Correction, 12:37 p.m. Wednesday: Department of Economic and Community Development. Clarification on LIHTC.
NORWALK, Conn. – There have been three Enterprise Zone beneficiaries during the Rilling administration, Mayor Harry Rilling said last week.
Rilling was responding to Republican-endorsed Mayoral candidate Lisa Brinton, who repeatedly criticizes tax breaks, saying at the League of Women Voters’ mayoral forum that “giving away tax credits to developers is not the way to look out for the people who live in this city.”
Enterprise Zone tax abatements are awarded as of right. Tax credits are a different issue. They are awarded on a case-by-case basis; recent recipients include the Wall Street Theater and Soundview Landings, the Washington Village replacement. “POKO” (technically called Wall Street Place) was awarded Low Income Housing Tax Credits (LIHTC) but weren’t issued because the project wasn’t completed before they expired. The tax credits, which are federal, can be sold to finance a project; tax abatements reduce the taxes owed only on the part of the property that’s been improved. Tax credits don’t involve City money or state funds.
NancyOnNorwalk emailed Brinton at 5:44 p.m. Monday and asked what she meant by “tax credits,” the Enterprise Zone tax abatements or the federal Low Income Housing Tax Credits (LIHTC) associated with POKO, the Wall Street Theater and the Washington Village replacement project. A second email was sent at 10:38 p.m. She did not reply.
NancyOnNorwalk has been researching the Enterprise Zone for months; the topic is difficult and confusing. Answers became clear only this month, with a surprising twist coming from the state in early October.
That twist reveals that there are technical inaccuracies in Rilling’s statement: though he cited the SoNo Marriott, Ironworks and the mall, there’s a state-run “Enterprise Zone,” which isn’t tied to the geographic area Norwalkers think of for this program. In the last decade, 15 businesses have qualified, including Pepperidge Farm and Wave Hill Breads, according to the state. Seven of those businesses were awarded the designation and its accompanying tax break since Rilling became Mayor.
Plus, the mall hasn’t actually benefitted yet. Its tax break will be effective in its next tax bill.
Again, qualification is “as of right.” Meaning, City officials are obligated to provide the benefit. There are no votes taken on whether a property can get the tax break, no administrative decisions made at any level. If they are in the geographic area, their development qualifies. If they’re a manufacturer, they can qualify anywhere in the city.
“The Enterprise Zone is a federal program authorized by a Norwalk Ordinance passed decades ago. It is also the only tax abatement program in Norwalk. Anyone who builds in the Enterprise Zone automatically receives tax incentives on the value of the improvements. As you’ll see, even as the program dates back decades, it has not been highly utilized in Norwalk,” Norwalk Communications Manager Joshua Morgan explained in early October.
The City ordinance was passed in 1982 and refers strictly to the South Norwalk geographic zone Norwalkers are highly aware of, not the city-wide tax break that’s available.
Morgan and Norwalk Chief of Staff Laoise King were both caught unawares when told of the state list. So, Morgan’s statement is incorrect, in that it’s not just a matter of building in the zone. Manufacturers qualify anywhere in the city, under certain guidelines, Norwalk Redevelopment Agency Senior Project Manager Susan Sweitzer explained.
Complicated? Yes. Let’s start with:
The South Norwalk dollars and sense since 2013
Since Rilling became Mayor, three properties have qualified for the tax abatement through the well-known Enterprise Zone authorized in 1982, according to Morgan and Norwalk Chief of Staff Laoise King:
- The Residence Inn by Marriott SoNo (2018 grand list)
- Ironworks (2016 grand list)
- The SoNo Collection (just came online)
Tax credits apply only to the improvements on the properties.
“The taxes received by the city on the value of the land do not change. Furthermore, the formula varies on property revaluation (2008, 2013, and 2018) and annual mill rates. Tax credits in the Enterprise Zone phase-in on the improvements over seven years,” Morgan explained.
“The Residence Inn by Marriott SoNo – 47 South Main Street – just began receiving Enterprise Zone credits. The property is the combination of two parcels,” he explained.
“The property was once assessed at less than $1 million, and now has an assessment of $15.6 million.
“From 2007-2013, the two parcels generated roughly $17,000 a year in property taxes – or about $120,000 in total over that time.
“In the first year, the highest tax abatement year, the property owner paid about $48,000 in taxes. In three years, the property taxes will have more than covered what was there previously.
“The taxes are now roughly $282,000 annually. After seven years the property will generate about $2 million, compared to $120,000 over a previous seven year period.”
Let’s move on to Ironworks, the luxury apartment building that replaced the long vacant Norwalk Company derelict across from the Maritime Aquarium.
“Ironworks – 1 North Water Street – began receiving Enterprise Zone credits in 2016. The property was once assessed at $3 million and now has an assessment of nearly $30 million,” Morgan explained.
The SoNo Collection is a hot button issue for some because the property, the last part of Reed Putnam Urban Redevelopment Plan (area), wasn’t originally in the Enterprise Zone area.
“It was intentionally left out in the 1980s because it was decided this was going to be this huge, valuable office park and we would have all this revenue and so they didn’t want it in there,” Norwalk Redevelopment Agency Senior Project Manager Susan Sweitzer explained in February. “Needless to say nothing happened.”
The Council, in negotiating changes to the Land Disposition Agreement (LDA) for the parcels, changed the rules on this Enterprise Zone beneficiary. Instead of a gradual increase in taxes, mall owner Brookfield Properties will pay half what is owed in each of its first seven years.
Brookfield, under Norwalk Land Development, paid $538,169.42 in property taxes in August. Another $542,762 is due on Jan. 1. That will make the total 2019 property tax $1,076,338, which includes $9,186 for sewer use.
“Your readers might be interested in knowing that 15 years ago, the dozens of parcels that now make up the SoNo Collection generated about $200,000 in taxes, and this year, the mall’s tax bill (just real estate, no personal property included for the in-line stores) is just over $1 million,” Morgan wrote.
Although a 2017 press release said the mall would generate $2.5 million in tax revenue yearly over its first seven years, the actual dollar figure depends on a tax assessment that is currently underway and on the mill rate that will be set by the Council next Spring, King said Saturday. The $1 million bill for 2019 does not include an abatement.
The customary incremental abatement is:
- First year, 100% deferment
- Second year, 100% deferment
- Third year, 50% deferment
- Fourth year, 40% deferment
- Fifth year, 30% deferment
- Sixth year, 20% deferment
- Seventh year, 10% deferment
The state’s website explains that the first step for a business to qualify for Enterprise Zone benefits is to apply to the Connecticut Department of Economic and Community Development (DECD). DECD then issues a Certificate of Eligibility.
Early this month, NancyOnNorwalk asked DECD for a list of Norwalk businesses that have been approved for Enterprise Zone benefits, going back a decade. This list was furnished:
- 2009: CT. Powder Coating LLC, 1 Merritt St. (Landlord: Bergie LLC)
- 2009: E C Scott Group, LLC, 129 Woodward Ave. (Landlord: A. Ernest Bothwell and Jean Bothwell)
- 2009: Wusthof-Trident of America, Inc., 355 Wilson Ave. (Landlord: 333 Wilson, LLC)
- 2010: Ola! Foods, LLC, 155 Woodward Ave. (Landlord: 155 Woodward Avenue Associates, LLC)
- 2011: New England Bread Company, LLC, d/b/a Wave Hill Breads, 30 High St. (Landlord: Peter Bjernestad)
- 2012: Ola! Foods, LLC, 155 Woodward Ave. (Landlord: Baywater Properties LLC)
- 2012: Pepperidge Farm, Inc., 595 Westport Ave. (Landlord: Pepperidge Farm, Inc.)
- 2012: Van Dyk Baler Corp., 360 Dr. Martin Luther King Jr. Drive (Landlord: United Properties North, LLC)
- 2013: Nola Express (USA), Inc., 605 West Ave. (Landlord: 340 Wilson Avenue, LLC)
- 2013: Space Optimization Solutions LLC d/b/a Closet &Storage concepts, 356 Ely Ave. (Landlord: Elyglen LLC)
- 2015: Connecticut Tick Control, LLC, 15 Chapel St. (Landlord: 15 Chapel Street, LLC)
- 2015: Crossroad, LLC d/b/a Kelly’s Four Plus, LLC, 155 Woodward Ave. (Landlord: Baywater Properties, LLC)
- 2016: Tick Box Technology, 15 Chapel St. (Landlord: 15 Chapel Street, LLC)
- 2016: ETOUCHES, Inc., 13 Marshall St. (Landlord: H.O. & H.E. Properties, LLC)
- 2016: Norwalk Glass Company, Inc., 4 Testa Place (Landlord: Jes-Mar Associates, LLC)
- 2016: The 1777 Company, LLC, 87-97 Water St. (Landlord: SoNo Square Associates, LLC c/o David Adam Realty, Inc.)
- 2017: International Artisan Baking Co., LLC, d/b/a Wave Hill Breads, 30 High St. (No landlord listed)
As you can see, this is a completely different list from the one provided by Morgan and King. Some of the businesses are well out of the South Norwalk Enterprise Zone. Morgan and King were caught flat-footed, without an explanation.
About two weeks ago, Sweitzer said the list looks to be correct.
“There are actually two categories of eligible abatements,” she said, explaining that a manufacturer, whether big or small, or certain businesses that support manufacturing can qualify anywhere in the city. The state does not issue certificates for the other type of Enterprise Zone beneficiary, the businesses within the geographic zone defined by the Council in 1982.
Manufacturers that qualify get an 80% abatement personal property and real estate for five years. Yes, this costs Norwalk “the full value taxes,” Sweitzer said. “The program is intended to do two things: encourage relocation into Enterprise Zones and to encourage … the creation of real estate investment and job. And so, there is real value there – and (the tax breaks) go away. They’re not in perpetuity. So the cost to the city is defined as short term for a longer term benefit.”
As for the “zone” everyone talks about, “inside the boundary, if you make an investment in that property that triggers a reassessment,” Sweitzer explained. “And then the tax abatement only applies to the increased value that you’ve created for that property. That’s where you’ll find the hotel and some of the residential properties qualified in the zone only as a result of their investments.”
Geographic benefits going back a decade
NancyOnNorwalk originally asked City officials for Enterprise Zone beneficiaries going back 10 years. There’s only one addition to the list provided above: an Ely Avenue housing project that dates to 2010.
“The Ely Avenue project – 310 Ely Avenue Units, A-H – began receiving Enterprise Zone credits in 2010 after it was built,” Morgan wrote. “Previously, the parcel was vacant and the land generated about $2,500 annually in taxes. Over the course of the seven year phase-in, the value of the tax abatements totaled roughly $49,000. Now, the units bring in more than $25,000 in annual property taxes.”
This is a project that brought the Redevelopment Agency bad publicity: the agency was forced to buy five of the eight affordable housing units from the developer and then resell them, marketing them for $25,000 less than the $220,000 price the agency paid for them, according to a 2013 story in The Hour.
The City’s website shows that at least one sold for a bigger loss than implied by that story, as unit C went for $175,000.
Then-Redevelopment Agency Executive Director Tim Sheehan is nevertheless quoted by The Hour as calling the project a success. “It’s met the intended purpose, which was to provide a level of affordable housing,” Sheehan said. “Unfortunately, it ran into the recession and marketing condominiums in the height of the recession proved difficult…. At the end of the day, it’s an improvement to the neighborhood and it is contributing to the inventory of housing options that are unavailable to folks that have moderate incomes.”
‘It doesn’t make sense’
Enterprise Zone tax abatements “don’t make sense” for most residential developments due to the income guidelines, Sweitzer said in February. “It only takes one unit to be out of compliance with the income guidelines, and then the whole project gets cancelled out.”
State statute mandates that if an Enterprise Zone apartment or condo that is receiving tax abatements is rented or sold to someone making 200% or more of the area median income then the abatement is cancelled.
Sweitzer explained, “You have to commit that you’re going to keep the program for the seven years and comply with the income guidelines, all of the units for seven years. Most developers find that is not worth it. Who wants to do that?”