Wednesday, October 14, 2015

Holyoke's $34 Million Dollar Boondoggle

Why spending $34 million dollars to renovate the Lyman Terrace housing project is bad for Holyoke; bad for homeowners; and bad for businesses


The City of Holyoke is about to embark on a $34 million dollar, taxpayer-funded renovation of 156 apartments at Lyman Terrace – a subsidized, low-income housing project in the heart of Holyoke's downtown revitalization district.  This excessively lavish expenditure of taxpayer money is bad for Holyoke, bad for Holyoke's homeowners and bad for Holyoke's businesses.  Here's why:

1. It's Way Too Expensive 

$34 million dollars comes down to paying $218,000 to renovate (not build) each tiny, 800 square foot apartment.  To put that into perspective, that would be the equivalent of you spending over $650,000 to renovate your existing 2,400 square foot home.  Furthermore, $34 million dollars could buy 156 median-priced Holyoke homes outright, and still leave an additional $50,000 to renovate each one of them.  

BOTTOM LINE:  This is an extravagant use of taxpayer money which only government bureaucrats would celebrate.

2. It's the Wrong Location, and it Undermines Nearby Revitalization Efforts

Given Lyman Terrace's key location in the middle of nearby revitalization efforts, replacing the existing low-income housing project with a "newly improved" low-income housing project is damaging and counterproductive.  Not only does it concentrate poverty in the heart of Holyoke's revitalization district, but low income housing projects notoriously attract higher rates of crime making it incompatible with the significant improvements and investments which have already been made nearby.

Instead, establishing market rate housing at Lyman Terrace would be a far more compatible use for that location and would complement, rather than hinder, other recent investments. 

BOTTOM LINE:  Placing a low-income housing project in the heart of revitalization does more harm in the long-term and becomes one more obstacle toward the goal of successful downtown revitalization.

3. Holyoke's 31.7% Poverty Rate is Unsustainable and Significantly Reduces Property Values 

At nearly 3 times the State average, Holyoke's 31.7% poverty rate is not only the highest in Massachusetts, it's amongst the highest in the entire U.S.  And it is simply not sustainable.

This massive concentration of poverty in Holyoke places a disproportionate burden on every homeowner and business owner.  It has depressed our housing prices, costing Holyoke homeowners tens of thousands of dollars in their home's value.  It's resulted in higher crime rates.  It's overburdened our schools.  And it's kept businesses from coming here. 

Holyoke didn't create poverty and it's not Holyoke's sole responsibility to solve it for the region or the State.  After spending hundreds of millions of dollars, and after decades of trying, it should be clear that we can't "social service" our way out of poverty.  Fairness says this burden needs to be shared or equalized with other nearby communities.   

Though perhaps unpopular in some circles, we need to consider transitioning some of Holyoke's poverty-based housing into tax-contributing, market rate housing.  If we ever hope to see Holyoke revitalized we, as a community, must be willing to wean ourselves off our poverty industry.  And we need to begin now. 

BOTTOM LINE:  We must end Holyoke's addiction to its poverty economy before it ends us.

4. Holyoke's Highest-in-the-State Commercial Tax Rate Chokes off Business Development

At an eye-popping $39.93 per thousand, Holyoke has the highest commercial property tax rate in the entire State – more than double the State's median rate.  Needless to say, this exorbitant tax rate scares off all but the bravest developers and investors, the effects of which can be seen in the painfully slow rate of commercial development here.  But the underlying problem isn't just one of a high tax rate.  It's one of low property values.

It's been shown that concentrated areas of high poverty result in decreased property values.  That, in turn, raises property tax rates.  To illustrate the effect of property values on tax rates, consider this example: 

Let's say your home is currently appraised at $200,000 and the tax rate is $20 per thousand, meaning your share of property taxes is $4,000 a year (200 x $20).  Now, let's imagine that tomorrow your home is suddenly worth $400,000.  Same home.  Same city.  Higher value.  In order for the city to net the same $4,000 tax revenue, they only need to tax your (more valuable) home at a rate of $10 per thousand (400 x $10).  In this example, you can see how the doubling of your home VALUE (from $200,000 to $400,000) results in a halving of the tax RATE (from $20 to $10) while netting the city the exact same amount of revenue. 

The importance of this example is to show that, if Holyoke's property values weren't so depressed from the extreme poverty here, our homes and businesses would be worth more and our tax RATE would be lower – making Holyoke far more competitive and attractive to business investment.  Higher values help everyone, but Holyoke's high rate of poverty depresses property values making it virtually impossible to lower tax rates and attract new business. 

BOTTOM LINE:  As long as Holyoke keeps welcoming more and more poverty to the city, Holyoke property values will remain depressed and tax rates will remain too high to attract meaningful commercial investment.

5. Lyman Terrace's Owners Pay Few Taxes, Shifting the Burden onto Homeowners and Businesses

At current assessments, the Holyoke Housing Authority, owner of Lyman Terrace, has yearly tax liabilities of approximately $600,000, yet pays just $11,000 in taxes.  The remaining $589,000 gets shifted onto homeowners and businesses.

And it's not that HHA and its residents don't utilize and depend upon city services – they do.  But the costs of providing those services currently gets shifted onto other taxpayers.  This is despite the fact that areas of concentrated poverty, like Lyman Terrace, place a disproportionately heavy burden on city services such as police, fire, ambulance and our school system. 

BOTTOM LINE:  This shifting of tax responsibility isn't fair and the Holyoke Housing Authority needs to help the City by paying its fair share of taxes to support the services its tenants use, just like other landlords. 

Holyoke's inability to attract significant commercial development is due, in part, to our astronomically high tax rates . . . which are the result of our low property values . . . which are caused by our extremely high poverty rates.  This is an interconnected problem and we will never be able to solve one, unless we are willing to solve the others, too.

So, the elephant in the room that no one wants to talk about is the fact that we have way more poverty than we can assimilate and policies that seem to revolve around retaining or attracting more of it.  Spending $34 million of taxpayer dollars on Lyman Terrace doesn't help solve Holyoke's poverty problem.  It perpetuates it.  And it does so at the expense of every Holyoke homeowner and business owner for decades to come.

While we have an absolute moral obligation to help others who are less fortunate, no city can absorb the extended costs associated with a 31.7% poverty rate and expect to make a recovery – not even Holyoke.  This burden needs to be shared with other local communities.  Holyoke must wean itself off its addiction to its poverty-based economy, and the Lyman Terrace property – for all the reasons mentioned – is the logical starting point for this transition to begin.  If we really want to be able to help Holyoke's poor, we must help Holyoke first.  There is no other way.

John Epstein