problem is less with Uniland than with the poorly written 485-a state tax incentive. It must be amended to detail what qualifies for a tax break so that developers cannot take advantage of a publicly funded loophole. It also needs mechanisms for stronger oversight in order to ensure that the projects are meeting their obligations.

A Uniland spokeswoman said the developer does not have “any one particular tenant in mind,” but is hoping to ready the property as soon as possible to begin marketing it. The downtown real estate market is sizzling hot, to be sure, but the 485-a gambit will almost certainly put a public chill on the plan.

The project has already been approved by the city, according to the company in its application. High labor and material costs require financial assistance, according to the developer, which confirmed it will likely not pursue the plan without the tax breaks.

Tax breaks are an essential component of costly projects in a high-tax state like New York. But the people providing those taxes also have a right not to be exploited.

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