The financial incentives New Orleans offers to residential and commercial developers aren’t giving the city the most bang for its buck, and they should be retooled to help the city meet its goals for affordable housing and job growth, according to a recently completed study.
Residential developers should be getting more city money, for example, if they agree to keep rents affordable for longer periods of time, the report says. A separate program that freezes taxes for developers should be better organized and more transparent, it says.
Also, it says, some neighborhoods are ineligible for certain incentives under yet another program, even though they often are the areas most in need of investment.
The study, titled "Alignment of Public Incentives for Strategic Outcomes," was commissioned by the city before Mayor Mitch Landrieu left office. City officials received a draft of it in May.
The document calls for creating clear standards that developers must meet before getting city inducements.
Having those standards would end the city’s longtime practice of subsidizing projects merely because they are likely to generate some revenue and jobs, decisions that were often arbitrary and sometimes decried by critics as too generous.
Residential projects have been judged more recently by how much affordable housing they are likely to provide, but even those awards have not been based on a single set of standards.
Instead, the report — prepared by the national consulting firm HR&A Advisors — recommends that officials issue tax breaks or other subsidies, under four major incentive programs, to firms that earn high scores on a new scorecard aligned to city priorities.
“If you are building affordable housing in a high-opportunity neighborhood, you could get more points for that,” said Ellen Lee, the city’s director of community and economic development. “So you would ultimately get more subsidy.”
At issue are the city’s restoration tax abatement, tax-increment financing, payment-in-lieu-of-taxes and rental housing program initiatives.
In general, the report says, residential projects that apply for aid under those programs should score highly when they build affordable housing within target neighborhoods and at sites close to public transit. Commercial projects could get points when they produce many quality jobs in targeted industries and when they support the city's workforce development efforts.
Developers also could get high scores for incorporating sustainable building practices or for exceeding the standards of the city's policies on local hiring, aiding disadvantaged business enterprises or paying "living wages."
Specific improvements to each type of incentive program are recommended.
Restoration tax abatements, which make up the biggest chunk of voluntarily forgone city revenue, freeze the taxes developers pay on renovated buildings for at least five years at the level assessed before the renovations.
From 2007 to 2016, the report says, that policy sparked $1.2 billion in investment and $370 million in additional tax revenue for the city. In return, the city forfeited $51 million in property taxes, or about 14 cents on every dollar it made in new taxes.
That program has generated 775 affordable housing units over the past decade, as well as job-creating businesses such as the Ace Hotel on Carondelet Street. But the incentive can only be used in neighborhoods deemed historic, in the Downtown Development District or in so-called “economic development districts,” a designation the city awards.
Fixing that problem is as simple as attaching an “economic development district” designation to more neighborhoods, the study says. It says Gentilly, New Orleans East, Algiers, Hollygrove and the Lower 9th Ward — neighborhoods that have relatively weak commercial activity — could be benefiting from investments sparked by the tax abatements, but they aren’t currently eligible.
Projects that agree to provide affordable housing or which come to distressed areas should also be eligible for extended tax freezes, as long as a decade, the study recommends. Such a move would require a change to state law.
Meanwhile, the city’s payment-in-lieu-of-taxes arrangements, which are approved by the Industrial Development Board, have been used to lure in everything from the proposed Drive Shack golf entertainment complex at the former Times-Picayune building on Howard Avenue to a planned “co-living” complex at St. Charles Avenue and St. Joseph Street.
Under that program, developers agree to pay a set amount over several years, rather than the much higher property taxes that would normally be due after their project is built and open.
During 2007-16, those PILOT deals generated $1.2 billion in public investment and $158 million in added tax revenue compared with $109 million in lost revenue, meaning the city lost 69 cents on every new dollar it took in.
On residential PILOTs, the city lost more than it received, although the consultants noted that the program helped launch more than 2,300 affordable housing units over that timeframe.
However, the IDB needs to better coordinate with other city agencies, be more transparent about its dealings and charge administrative fees to developers on a sliding scale, so as not to exclude those who find the costs of applying too daunting, the study says.
The study says the city has invested at least $42 million in its rental housing program, producing 37 projects that were priced to be affordable to renters earning, on average, about half of the area's median income.
But the program could award deeper subsidies to projects that agree to keep units affordable for more than 20 years, the consultants recommend.
Finally, tax-increment financing — a program in which some property or sales taxes from a site are reserved to pay off loans to create new projects at the site — has been used only a few times in New Orleans. But that program could come in handy should other sources of funding become scarce, the report says.
Had that method been used to finance the $9 million Lafitte Greenway, for example, the upfront construction costs would have been fully offset within 15 years, with enough revenue left over to fund 15 years of project maintenance and operations, the report says.
Lee said the recommendations the city implements will help ensure that New Orleans' longtime residents, particularly "culture bearers" in the hospitality, music and arts industries, can afford to live and work in the city.
"They are the ones who help make New Orleans what it is, and they are often the same people who can’t (afford to) live, work and play here themselves," she said.
Read the study, below: