The first time tax abatement appears in history – according to English legend – is in the 11th century, when noblewoman Lady Godiva climbed aboard a white horse, clothed only in her long hair, and galloped through the streets of Coventry, England to protest her husband’s oppressive taxation on the people of Coventry. In response, husband Leofric, powerful Lord of Coventry, abated the people’s taxes.
Ten centuries later, tax abatement has become an economic development tool that appears to be “galloping” in popularity. First authorized by the Minnesota Legislature in 1997, tax abatement allows an individual taxing entity to capture and use all or a portion of the local property tax revenues within a defined geographic area to finance a specified project or improvement. . How does tax abatement work? In practice, tax abatement is a reallocation of taxes rather than an exemption from paying taxes – as was the case for the impoverished people of Coventry. The property for which taxes have been abated will continue to pay their taxes in full. The amount of the abatement, however, is redirected from the general fund as a contingency, in the event anticipated revenues to retire debt do not materialize. . What is the county’s history with tax abatement bonds? According to County Auditor-Treasurer, Braidy Powers, the county has issued a tax abatement bond once before, in 2014 for the golf course project. . What was the total amount of the tax abatement bonding for Superior National Golf Course? $2,424,012. There has never been a levy assessed to taxpayers as lodging tax revenues, up to this point, has paid the bonds. . Where will the money come from for the Lutsen housing project? The greater majority of the funds $1,525,000 (55 percent) would come from General Obligation Tax Abatement Bonds. The balance of the funding – all but $100,000 – would come from entities that, essentially, receive tax dollars. . Who will own the development? Cook County’s EDA has engaged One Roof Community Housing to help spearhead the development and One Roof will own the development and will contract with a property management firm for management. . Who is One Roof? One Roof Community Housing is a nonprofit organization committed to providing housing services and building and sustaining affordable homes and healthy neighborhoods. Formed by the merger of Northern Communities Land Trust and Neighborhood Housing Services in 2012, One Roof brings a combined 50 years of experience in providing housing services.
Issuance of the proposed bonds will provide $1.5 million to the Cook County / Grand Marais EDA to loan to One Roof Community Housing for the construction of multi-family housing in Lutsen. It is expected that One Roof rental income each year will be sufficient to fund 100 percent of the county’s debt service requirement in the following fiscal year and thereby cancel the county’s need to levy a tax abatement in that same fiscal year.
One Roof will also obtain a Shortfall Agreement from four area businesses (Odyssey Development, Lutsen Mountains Corporation, Lutsen Resort Company and Bluefin Bay) to support the project through a rent guarantee for six rental units for one year and cash payments of $30,000 payable over two years.
In the event that One Roof loan payments are insufficient to cover the debt, the abatement may redirect existing tax dollars from the general fund to pay off the debt. . How will taxpayers be impacted? Hopefully, they will not be . . . unless the anticipated rental proceeds fall short of the annual loan payment; as is the taxpayer’s unfortunate experience with the Cedar Grove Business Park. It was anticipated the sales of lots would pay off the debt on the bonding. This did not happen and taxpayers are stuck with the $120,000 annual tab until the year 2031, not to mention the thousands of dollars spent on litigation with KGM Contractors, Inc.
The public’s only means of understanding individual tax abatements – such as Superior National Golf Course and the proposed Lutsen housing project – is to read the abatement itself, which is by its nature written in legalese with financial terms that may be opaque to the average resident. Further, cost-benefit analyses are not typically provided to the public to explain why the abatement is necessary; this is not the same as asking the question, “Is affordable housing necessary?”
While I’m not advocating we all go out and negotiate the purchase of a white horse and gallop down Broadway, I would encourage taxpayers to mount an effort to inform themselves when it comes to what elected officials do with “your money” and the risks they are willing to take . . . to saddle your future with overwhelming debt.
“The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing.”
Jean Baptiste Colbert
Former Cook County Commissioner Garry Gamble is writing this ongoing column about the various ways government works.
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