Two years ago, Burlington Mayor Miro Weinberger and local developer Erik Hoekstra wore matching green hard hats and smiled for TV cameras as construction began on a new apartment building in the Old North End. Both men touted the project as a sign of economic rebound in a neighborhood that needed it.
Last week, the mood was notably less celebratory as Hoekstra sat before the mayor and the city council and delivered an ultimatum: His company will stop building in Burlington if the tax bill on that Old North End apartment building isn’t reduced.
Hoekstra, a partner at the well-known real estate company, Redstone, was taken aback when the city assessor calculated the property value on the 22-unit property, which also hosts the restaurant, Butch + Babe’s, at $3 million — roughly $1 million more than what he had expected.
When he challenged the assessment, the Board of Tax Appeals, made up of residents appointed by the council, lowered the figure to $2.7 million but upheld most of the city assessor’s calculations. Instead of taking the typical next step of appealing to court or the state appraiser, Hoekstra has opted to first try an arcane — and higher profile — alternative: asking the city council, which doubles as the board of civil authority, to hear his case.
At the January 25 city council meeting, after a brief back-and-forth between lawyers, Hoekstra suggested this was much more than a mere quibble over taxes.
“If this assessment sticks, we’re done,” he told the council — meaning Redstone will stop developing in Burlington.
In the last two years, the company has built three apartment buildings in the Old North End and one downtown, on Pearl Street. According to Hoekstra, those projects were barely feasible financially, and unexpectedly high property tax assessments would make future endeavors untenable.
What’s more, Hoekstra predicted that other housing developers would follow suit. “You don’t have to care about me. You don’t have to care about Redstone. But you just spent months and months developing a Housing Action Plan to try to reduce the significant housing problem that we have,” Hoekstra went on. “If this assessment sticks, you might as well throw out the Housing Action Plan and forget about anybody developing any new market-rate housing in the city of Burlington going forward.”
To take up Hoekstra’s case, the council has to determine that the Board of Tax Appeals’ decision was “clearly erroneous.” It will meet on February 8, behind closed doors, to make the judgment.
The mayor declined to comment on Hoekstra’s statements, citing the ongoing judicial proceeding. Hoekstra didn’t return a call for further comment.
This isn’t the only significant challenge the city is facing on property tax assessments — a group of landlords, Redstone among them, have banded together and sued the city, alleging that the assessor illegally raised taxes on their rental properties in one part of the city.
Correction, February 5, 2016: An earlier version of this story inaccurately described the $3 million assessment — that is the appraised value of the property.
Correction, February 3, 2016: An earlier version of this story inaccurately described the normal process for appealing a property tax assessment.
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Uh oh. Hoekstra is one of the bigger contributors to Mayor Weinberger’s campaign. I’m sure that money bought him some loyalty.
The big problem the city council faces is that it cannot control its expenditures (the “costs” that a private entity would face in accounting). That lack of control has multiple causes. I point out the obvious: a tax base and tax structure that has inhibited rational use of land. A continuing cascade, or avalanche, of demands on the City for funds, from vast numbers of grant seekers. A lack of industrial land use (industrial users do not require school seats, do not require large sewerage systems, do not require other city services including extra personnel, where personnel costs are the highest individual identifiable component of city costs).
You end up with a situation where the city council is pressured to spend “X” but the tax assessor can identify only “X – y” in taxable income streams. The result is entirely predictable: the assessor gets cute and figures out ways to up the assessment, so that the demands on the budget can be met.
Unless the city council can figure out how to dump the “y” component from the budget, and at the same time motivate low-maintenance land users to move into the City, the current fiasco of upped tax assessments will continue. So these balks by developers, and show-downs with the Council, will also continue.
But if you are going to keep the current population and also set aside some land for industrial users, then the demands of housing will require that buildings go upwards; more floors to the apartment building. The photo attached to the article shows a typical developer’s apartment building: two stories above-ground and an attic story, all used for rentable space (and thus avoiding the costs and maintenance of elevators); together with a basement floor used for utilities and storage. The landlord rents out each doorway or entryway as a self-contained unit, and rents all floors together to one tenant (or group of renters such as students that band together). That approach is not going to work. The longer-term construction solution will end up with larger buildings with five or six floors with an elevator(s). It will be difficult to go much higher as you get into sunlight blockage issues with the neighbors, but if you don’t add floors then the current sprawl of low-density old houses broken up into apartments will stay forever. And that does not work, unless some other formula to finance the city services comes about (i.e. large grants from the State, which is quite unlikely in the current structure).
Bottom line: some of that old-housing stock is going to have to go, get torn down and replaced by higher-rise apartment units. Either that, or less people get to live in the City. You cannot have it both ways; it is not payable.
This is part of the price the city pays … it must help subsidize the cost of building affordable and market-rate housing, or the only residents in downtown will be millionaires and yuppies. If you wan to build affordable housing for Burlingtonians, you can’t rake the owners over the coals for tax revenue. I’m not a big proponent of tax breaks for business, but it makes no sense to not work with the developers who are helping the city. True, they make money, too. But they should be allowed to make some profit. They shouldn’t (and can’t) build for free.
Require UVM to house students and there will be lots of work on campus for housing developers, similar to previous deal Redstone did with the university. That opens up thousands of rental units at all income levels in the City, some of which will increase in value if redeveloped, creating jobs for redevelopers and increased grand list. As for snarky remark that the assessor gets cute and figures out ways to up the assessment, our tax assessor is highly respected, increasing property taxes is a fact of life, it’s always more expensive to live in a city than in the boonies, and landlords need to pay their fair share. City Council, find your backbone or you’re going to hear from thousands of us that we want our assessments reduced, too.
Interesting discussion. On the one hand, it calls out the onerous burden of Vermont’s property taxes that we all suffer. It also lends evidence that the statewide property tax is exacerbating Burlington’s housing shortage more so than any other factor. In which case, this is a legislative matter, not a Council matter.
On the other hand, if not building in Burlington then where? Will we seriously see a mad rush to develop in surrounding communities whose property tax burden is almost as weighty? Not to mention, Burlington has a developer looking to drop a heap of cash to redo the downtown mall – and undoubtedly incur a mammoth property tax bill. In short, doesn’t the current tax obligation simply represent developers’ “fair share” commensurate with what the rest of us pay?
The city subsidizes development already by reducing parking requirements with new construction (or using TIF & CDBG money in the mall’s case). How much more should the rest of Burlington taxpayers bear? How were the property tax rates not accounted for in the planning stages? Was it a city error or a project planning error?
I’m sympathetic to the burden developers face – we haven’t even mentioned the permitting process. But I’m more sympathetic to the average taxpayer struggling under stagnant wages. Our peers on the Council need to take this one slowly and with careful deliberation.
Does Weinberger have to give Hoekstra’s campaign money back if he doesn’t lower taxes for him?