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New Study Could Spell Changes for Richmond's Property Rehabilitation Tax Incentive Program

Subject: Richmond Times Dispatch - New study could spell changes for Richmond's property rehabilitation tax incentive program

New study could spell changes for Richmond's property rehabilitation tax incentive program

richmond.com/news/local/city-of-richmond/new-study-could-spell-changes-for-richmond-s-property-rehabilitation/article_4708be82-b778-533f-a810-efbb6fb4b799.html

 

March 31, 2019

Changes may be on the way for one of the most popular incentives Richmond offers property owners.

A Richmond City Council panel on Monday discussed the scope and effectiveness of the real estate rehabilitation tax-abatement program and how the council could reconfigure the incentive to drive investment and prompt more construction of affordable housing.

More than 6,000 property owners are currently benefiting from the program citywide, said Assessor Richie McKeithen.

Spurring the discussion was a study of the program issued Monday by the Virginia Commonwealth University Center for Urban and Regional Analysis. Its researchers recommended truncating the length of the incentive in certain areas of the city and expanding it in others. The study did not specify where in the city those adjustments should take place, but researchers told council members the move could bring the program back in line with its original intent: neighborhood revitalization.

As the program exists today, the majority of property owners who take advantage live in the wealthiest parts of the city, said Fabrizio Fasulo, director of CURA, which is part of VCU’s L. Douglas Wilder School of Government and Public Affairs.

A presentation he showed council members plotted individual abatements within the city limits. It showed clusters through the Museum District, the Fan District, downtown and Church Hill.

Some areas, like the 9th District in South Richmond, were largely void of the dots denoting properties that had received the incentive.

“It’s alarming to see where investment has taken place,” said Councilman Michael Jones, who represents the area.

One reason for the discrepancy, Jones said, is the upfront investment the city requires to secure the incentive. He said it is a barrier for residents in working-class or poorer neighborhoods.

Jones and others on the panel, including 6th District Councilwoman Ellen Robertson and 5th District Councilman Parker Agelasto, said they were eager to reconsider the guidelines and availability of the program.

Currently, it allows home or business owners citywide to apply for a 10-year tax write-off if they own a building that is at least 20 years old and improve the value of it by at least 20 percent.

For apartment complexes or buildings with condos, owners have to improve the value by at least 40 percent to qualify.

For the first seven years of the incentive, the city writes off the full amount of the value a homeowner adds. For example, if you improved your $100,000 home by $50,000, you would pay $0 in taxes on the $50,000 worth of improvements for the first seven years of your abatement. In the final three years of the abatement, you’d pay the taxes on 25 percent, 50 percent and 75 percent of the amount, respectively.

Dropping that window to seven or five years in neighborhoods with strong housing markets and increasing it to 15 years in areas with decaying or blighted housing stock could make the incentive a more effective tool for revitalization, Fasulo said. The researchers also suggested lowering the improvement value threshold for residential abatement to 10 percent in certain areas to promote participation.

To make the recommendations, researchers studied a sample of 1,902 abatements that property owners applied for and received between 2009 and 2016. The city agreed to forgo $78.5 million in real estate tax revenue through 2026 for properties included in the study. About 60 percent of that sum benefited multifamily apartment and condominium developers, the report stated.

Despite the lost revenue in the short run, the program was a “net benefit” for the city because it was preventing properties that were declining in value from sliding further, Fasulo said. The report stated the city recouped the taxes it wrote off during the life of an abatement within three years of the incentive expiring.

Researchers say the program, which has generated millions in investment into downtown-adjacent neighborhoods that were historically African American, is not “a key determinant or leading factor” for gentrification that is unfolding there now.

McKeithen, who heads the office that administers the program, said he would suggest changes to the program in June based on the VCU study and feedback from the council at the meeting.

 

Kirsten Alexander Morris

The Vectre Corporation