Deal in works for sale of Old City Hall

Faced with no real help from the city and only the prospect of an enormously expensive and longterm lawsuit to prevent its demise, Klotzko may be forced to take Alberts’ offer for an undisclosed sum. Legally, Klotzko is not the owner of the building. It is part of a trust.

At present, the offer is in though the sale has not closed, and Alberts is getting his ducks in a row to acquire his second major building on Water Street, the other being the newly-built Riverwalk Building housing 32 upscale apartments, a pizza parlor, and a bagel shop.

One of those ducks is the county’s Industrial Development Agency (IDA), often a preliminary to finalizing a deal with legally-conferred benefits.

Kevin Caraccioli is the IDA’s attorney and spoke in a recent interview on Alberts’ request of it, his plans for the building, and the IDA’s decision at its June 23 meeting.

“What the IDA was asked to do,” Caraccioli began, “was consider conferring various benefits, financial assistance in the form of exemptions from mortgage tax, sales tax, and then, a real property tax exemption.

“The real property tax exemption would be a PILOT (Payment In Lieu Of Taxes) agreement,” he said. “As I understand, the nature of the project, it’s a project that exceeds $8 million. That’s the total project cost. What the IDA is considering is the nature and extent of the PILOT agreement. The IDA has a standard formula that is used. It’s called the Uniform Tax Exempt Policy, or UTEP, for short. The UTEP for a non-manufacturing facility is 10 years, and this is a standard formula that is applied to any project. A non-manufacturing project, the maximum benefit is 10 years, and it starts with an exemption of 60%, so whatever your tax assessment is, you get an abatement of 60%, so you’re paying 40% in years one and two. And then it goes to 50% in years three and four. And then it goes down to 40% and then 30%, 20%, 10% every two years thereafter. So, that’s the standard UTEP for a non-manufacturing project that qualifies for exemption benefits. For a manufacturing facility, it’s 20 years, and the abatement starts at 75% for five years, then it goes to 60% for five years, and then 50%, 40%, 30%, 20%, 10% for each of the two-year increments after that to make up the policy. Oftentimes, it’s new development on a parcel that was not heavily taxed or assessed, so a lot of this constitutes new money. The IDA hasn’t finalized the PILOT exemptions yet. It is something that will be discussed at the next meeting. The action the IDA took at the last (June 23) meeting was to qualify the project, so, in other words, they looked at the project and determined that it’s a type of project that qualifies for these types of benefits, but they still have to be granted.

“There was a resolution we call an Initial Resolution that qualified the project as one that could receive these various benefits,” Caraccioli continued. “The mortgage tax exemption is basically a New York state–well, this is all controlled by New York state; it’s under the General Municipal Law–but the mortgage tax exemption is a–well, the mortgage tax for a commercial property in New York state is 1%, and the exemption that is granted to any project is basically three-quarters of that point. So, the developer gets a break on paying the state of New York the whole 1% of whatever they’re mortgaging. They only pay a quarter of 1%.

“Oftentimes these developers will coordinate with the IDA and won’t close on a deal until the IDA benefits are conferred, because they can’t take the mortgage tax exemption unless or until the IDA has granted the mortgage tax benefit. So, chances are this hasn’t closed yet because they’re waiting for the IDA to grant any exemptions that the developer qualifies for.

“This would be a non-manufacturing project. the developer can ask that the IDA consider deviating from that policy, but they have to justify the deviation, and there are some criteria for doing that as well.”

I asked whether the assessment on the building will go up.

“Most assuredly it will,” Caraccioli replied, “because whether a property receives a PILOT benefit or not, that does not affect the assessed, the overall total assessed value. What it does is, it might reduce the tax liability based on that assessed value, but all property should be fully assessed at 100% of whatever the value is.”

The current assessment on the building, according to county real property tax records, is $275,000.

“So,” I said, “it doesn’t seem like $275,000 is much of an assessment on a building of that size.”

“I would agree,” said Caraccioli. “I don’t get into the assessing aspect of things. If somebody challenges their assessment, I will get into that, but that’s what the assessment is.”

Whatever Alberts offered for Old City Hall, Caraccioli said, “I’m sure they’re going to be paying much more than that ($275,000), for sure.”

Returning to the subject of the IDA, Caraccioli noted, “The benefits are available to any developer. The IDA has to evaluate whether the project qualifies and what the extent of the benefit or benefits might be. But at the end of the day, it is authorized through the state of New York. The primary reason for doing so is to generate economic development and activity within communities. So, in this case, you’re taking an otherwise pretty dilapidated historic structure, you’re going to infuse it with in excess of $8 million. It’s going be a mixed-use development with a brewery, a brew pub, a restaurant, and market-rate apartments, market-rate being the top dollar you can generate for your rental, and it’s going to further bring people into downtown to live, to go out to dinner, to enjoy themselves for a night, for sales tax revenue that’s generated from things like that.”

Is there a sales tax benefit?

“There’s a sales tax benefit on the purchase of materials only,” Caraccioli said. “It’s not a forever benefit. It’s not that they get exempt from sales tax on their food or beer or whatever else they’re selling once they’re up and running. This is strictly for the development purposes, lumber and whatever they need. Any materials that generate a sales tax, they would receive a benefit. But that again is only up to the value of whatever they’re proposing as the building materials that generate the sales tax. In other words, the IDA will give a sales tax benefit based on the total value of the project and the taxable value, the sales taxable value, of the project. So, the developer has a finite amount of money to purchase those materials and claim that exemption. They also have a definitive time within which to use those benefits, otherwise, they expire. So really, what we like to see is you get these benefits and then you start developing. You don’t wait around for three years and then do it. Now, there are exceptions. Like everything else, there’s some exceptions, and a lot of it is based on timing and project size and the availability of materials. During COVID we had some projects that just couldn’t get the materials, so we had to extend the time period within which they could utilize the sales tax benefits. But we didn’t adjust the amount of sales tax that they could claim, just the time within which the could claim it.”

That could almost be the biggest dollar benefit of the whole deal.

“There is no tax on labor,” Caraccioli continued. “The IDA doesn’t get into payroll tax and all of that. There are no credits that way. Now, there could be other programs within the state of New York that might do something like that, but that’s not within the IDA’s jurisdiction.

“I don’t know what the exact amount of sales-taxable materials is going to be on this project,” he said, “but that’s essentially how it works, the developer gets basically an exemption certificate, they present that to the supplier of the materials, and they don’t charge the sales tax.”

The PILOT, Caraccioli said, “is not an expense to the IDA. I would argue, for the size of the project and the current taxable value of the existing building and property, it’s actually going to represent new money and an increase in tax revenue for the community. And that money is split, obviously, between the city, the county, and the school district.

“I don’t think PILOTs are understood as well as they could be,” he continued, “and when you do understand how a PILOT works, it generally represent a benefit to the community, in my opinion.

“You infuse $8 million into a building, and you develop it the way it’s going to be developed, you’re going to generate a lot of tax revenue. You’re going to generate income tax revenue, you’re going to generate sales tax revenues, you’re going to generate the additional property tax by way of a PILOT agreement, a Payment In Lieu Of Taxes, but it’s still revenue to the community.”

Caraccioli expects the approximately 10 proposed apartments to be similar to those in the Riverwalk Building.

Alberts previously received a $500,000 grant for a brewery he intended to build into the Foundry. Caraccioli explained what has happened with that grant and plan.

“My understanding,” he said, “is they were going to do it at the Foundry. They got the grant to do it there, but they were able to successfully move the project over into the basement of the Market House (as it is being referred to rather than Old City Hall) along with the benefit.”

I asked whether a brewery counts as a manufacturer?

“It certainly would constitute a manufacturing facility,” Caraccioli replied, “but it’s not solely that. My guess is, but I can’t say for certain, but it’s likely there’s going to be some type of a deviation from the UTEP, because it’s a little bit of both. That’s all being formulated. There will be a public hearing. The next IDA meeting’s on the 28th of July at 9 a.m. at the Operation Oswego County offices at 44 W. Bridge St.”

Abby Weaver is Alberts’ representative, appeared at the June 23 IDA meeting and talked about the radio station building, which faces Bridge St. Its state of disrepair was the reason the city declared the building unsafe. Weaver said it might not be salvageable. “I don’t know if we can really save it.”

I asked Caraccioli, whether they’d have the right to tear it down?

“Would they have the right to or not? Well,” he responded, “a lot of that depends on the state of New York, SHPO (New York State Historic Preservation Office). If they’re applying for preservation funding there are certain rules that are attached to that, so I think that’s a ‘to be determined’ matter. The city of Oswego wouldn’t necessarily have any say in that other than issuing the appropriate, if it was going to be demolished, a demolition permit, and if it’s going to be built back up, a building permit. I think, just knowing Ed Alberts as I do, he’s going to make every effort to save all of that and build it into the project, but at some point you’ve got to do your cost-benefit analysis to determine whether it is. I don’t know whether there is actual connectivity between those buildings or not. We’ll probably know relatively soon whether it’s savable or not.”

Is there really enough parking for 10 apartments?

“There’s some municipal parking in the area,” Caraccioli said, “much like what the city did previously with the Riverwalk portion. Ed Alberts purchased the old Stoney’s Auto Parts, tried to save that one, tried to make that work. The cost-benefit analysis determined it just wasn’t going to be feasible to do that financially. Obviously, it’s turned into a parking lot. So, I think there’s space over there. There’s space underneath the Riverwalk development that was built in with underground parking. I think there’s some synergy there. When you’ve got the same developer, you’ve got a few more options. The city of Oswego also reserved some parking spaces for the Riverwalk development a couple years ago. Those are in the municipal lot between First and Second Street over on Cayuga. So, there’s space there. There’s a mix of folks who utilize those parking spots. And then, he’s got the parking adjacent to the building. So, I don’t know that there’s going to be a huge crunch for parking. I think there’s enough parking around. It’s not going to be right outside your door perhaps, but it’s going to be within a reasonable walking distance.”

I asked whether the IDA is actually asked to put out any money or loan in Alberts’ request.

“There is no monies, no loan, no grants, no nothing from the IDA,” Caraccioli said. “It’s strictly benefits that are authorized through the state of New York pursuant to the General Municipal Law.”

Alberts has to get the $8.5 million on his own.

“The IDA’s not providing cash assistance. It is termed, under the General Municipal Law, it’s called ‘financial assistance,’ but the financial assistance is in the form of tax exemptions,” Caraccioli explained.

“The original intent, and I think the way Oswego County utilizes that authority, is to spur economic development,” he concluded. “Virtually every one of the private projects that were undertaken in the city of Oswego in relation to the Downtown Revitalization grant that the city received, the $10 million, virtually every private development had a component of IDA benefits attached to it. So, a lot of what happened in the city of Oswego arguably, and I think it’s a strong argument, would not have occurred unless some of those benefits were conferred.”