ITHACA, N.Y. — Ithaca Area Economic Development Executive Director Heather McDaniel has called the sprawling SouthWorks project on South Hill “the largest redevelopment project that will happen in our lifetimes in the City of Ithaca.”
But such a superlative can be a double-edged sword, as the Tompkins County Industrial Development Agency (TCIDA) is discovering. Effectively reviewing a project that is unlike any seen before has proven difficult, particularly without regional peers for comparison and the request from the developer, NY SHIFT Capital, for a unique multi-phase tax abatement that the TCIDA must evaluate.
SouthWorks is the latest name for the $588 million redevelopment project underway at the former Emerson Power Transmission site on Aurora Street on South Hill, straddling both the city and town of Ithaca.
The massive project will offer over 1.7 million square feet of renovated and new mixed-use space, including 915 residential units (20% of which would be lower-income housing), manufacturing/tech space, commercial office space, and a variety of commercial service and retail units, to be built over a period of 15 years.
The project team has estimated the development would create or bring over 1,100 permanent jobs to the Ithaca area through its various industrial and commercial occupants.
A Special Meeting of the TCIDA was held Monday as the Board of Directors attempted to navigate the complicated process for a project much larger and more complex than the usual business expansions and comparatively modest real estate proposals that normally come before their eyes. Special meetings of the IDA are quite rare, but so are projects like SouthWorks.
The project has actually been underway for over a decade already. The environmentally compromised Emerson site is wrapping up a 10-year cleanup, and the project has appeared before local planning boards and elected councils for nearly all of that time.
As explained before, the tax break requested is rather complicated. It’s a form of graduated 20-year payments in lieu of taxes, with the 95-acre site’s current $3.5 million value as the “taxable base price.” That value would kick in for different parts of the site as construction is undertaken and completed.
To explain the nuance of the PILOT request, it would essentially come into effect as the project is gradually built in phases. If a property is worth $1 million, for example, the value of the existing property in phase one of development could be $600,000. Once that phase of development is done, the owner would be charged for the taxes on the initial $600,000 valuation, as well as the set payment amount in the PILOT agreement.
Over the next 20 years, in SouthWorks’ case, the annual PILOT payment would gradually increase each year until, in year 21, the full property tax amount based on the new property valuation post-construction would be paid going forward. The other part of the property, making up the remaining $400,000, would pay the base-level property tax on that valuation until its construction is completed in phase two, then the clock would start on its 20-year PILOT agreement.
With that in mind, the value of the SouthWorks PILOT, or the amount the project would avoid in taxes during the 20-year period, is about $63 million. With the mortgage recording tax and sales tax breaks on construction materials, that jumps to $84.9 million, about 14.4% of the project’s total value — a fairly typical percentage of total project value by IDA standards.
But the size of the project means the raw numbers are bigger than usual, and is was part of why IDA members voiced extra concern at their meeting Monday.
During the public comment portion of Monday’s meeting, local residents were also encouraging the IDA to be cautious with their review.
“I hope the board will take a project-by-project approach to tax breaks rather than applying a blank slate to the entire site,” said Ithaca resident Peter Wissoker. “We have plenty here that’s worthy of our support, but it should be given judiciously, not carte blanche.”
Yesterday’s meeting led off with a presentation from Rachel Selsky of Camoin Associates. The IDA hired Camoin to perform the third-party assessment of the developer’s claimed economic and fiscal impact, and the “reasonableness assessment,” to determine if their PILOT request was fair and appropriate. Camoin has experience working as a neutral third-party reviewer hired by other IDAs across the state.
The reasonableness assessment was performed with both the developer’s requested PILOT, and with the more typical 10-year tax abatement applicants to the IDA often seek. Selsky cautioned that the provided PILOT scenarios are estimates used for analysis, as the actual timing and value of the PILOT will be determined based on the phases of development.
In Camoin’s analysis, Selsky described, they found the request to be reasonable. The site is only cash flow positive with the requested PILOT, and the rate of return to the developers is below market expectations under both PILOT scenarios. The requested PILOT is required to achieve the necessary Debt Service Coverage Ratio within 10 years, the report found. Without it, the applicant’s expected return is likely not enough to warrant moving forward with the investment.
As for the economic and fiscal impact analysis, Camoin actually found their direct job creation modeling to be a little higher than the developer’s, 1,171 jobs vs. the developer’s estimate of 1,115.
They estimated that only 443 of the 915 households would be “net new” to the county in that those residents would be moving in from elsewhere; the others would likely be moving from other parts of the Ithaca area. The report also estimated the project would generate $2.21 million in new taxes annually with the PILOT. Theoretically, there would be $5.36 million new taxes generated without a PILOT agreement — but then, as noted in the reasonableness assessment, there would be no project.
The board’s Jeff Gorsky pressed Selsky on the net new households, which she cautioned as a conservative estimate, and that eventually, more residents could move into SouthWorks units from outside the county at a later time, and that they were excluded from the economic benefits analysis because of that uncertainty.
“You’re essentially saying, people are living in units right now that will be obsolete, and be replaced by these units, which should theoretically create some vacancy, which should theoretically create some downward pricing pressure,” asked board member and local businessman John Guttridge.
“Yes, increasing supply would tend to have that result,” replied Selsky.
Guttridge noted the ongoing local debate over how much supply increase is needed to pressure local housing prices downward.
“My personal estimation is that this is nowhere near enough,” Guttridge said. “It seems that at the market-rate level, you’re saying this is more than enough to make a meaningful difference.”
Selsky said she wasn’t comfortable making that “judgment call.”
“I don’t have any doubt that we need housing, and we need more affordable housing,” said IDA Board Chair Rich John. “I think that element is okay.”
However, John did question the model of jobs and economic impact. Selsky explained the model was based on tax returns, industries by location, and modeling impacts on supply chains based on what’s available to local industries, and what would “leak out” because the local market doesn’t have the capacity to address a need. At John’s urging, Selsky offered to provide material on the modeling that board members could review.
“I certainly have some concerns, and I don’t think I’m alone on the IDA, in determining how we approve projects that may not start for up to 15 years from now, and all of the assumptions we have to make regarding interest rates, construction costs, and labor supply,” John noted.
Fellow board member Deborah Dawson further posited that the board needs to remain aware that the extra revenue associated with the project will also come with increased expenses and costs.
The board also focused on Camoin’s estimate that 95% of residents of the lower-income units would move in from outside Tompkins County, which multiple members disputed. The uncertainty of the development’s construction phrases also presented an issue, as Camoin’s reasonableness assessment was based on an “everything is built all at once” approach that isn’t quite realistic.
“It’s obviously not what’s going to happen,” Guttridge said. “I don’t know how we can ascertain the reasonableness of a project when what we’re being presented with assumes it will all be built tomorrow, when it’s really all being phased in over a decade, with all sorts of uncertainty and unbound variables.”
Dawson added that while she was comfortable with the base PILOT agreement, but the length and uncertainty both made her apprehensive.
“I have a big problem with locking us into the phased PILOTs for every sub-area of this project, including the ones that may not begin for 12 or 15 years, when we don’t know what market conditions and costs […] is going to look like that far out,” she said.
Dawson suggested a consistent and periodic re-evaluation of incentives every five years. Other members, like Ithaca Alderperson Ducson Nguyen, suggested they simply establish the base PILOT and then apply separately for each phase as plans allow.
Members of the SouthWorks team present for the meeting did express a concern about the challenge and risk that periodic re-evaluation posed, but their legal counsel offered to work some a plan out with the IDA’s legal counsel, and have some sort of proposal available for discussion at next month’s IDA meeting.
John concluded the meeting by reiterating that the project is “really exciting” and IDA members want to support it, but there was still plenty of apprehension over the murky construction schedule and the length of time it could be before SouthWorks is completed, or even before it breaks ground.
“I think the trepidation comes from, we have the power to do this, yet it probably isn’t something where we should exercise that power,” John said. “We would be taking that decision from future IDAs and future taxpayers. Trying to determine if that will exist 15 years from now really scares us.”
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