Someday, someone is going to have to explain to us why governments give tax breaks to developers to build something they probably would have built anyway.
Well, never mind us. Explain it to the taxpayers who never got such a break when they built their houses and end up making up the difference for the money not paid.
We have had in the news in recent days a tale of two municipalities, two medical properties, and one developer, with two opposing results.
In Rhinebeck, Kirchoff Medical Properties sought a payment-in-lieu-of-taxes (PILOT) deal for the ground floor of a proposed $30 million, three-floor addition to Northern Dutchess Hospital. The top two floors qualify for tax exemption altogether as a purely hospital use; the ground floor would have medical offices.
The tax plan, according to the developer, would waive $114,552.94 in payments over seven years and phase in increasing tax payments over the next 13 years.
A former chairman of the board of Northern Dutchess Hospital, John Van Wormer, publicly opposed the tax deal as a "not-too-veiled taxpayer subsidy to a for-profit business" and also characterized the hospital as a for-profit undertaking that is classified as a not-for-profit for the purposes of avoiding tax payments.
The developer subsequently conceded the tax break was not necessary to the project and the Village Board declined to endorse the PILOT proposal.
In the town of Ulster, Kirchoff Cos., effectively the same development outfit, sought a PILOT for an 83,400-square-foot medical building to be constructed at the former Miron property on U.S. Route 9W, across from Adams Fairacre Farms.
Under the PILOT, Kirchoff would pay $336,000 in taxes in the first year, increasing incrementally over 20 years to $489,489.
The Ulster Town Board and Kingston Board of Education approved the tax plan.
In theory, tax-break deals are offered as a short-term inducement to proposed commercial enterprises in the hope that, in the long term, the development will result in a net gain to the jurisdictions offering the breaks.
In some cases, this presumes a developer denied a tax break is ready and willing to take the project to a municipality effectively willing to bid down the tax bill.
In other cases, such as the Northern Dutchess Hospital proposal, it may not matter. Kirchoff conceded the project would be built with or without the tax break. When it comes to leased properties, the developer never pays the taxes anyway; the tenants do in the form of higher rents.
It's no easy matter negotiating the right balance and the law that makes these special tax arrangements possible can, under some circumstances, create a bidding war that leaves average taxpayers the poorer.