Auburn is not exempt from an issue plaguing municipalities across the country.

The city has a multimillion dollar budget deficit on the horizon, and about 33 percent of Auburn’s total property value is exempt from taxes, according to assessment rolls from the 2013-2014 fiscal year.

Among its statewide peers, Auburn has plenty of company. Syracuse is among the top in the state with 51 percent of exempt property value. Auburn’s neighbors to the south, Ithaca and Cortland, add up to 36 percent and 38 percent exempt property value respectively.

The state average for all municipalities, which includes villages, towns and counties, is 25 percent, according to a state comptroller’s report released last year. If Auburn was in line with that average figure, the city would see an additional $1.4 million in revenue — enough to put a significant dent in that budget deficit.

But the 33 percent in Auburn, the official seat of Cayuga County, are exempt from taxes for a reason, according to City Manager Doug Selby. State and federal law calls for government buildings, schools and nonprofits to be exempt from taxes. So Syracuse University, Cortland University and Ithaca’s Cornell University are all off their respective cities’ tax rolls. The same goes for Auburn’s Cayuga Community College.

Largely, the city’s tax-exempt valuation is determined by the state, he said. The Auburn City Council can, and has, approved of partial exemptions for particular sects of military veterans. Most recently, veterans of the Cold War were approved for tax exemption benefits last January, which amounts to an estimated $15,000 in exemptions, said City Assessor Mike Burns.

More than 20 percent of the city’s exempt property value is made up of nonprofit organizations. These properties are deemed exempt from taxes by law because paying taxes would interrupt their community-service missions, according to Andrew Fish, executive director of the Cayuga County Chamber of Commerce. As such, Auburn nonprofits are only charged for water, sewer and garbage collection.

E.J. McMahon, president of the Empire Center of New York State Policy, said a municipality must strike a balance between charging these services to all property owners, including nonprofits, while making sure residents are not “nickel and dimed” as a result.

Specifically, McMahon referenced a recent agreement between Syracuse University and the city of Syracuse where the college makes a contribution to the city’s funds. Auburn could go a similar route, except Selby does not believe CCC is in any financial situation to make such contributions.

“I think cities need to go to nonprofits and try to get them to make a contribution,” McMahon said.

PILOT projects impact

Having about a third of the assessment roll exempt is nothing new to the city. Since 2004, the city has averaged 32.94 percent of exempt property value. The figure, however, escalated from 30.49 percent to 32.98 percent in 2012, which means about $32 million came off the tax rolls at that time. There’s a reason for this.

The total tax exempt property value is not totally outside of a city’s control. A significant amount of that exempt property value can be traced back to industrial properties engaged in payment in lieu of taxes agreements, or PILOT agreements.

The idea behind PILOT agreements is to provide a developer an incentive to start a project in Auburn, Fish said. So instead of paying full property taxes, a deal is negotiated so these property owners make previously agreed-upon installments over a certain number of years. PILOTs are typically 10-year deals, Fish said.

“They have to think about city’s financial situation,” he said. “A goal they should always adhere to is not taking away from the existing bottom line.”

The Auburn Industrial Development Authority is in charge of negotiating these PILOT agreements with business developers in Auburn. This board acts largely autonomous to the city’s governing body, the Auburn City Council, except on two fronts: The members of AIDA are council-appointed and two members of council, currently Mayor Michael Quill and Councilor Terry Cuddy, are also members of AIDA.

Thanks to AIDA, Auburn now has the Hilton Garden Inn, the Nucor Steel plant and the Currier Plastics facility, among others. Each of these has provided the community economic development and jobs that would likely not exist without the PILOT agreement, Fish said.

In negotiating these agreements, it is not the intent of AIDA to disrupt the city’s tax base. Fish believes the board has done an excellent job in this regard, but noted two particular agreements “have resulted in less property taxes initially.

“I would say that every PILOT needs to have a cost-benefit analysis done on them,” he said.

In terms of recent impact on the tax base, one particular PILOT sticks out like a sore thumb. Nucor Steel, which was assessed at roughly $32 million in 2013, came off the tax rolls completely in 2012 as per the city’s PILOT agreement with the company.

Fish said regardless of how much PILOT property owners pay to the city through these agreements, most often the amounts are more than what they would be if the projects did not exist.

Most IDAs, he said, have a uniform tax exemption policy, which formulates the traditional 10-year PILOT agreements. The Nucor Steel agreement was an exception to the policy and was developed as a contingency PILOT with an incentive period of 2001 to 2020.

Over the course of this agreement, Nucor will generate approximately $15.4 million in property tax revenue, a difference of approximately $11.5 million without the agreement, according to Fish in a column in The Citizen in 2012. In that same column, Fish argues the approximately $100 million of annual regional spending by the company each year and the economic impact of Nucor on the community largely outweighs the shortfall.

“Every one of those pilots I looked at, at the end of the day, if the project hadn’t have happened, the city is getting more than what they would get if they hadn’t,” he said.

With the city’s flailing economy, the argument has been made to regulate AIDA’s actions through the city council. Other than its two members, the Auburn City Council does not have further authority over AIDA’s actions or inactions.

Currently, Fish said the board’s actions are overseen through a state authority, which does not like to see inefficient deals approved of, and the city council does retain the authority to refill the board with new members if the authority is not meeting their collective standards.

Councilor John Camardo made the proposal to AIDA for veto authority over certain AIDA decisions, but the request was unanimously defeated by the authority’s members on Dec. 19. It is AIDA’s mission to negotiate such agreements with the city’s financial status in mind, Fish said, and such veto authority would have certain consequences to the economic development of the city.

“If you have a council or municipality that has veto power over this decision, you’ve taken away the board’s power to do their work,” Fish said.

AIDA is autonomous for a reason, Fish said. Such autonomy allows for an objective set of eyes reviewing particular proposals that could either be good or bad for the city’s financial future. There is no pressure from an electorate to push a particular deal forward or hold a particular proposal back.

Other municipalities have adopted veto powers over their industrial development authority. Syracuse immediately came to Fish’s mind, but he said he would be “willing to wager” the Syracuse IDA would see a lot less proposals compared to its county partner, the Onondaga County IDA.

Targeting tax delinquents

With the proposal currently off the table, the city of Auburn’s government is looking to do what it can with the available properties that are taxable. There’s around $2.1 million in outstanding taxes owed to the city, according to Bob Gauthier, the city’s treasurer.

Getting that $2.1 million would not be new revenue to the city: Gauthier said those outstanding taxes are recorded or budgeted for, and therefore would not help the city in closing its budget deficit.

However, the interest gained when collecting these taxes would be new revenue for the city, which is collected either through voluntary late payments or enacted foreclosure by the city after about 18 months of inactivity.

City staff projected to gain $100,000 in interest payments for the 2013-2014 fiscal year. To date, Gauthier said the city has collected more than $200,000 in interest with more outstanding taxes left to collect.

Another external solution would be to make the city more “attractive” to taxable business ventures, McMahon said. Developers of larger scale projects, such as the Plaza of the Arts or the Schwartz Family Performing Arts Center, have all stated that their projects will go a long way in making Auburn a destination.

Developing that destination is key for a municipality struggling with above-average tax-exempt property values, said Empire Center’s McMahon.

“The right mix of people can make the city attractive to profitable enterprises,” he said.

© 2014 Auburn Citizen