I Oppose the Kingstonian PILOT Agreement
James F. Shaughnessy, Jr.
November 21, 2020
Last copyedit November 21, 2020

A PDF version of this statement is available here.

Preface

    The Kingstonian is a multi-use development project proposed for the historic Stockade District in Kingston, NY. Components include an apartment complex with 129 market-rate and 14 affordable units, a 32 room boutique hotel, 8,000 or 9,000 sq.ft. of retail space (area depends on what day you read about it), a 420 space parking garage, and various other "amenities".

    The developers have applied (see pages 19-58) to the Ulster County Industrial Development Agency (IDA) for a Payment in Lieu of Taxes Agreement (PILOT) constitutes a deviation from the Agency's Uniform Tax Exemption Policy. The deviated PILOT requires the consent of the Ulster County Legislature (approved 11/17/2020), the City of Kingston Common Council (previous version approved 7/7/2020 and approval of revised terms expected). The Kingston City School District has received a resolution from the IDA, and it will be brought to the floor on 12/2/2020.

     My involvement is as a trustee of the school district Board of Education (BOE). The opinions expressed following statement are mine and are not necessarily supported by any other member of the BOE. This project was first brought to the school district in September, 2018, and I first became aware of the terms of the PILOT in November, 2018. So my opinions are developed over a period of two years.

     This statement may be updated. If I make a substantive change, I will change the date immediately below my name. If I make a copyedit change, I will change the last copyedit date.

PILOTs have a negative impact on school district finances.

    Kingston City School District is funded by property taxes and state aid.   Property taxes are levied against the Full Taxable Value of nonexempt real estate.
    The total levy is subject to the NYS Property Tax Cap. There is an annual calculation that each district performs to determine its Tax Levy Limit (TLL).  The TLL does not change when there is a change in the taxable value due to assessment increases; in that instance, the tax rate decreases.  However when there is significant new construction, the state calculates a Tax Base Growth Factor (TBGF) that increases the TLL to pay for services arising from the new construction.
    The Kingstonian project will have 143 new housing units and some number of new children to educate.  Its new taxable value of $19 million will result in a TBGF of 1.0042 and an increase in the TLL of more than $440,000.  This would continue into the future to pay for ongoing education costs.
    However, if the new project is subject to a PILOT agreement, the new taxable valuable is never included in the TBGF.   The PILOT reduces the TLL and limits the district's ability to pay for increased services.  We would have to decrease programming levels for all students, or ask voters for a 60% supermajority to exceed the TLL, something the Kingston Board of Education has never done.   My analysis is here.
    The Village of New Paltz released a position statement against the Kingstonian PILOT on September 9, 2020. I had discussions with Mayor Tim Rogers about my analysis which he incorporated into a review on November 4, 2020, on the PILOT schedule suggested by National Development Corporation (NDC) in its October 23, 2020, report, which was commissioned by Ulster County.

People living in luxury apartments should pay a fair share of school taxes.

    Universal public education in the United States is based on all nonexempt property owners paying a fair share of the cost of educating our students through property taxes. I documented what other large multi-family rental properties and hotels pay in school taxes to Kingston City School District. The Kingstonian project proposes a property tax abatement of approximately 90% for 25 years, which in essence is the reduction the property taxes paid by residents and guests.

How many public parking spaces are really being added?

     The parking garage is designed with 420 parking spaces. The developers and city officials claim 277 will be available for the public after reserving 143 for project use. It is one space per apartment, with none reserved for hotel guests or owners and staff of the project components.
     I am aware of two independent calculations of parking requirements according to City of Kingston Zoning Law.
    In a letter to the UCIDA dated July 17, 2020, the law firm Rodenhausen Chale & Polidoro LLC calculates a minimum of 313 parking spaces to serve the needs of the project, leaving 107 available for public use.
    In a blog post from September 30, KingstonCitizens.org calculates 343.5 spaces required by code, leaving 76.5 public spaces.
    It strains credulity that 143 spaces will satisfy the demand of the project.

Subsidizing parking spaces by more than $2,400 per year for 25 years is a boondoggle.

     Applied to all 420 spaces, I calculated that the PILOT provides an annual subsidy of more than $2,400 per space for the 25 years of the PILOT. If the 277 claimed "public spaces" are considered, the annual subsidy is more than $3,700 per public space. If there is no increase in the number of public spaces from the current surface lot, which would be the case if zoning regulations were followed, the annual subsidy is more than $7,300 per public space. I am adamantly opposed to using money that would otherwise go to educating our students to hugely subsidizing parking spaces.
    
My spreadsheet analysis is here.

What are the real costs of the parking garage?

    The developers claim the cost of the garage to be $17,000,000. Information needed to evaluate the projected costs of the parking garage are being concealed by the developers as "confidential" and "trade secrets." Rodenhausen Chale & Polidoro LLP states in their July 17 letter to the UCIDA in the section "The Applicants' Financial Analysis Is Insufficient":

"The Applicant's financial statements also fail to address whether any part of the garage construction costs would be incurred even without the garage. Activities such as demolition, excavating, regrading and installing the foundation for the entire building are tied to the construction of the overall structure and should not be considered when determining the costs of the garage."

What are the options of paying for the parking garage?

     On page 3 of the October 23, 2020, NDC report is the statement, "The PILOT is not the only source for covering the cost of the parking garage" (emphasis added). There is no discussion of what other source might be available. I can identify that when $17 million is financed at 4% over 25 years, the total amortization is $26,919,679 and the interest cost is $9,919,679. An interest rate of 2% is feasible for a municipal borrower. If $17 million is financed at 2% over 25 years, the total amortization is $21,616,571 and the interest cost is $4,616,571. The difference of $5,303,108 is a lot of money.
     I have heard from the developers' side that if the City were to build the garage, it would be too expensive, because it would have to pay prevailing construction wages. Let us assume that the prevailing wage would increase the total cost by 20%, so that $20,400,000 would have to be financed. At 2% over 25 years, the total amortization would be $25,939,886 and the total interest cost would be $5,539,886. This is still $979,793 less than the developers' amortization total.
     Has the City done a similar analysis?

Use an annual inflator for future Tax Levy based on historical data.

     The developers, the IDA, the city, and NDC like to use 2% as the annual inflator for the total tax levy in their projections. The average annual increase for school tax levy for 7-19 North Front St, one of the parcels to be used for the project, since 2011, when the tax cap legislation was enacted, is 4.12%. (2011: $7,914, 2020:$11,379)
     Changes in the school tax levy for any parcel in the Kingston City School District depends on the Tax Levy Growth Factor implicit in the budget annually approved by voters, change in the Full Taxable Value of the parcel (a combination of the assessment and equalization factor), and the proportion of Full Taxable Value in the City of Kingston compared to the other municipalities in the district. As long as Kingston remains a "hot" real estate market, the tax levy increase in the City will probably be more than in the rest of the district.
     In the current and presumed future real estate environment in the Kingston City School District, a reasonable inflator for the school tax levy is 4% rather than 2%. If the combined annual inflator for the city and county levies were presumed to be 1%, an overall inflator of 2.8% would be reasonable. If the combined annual inflator for the city and county levies were presumed to be 2%, an overall inflator of 3.2% would be reasonable.

I am opposed to giving a public street to the Kingstonian Project.

    The street grid of Uptown Kingston is pre-Revolutionary. Fair St. Extension provides access to the Stockade area from the Kingston Plaza. Eliminating it will cause permanent inconvenience and added miles traveled by city residents and visitors. None of the analyses that I have seen even mention the commandeering of that street as a Project Benefit (also known as a Public Cost).

Federal Opportunity Zones

     The Kingston Stockade District is in Census tract 9524 which is a Federal Qualified Opportunity Zone (FOZ or QOZ). Opportunity zones were created as part of the Tax Cuts and Jobs Act of 2017. See this Ulster County web page and this Internal Revenue Service web page. Who are they designed to benefit?
    Iím not against people making money. I prefer it not to be done at the expense of school children. And it is prudent to know what financial opportunities developers have other than PILOT agreements. Kingston resident Ilona Ross has
written extensively on this.