Letter to the town board: NewCastleRD.org offers analysis of developer’s tax revenue projections
July 17, 2009
by Steven Mullaney
To Supervisor Barbara Gerrard and Town Board Members:
On Tuesday, July 14, 2009, during the Public Comment period of the Town Board Meeting, I spoke about the Draft Environmental Impact Statement relating to the proposed Chappaqua Crossing project. I have attached a copy of my comments. Please include them in the comments related to the Chappaqua Crossing DEIS.
Comments by Steven Mullaney to Town Board on July 14, 2009
My name is Steven Mullaney. As I believe you know, I am a member of the group NewCastleRD.org and I’m here tonight speaking on behalf of the group. We have been frantically reviewing the Draft Environmental Impact Statement over the past few weeks and we’ve prepared some analysis for the Board.
The proposed project has many potential environmental impacts. However, it appears that the largest issues are related to tax revenue, age-restriction and impact on schools. The document I’ve just given you contains an analysis of the DEIS as it relates to each of these three issues. We are analyzing other areas of the DEIS and will be making subsequent submissions.
In particular, tonight I would like to speak to you about the issue of tax revenue.
Summit Greenfield [the owner/developer of the former Reader’s Digest property] has based its marketing campaign on the slogan “more tax revenue without more students.” In particular, Summit Greenfield has estimated that tax revenue would be approximately $5.2 million from the project.
To analyze this claim, we broke the analysis into two sections. First we analyzed the commercial portion of the project and then we analyzed the residential portion.
Analysis of tax revenues to be generated by commercial portion
Summit Greenfield claims that the commercial portion of the project would generate almost $2.5 million in taxes in 2015. The developer then unfairly compares this to the current commercial tax base of $1.5 million.
To estimate the 2015 tax revenue, the developer first estimated the 2008 tax base assuming the project was already completed. The developer then grew this number at 6.9% per year over the following seven years. This is how he came up with the $2.5 million number.
Fortunately, the DEIS also projects the 2015 tax base if the property were left unchanged. The DEIS estimates this number to be in excess of $2.2 million. I was shocked when I saw this.
The projected taxes from the property “as is” is only $256,000 less than the estimated taxes we would get from “unlimited commercial” and all the negative consequences that come with it. It was very surprising. And that’s in 2015 dollars. In current dollars it’s a $160,000 difference.
At this point, it’s important to note that town and school would only receive 85% of any increase in tax revenue. The remaining 15% would go the Westchester County and the Saw Mill Sewer District.
The next thing we did was to look at the assumptions used to come up with the $2.5 million number. Right away we found some problems.
The developer uses a “vacancy rate” of 10% to estimate their gross revenue while the DEIS says the average for Northern Westchester is 14.3%. You can’t find anything in the DEIS that would support a 10% vacancy rate.
Then we looked at the “expenses” that the developer expected to occur on the property. They used an expense ratio of $9.39 per square foot while their own DEIS indicates that the number is actually $11 per square foot.
Now these might seem like minor points, but they make a big difference. Using the modified assumptions, we recalculated the projected taxes in 2015. The new number was just over $2 million.
Changing those two assumptions caused the estimated tax revenue to drop by over $470,000.
The conclusion that we came to was that the developers own analysis – with those two assumptions modified – shows that the proposed commercial zoning change would lead to less tax revenue than if we left the property “as is.” It’s their own numbers.
Analysis of tax revenues to be generated by residential portion
As for the residential portion, the DEIS estimates that the residential component of the project would generate over $2.6 million in tax revenue in 2015. Once again, the developer calculated this by determining the 2008 value of the project and then inflating it at 6.9% per year for seven years.
In current dollars, the numbers is a little under $1.7 million. This is the number we should think of in terms of comparing it to our current town and school budgets.
So at this point it stills looks like we’re going to increase our revenue by $1.7 million – before any expenses by the way.
But of course, the devil is in the details.
We began to look at the assumptions used and once again things started to fall apart.
First of all – and very surprising – the developer values the property in the DEIS as if there was no age restriction. That’s right – no age restriction.
Even more surprising, the developer assigns a premium value to the property because of the – and I quote – “highly regarded school district.” This is in their own document.
Next, the developer did a market analysis to determine the potential rental income from the condominiums. He had to do this because of how the taxes on a condo are calculated. So this is o.k. The problem is that when we compared similar units, we found that the ones in Chappaqua Crossing were priced at a 27% premium to the market comparables.
By just removing the market premium that the developer uses, the tax revenue falls from $1.7 million to under $1.4. That’s without applying a discount to compensate for the age restriction.
And please remember, that the town and school are only getting 85% of that number.
Report relied on for tax revenue projects dated October 3, 2008
There are some other assumptions that we’ve pointed out in our write-ups which add to our skepticism about the DEIS, but the biggest problem we saw was the report which detailed the expected tax revenue was dated October 3, 2008.
We all know what’s happened to the real estate market since then. Prices have only gone down. The expected tax revenue has to be lower today than it was last October. At a minimum the analysis would have to be updated because of the substantial change in market conditions.
In the end, the entire proposal might generate about $1 million in additional tax revenue in current dollars. And that’s before we get to any of the costs.
This proposal would represent a 46% increase in the number of condominiums and an almost 5% increase in the number of homes in the town. If the market value of the existing homes in town fell by just one percent as a result of this project, any additional tax revenue would be wiped out.
But it gets worse, the DEIS states that the developer would file yearly tax grievances as “a standard course of business.” But that shouldn’t surprise you because that’s what he does every year anyway. What will surprise you is when the 600 condominium owners walk in asking for a 20% reduction in taxes.
The DEIS does not do any analysis of the effect of the increased housing stock on the market value of the existing homes.
It’s very easy to see how this proposal could result in the town having to raise taxes to make up for shortfall that would arise.
And once again, this is before we consider ANY of the costs. Imagine how much this will cost when the age restriction fails and we get an influx of new students. How much will it cost to provide services to a population that suddenly gets 5% larger? What’s traffic going to be like on Route 117 when a senior citizen with a walker has to cross that busy road – on a blind turn – to get off the bus coming from town?
And as far as the commercial side, I don’t even know why we should consider it given that the developers own skewed analysis shows that it doesn’t generate any additional tax revenue.
What I’ve done here is to try and debunk the myth of the $5.2 million and to point out that the DEIS is a skewed document. As you’ll see when you read our analysis, we found problems all over the DEIS. We would urge the Board to independently assess the environmental impacts of this project, from what we’ve seen, you just can’t trust their document.
Steven Mullaney delivered his remarks on behalf of NewCastleRD.org, or “New Castle Residents for Responsible Development,” which represents views of residents all across New Castle. The document he submitted to the board can be found in full by clicking here.
The public hearing on Summit Greenfield’s proposal for rezoning continues on Tuesday, July 28, 7:00 p.m. at town hall. The town board has mounted the DEIS and related documents on a dedicated website:
For a complete listing of NewCastleNOW.org’s previous articles and letters to the editor on Reader’s Digest, click here.