Salem council considers tax breaks for two affordable housing projects (2024)

SALEM — Two major housing developments are before the City Council for tax incentives that would help increase the city’s affordable housing stock.

Projects at 266 Canal St. and a former salvage yard on Franklin Street were unanimously approved for tax increment exemptions (TIE) by the City Council’s subcommittee on administration and finance Tuesday night.

The agreements were negotiated by the city prior to the vote. Both projects will go before the entire Council for final approval Thursday night.

“The TIE, and the access to the credits it unlocks, are critical to the feasibility of (these projects),” Mayor Dominick Pangallo said in a letter to the Council.

TIE agreements enable projects with at least 80% of its residential units listed at market rate to receive state tax credits for at least five years or at most 20 years, saving their developers up to $2 million.

Such tax credits encourage developers to build housing projects that might not otherwise be financially feasible in gateway cities like Salem that have 35,000 to 250,000 residents, a median household income below the state average, and fewer residents with at least a bachelor’s degree than the state average.

The exemption is not for the base assessed value of the property, which the city will continue to collect the regular tax rate on. Instead, it is for the difference between the projected assessed value and the base value of the development, Councilor at-Large Alice Merkl said Tuesday.

Canal Street project

The Residences on Canal Street will have four residential buildings and one mixed-use building with commercial space on the bottom floor, in all providing 250 rental units. Fifty of the units will be designated as affordable at 60% of the median area income.

That’s 25 more affordable units than the city’s Inclusionary Housing Ordinance requires, Pangallo said in a letter about the project.

The development will be at 266, 282, 282R, 286 Canal Street and 2 Kimball Road. Of this lot, 9 acres are on undeveloped wetland resource areas and nearly 4.7 acres are industrial and commercial space. Businesses here include Salem Classic Auto Sales and a beauty salon.

It was not immediately clear how the development would affect such businesses.

The project has a $101 million price tag and, if approved by the City Council, will receive a tax increment exemption of 20% over 10 years — a total savings of $1.5 million in property taxes.

That means the city would receive about $80,000 in taxes annually from the base value of the property, in addition to an estimated $609,000 in taxes each year during the agreement period once the site is developed, according to a presentation from the city.

In all, the city would receive $840,000 in property taxes annually once the 10 years of the TIE agreement is up.

The project was stuck financially when it began the TIE agreement process, said Matt Zahler, the city’s peer reviewer. It has already been approved by the Planning Board.

The cost to build each unit of the project was in line with other market rate developments, and “there was not a whole lot to trim” from the overall budget in light of high construction costs, Zahler said Tuesday.

Ward 5 Councilor Jeff Cohen said the costs for the project have risen 47% since it started in 2019, in part because the Canal Street stormwater project is not yet finished.

“The developer is doing millions of dollars of installing (underground) tanks along Canal Street,” Cohen said Tuesday. “Regarding resiliency, the developer is restoring wetlands and will actually have viewing areas so people can see over the wetlands, which is really tremendous.”

The buildings will be entirely electric, have electric vehicle charging stations and have more bike parking spots than units, he said.

Although he’s not on the subcommittee that approved the TIE agreement, Cohen attended Tuesday’s meeting to provide support for the project.

“I believe that the Residences on Canal Street, 266 Canal St., is the most transformative private development in the history of Salem, or at least in the history since I’ve been here,” he said.

“There’s public access to the open spaces, improvements along the multi-use path. and what we really need, especially in the hopes that we might someday have a train stop in close proximity to this (site), is workforce and transit housing.”

Franklin Street developmentThe Riverwalk development at 16, 18 and 20R Franklin Street will create 37 condominium units, with four designated as affordable.

Construction has already started at the site that hosted a derelict junkyard for years. Contamination cleanup is one reason why developers have seen a strained budget for the project and are asking for the TIE agreement.

They are seeking a TIE agreement of 10% for five years for this project.

“The cost to build a project like this is much greater on a per-unit basis due to the smaller size of the project,” Zahler said. “There are typically things that don’t change when you do a project like this, such as infrastructure costs, foundations, etc., so making changes to the design again and the operations of this wouldn’t be feasible.”

Under the TIE agreement, the city would continue to receive about $18,400 a year from the base value of the property and roughly $101,000 annually over the course of the agreement’s five years.

After that period is up, the property’s taxes are projected to total around $131,000 a year for the city.

Developers initially promised four units to be reserved for households earning no more than 80% of the area median income. Since the project was approved, Salem adopted an Inclusionary Housing Ordinance that requires 10% of units be affordable to households making 60% of the area median income.

Developers have agreed to reduce one of its two-bedroom units from an 80% affordability to 60% if the TIE agreement is approved.

The agreement’s lower property tax rate over the five years will encourage buyers to purchase the building’s units, Pangallo wrote in a letter.

“I believe that $56,460 is a reasonable exemption to help see that a former junkyard, located on the waterfront of our city, is granted new life as housing for current and future Salem homeowners,” he said.

Contact Caroline Enos at

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Salem council considers tax breaks for two affordable housing projects (2024)
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