Background:
On July 20, 2016, the City Council approved Agreement Resolution #103 of 2016, authorizing the execution of a PILOT Agreement between the City of Auburn, Melone Village Housing Development Fund Company, Inc. and Melone Village Limited Partnership. This approval was part of Auburn Housing Authority (AHA) seeking to take advantage of the Low Income Housing Tax Credit program and HOME funding program as a means of securing the financial assistance necessary to modernize Melone Village. Under the program, AHA applied for funding through a highly-competitive process to receive low-income housing tax credits from New York State. To qualify for this funding, AHA needed to demonstrate that the renovations and operational costs are sustainable for a period of 50 years. AHA must also change the legal structure of the property.
Melone Village’s current legal structure makes all buildings and improvements automatically exempt from property taxes. AHA pays taxes on the land only, which is currently assessed at $35,990 and results in approximately $310 in property tax revenue to the City of Auburn annually. The new legal structure required to qualify for funding will jeopardize AHA’s automatic exemption. The rehabilitation project will not be feasible without the continuation of the exemption. AHA faces the following dilemma: in order to receive the funding, AHA risks losing its current exemption, but if it is unable to maintain the exemption, AHA will be unable to qualify for funding due to unsustainable operating costs.
AHA asked the City to exempt Melone Village from property taxes under Article XI of New York Private Housing Finance Law and enter in a PILOT Agreement with the HDFC and tax credit partnership containing materially the same property tax terms as are currently in effect for the project. As outlined above, AHA secured the PILOT Agreement with the City, and is confident that it will be able to secure the investment required to prevent the eventual displacement of 188 households.
AHA submitted the application, and was not able to receive financing for the whole project. As a result, AHA has now applied for funding to rehabilitate what is now referred to as Melone Village I: 70 units that make up the 400 and 500 blocks of Melone Village and sit on the parcel known as 91-93 Garrow Street. In the Fall of 2018, AHA will apply for funding to rehabilitate Melone Village II: 118 units that make up the 100, 200 and 300 blocks of Melone Village and sit on the parcel known as 20 Thornton Avenue. With this phased approach to the project, the PILOT Agreement will need to be amended. Currently, the PILOT for the whole property is $6,000; AHA is now seeking two separate agreements valued at $3,000 each.
If funded, AHA will transfer Melone Village to the Melone Village I Housing Development Fund Company and the Melone Village II Housing Development Fund Company, to-be-formed Article XI HDFCs and New York not-for-profit corporations, which will hold title to the project. AHA will continue to manage Melone Village and the HDFCs will be controlled by the AHA; however, as described above, the tax credit partnerships will ‘beneficially’ own the project for a period of 15 years (the so-called tax credit compliance period). Following the 15 year compliance period, the project will likely be conveyed back to the AHA. In addition to serving as a legal platform for the PILOT Agreement, the transfer of the project, as part of the renovation financing, means that the City of Auburn will no longer bear any legal responsibility for the complex.
Fiscal Implications:
The proposed amended PILOT Agreements would provide $3,000 per year in property tax revenue from Melone Village I Housing Development Fund Company, and $3,000 per year in property tax revenue from Melone Village II Housing Development Fund Company, to be split between the City, County and School District, for 40 years.
Stephanie Hutchinson, Executive Director of the Auburn Housing Authority, presented to the City Council on February 23, 2017, and answered any questions regarding the amended PILOT Agreements. A resolution authorizing the execution of the amended PILOT Agreements is on the City Council agenda for March 2, 2017. The resolution and PILOT Agreements are attached for your review.
Please let me know if you have any questions or need further information. Thank you.