Property taxes: Politicians, municipalities should be striving to promote growth and transparency

An axiom of real estate investing is "location, location, location." This signifies the importance of access, visibility, neighborhood affluence, population density and other demographic trends. But in today's market, one important factor carries greater weight than in the past: property taxes. Rising property taxes have led developers to more rigorously examine the tax burden in a municipality prior to investing in a given project. Municipalities have responded in divergent ways to this challenge. Some have opened their doors to work with developers, recognizing the positive impact that real estate investment may have on their local economy by creating incentive programs where benefits and tax breaks are provided to encourage new investment. Conversely, other municipalities have proceeded in an adversarial manner, increasing the tax burden, while reducing landlords' access to remedies. A few have gone as far as to treat developers as the enemy and through rule changes and delay tactics sought to dissuade landlords from protesting their taxes at all. This approach has been met with public outrage and has underestimated the real estate community's commitment to remedying their tax burden. It has also brought about a larger issue in that it is not the new devices that are problematic, but rather the mentality behind such measures that is the true cause for concern. Municipalities resorting to these confrontational measures to deal with the property tax burden are missing the mark. When funds are scarce and budgets are experiencing shortfalls, they should do everything in their power to encourage capital formation. Gaining the trust of developers will encourage property owners to invest locally and increase their tax base. Municipalities are stepping over dollars to pick up pennies by seeking to maintain an overassessment that deters landlords from pursuing further business in that region. Some politicians may believe they are taking a hard line against budget problems that need addressing. But they are only half right-they must address it, but in a manner where they work with the investment community to build sustainable solutions. The imposition of petty penalties and hindrances to recourse destroys the very capital base they should be helping to grow. The reach of a real estate project goes far beyond the bricks and mortar. At a time when unemployment figures are in double digits, politicians must recognize real estate's positive impact. Numerous jobs are created during the construction phase and new jobs are sustained inside the four walls of the building once the project is complete. Not to mention the obvious sales and property tax revenue added to the budget going forward. The irony is that where inexperienced leaders have adopted a combative attitude to property taxes, it consistently ends up costing their municipality more money in the long term. Recently in one jurisdiction, the shortsighted populist showcase took precedent over working towards a real resolution. Developers, faced with an excessive tax burden were met with resistance every step of the way. This combative approach cost the municipality tens of thousands of dollars in attorney's fees, expert appraisals, and associated bills for court testimony, as well as interest awarded in each court decision. The developers, however, were rewarded for their pursuit and achieved the proper assessment with interest for their overpayments. Had the municipality chosen to work with the property owners from the start, they would have slashed their budget's legal costs, reduced future liabilities, and saved real dollars in resolving the matters without interest payments. Developers are a sophisticated group and will not be fooled by political rhetoric. They will crunch the numbers, consult with experts, and choose the location with the best chance to succeed based on the data. The impact that a municipality's attitude regarding property taxes has on a developer's decision to purchase in their region is very real. Real estate developers understand that no one individual can make a venture successful, rather a collaborative effort is needed from all stakeholders. Thus, developers carefully scrutinize each participant in a transaction in order to determine if this individual or organization is one that they'll be comfortable working with for the long term. How a municipality chooses to address property taxes may be just as crucial to the success of a project as its architect or tenant. The question is whether the politicians will realize they must work collaboratively with developers before it's too late. The economic crisis has put New York in a position where we can't afford to be shortsighted and look for quick fixes. Politicians and municipalities should be striving to promote growth and transparency that will instill confidence in those looking to invest in their local economy. Brad Cronin, Esq., is an attorney and partner at Cronin, Cronin & Harris, P.C., Mineola, N.Y.