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Tax Breaks Hurt City, Audit Says

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The city's generosity in handing out tax breaks for renovated commercial and residential properties costs the city millions in lost tax revenue, a city audit of the popular tax-abatement program suggests.

Four City Council members are proposing to scale back the program and have already drafted an ordinance to restrict the amount of time during which commercial property owners can claim a tax break. The council plans to take up the issue sometime after September. But commercial properties are only half the problem, the audit says. It recommends restricting the residential portion of the program as well.

The tax abatement program works like this: Someone buys a dilapidated old home in Jackson Ward for $20,000 and renovates it completely. With the improvements, the home's assessed value becomes $120,000.

Normally the homeowner would owe the city $1,596 in annual property taxes, at the current rate of $1.33 per $100 of assessed value. If the property is enrolled in the tax abatement program, however, the homeowner only pays $266 in taxes on the home's value before the improvements. The homeowner enjoys this low tax rate for 10 years, after which time the tax gradually increases. After 15 years, the owner pays the full amount.

Tax abatement for commercial and industrial properties in enterprise zones is more liberal, allowing owners to avoid paying any taxes on the improvements for the full 15 years.

The tax rehabilitation program was "meant to entice developers to invest in run-down properties and make the buildings attractive again for commercial use," the report says. But fewer Richmond properties are dilapidated now, in part because developers have eagerly taken advantage of the tax credits, the report continues.

The audit also found that many properties in the program are located in affluent neighborhoods, such as Westhampton and the Fan, and that people have gotten tax breaks for renovations to properties that were already in fine shape. "It's not a bad program, it's just time to maybe rethink it," says City Auditor Lance Kronzer.

It's up to the council to decide how to change the program. Kronzer recommends either shortening the length of the tax credit program by five years, or eliminating the tax credits entirely except in enterprise zones.

If the residential program were shortened so homeowners got five years tax-free, then gradually paid more over the next five years, the city would collect about $960,000 more each year in real estate taxes.

That's a harsh way to reform the program, says Jennie Dotts, executive director of the Alliance to Conserve Old Richmond Neighborhoods. Dotts credits the tax abatements with reviving neighborhoods like Church Hill.

She suggests restricting the program to residents of "struggling or emerging" areas, cutting out speculators and people in pricey neighborhoods. "Those are the people who don't necessarily need it," Dotts says. "But I don't like the idea of denying it to homeowners." — Melissa Scott Sinclair



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