WATERFORD — Town leaders say that they’ll be able to weather an expected annual loss of about $374,600 for each of the next several years after a recent settlement with Crystal Mall LLC over its property valuation, but the settlement does draw attention to a drop in value of retail stores and their ability to provide future tax revenue for the town.
“We reached a stipulation,” town attorney Rob Avena told the Board of Selectmen at their December 3 meeting. “And it’s moving forward and the big hit, obviously there’s always a hit … their second-half taxes is basically their refund, their repayment. So you won’t be receiving the second-half payment of the Crystal Mall and various entities over there.”
In the settlement terms filed in New Britain Superior Court on November 5, the town agreed to reduce the assessed value of five parcels at 850 Hartford Turnpike owned by Crystal Mall LLC resulting in lower taxes over five fiscal years, from 2018/19 through 2022/23. The assessed values for these five parcels together will drop from $51.8 million to about $38.5 million.
Crystal Mall, in a complaint filed on June 2018, contended that the town had overvalued the properties in Waterford and by extension was overcharging the mall for taxes.
The lawsuit will not affect all of the subdivided parcels at 850 Hartford Turnpike, including the LongHorn Steakhouse, which have owners separate from Crystal Mall LLC.
The settlement will result in the town collecting about $374,600 fewer dollars in tax revenue from the mall owner in fiscal year 2019-20, and similar drops in the two subsequent years, as determined by the town’s mill rate.
$374,600 is the equivalent of about 0.39 percent of the town’s $95.2 million budget for 2019-20 adopted on May 9, 2019.
The settlement also included, for fiscal year 2018-19, a reduction in Crystal Mall’s taxes by about $356,000, which the town will repay through a credit.
For the fiscal year 2022-23, the town will further reduce the assessed value of the properties by $2.1 million to about $36.4 million.
The town’s mill rate for budget year 2019-20 is 27.98, meaning that this year property owners owe the town $27.98 for every $1,000 of assessed value.
At $38.5 million, the town would still collect about $1.07 million in taxes.
Avena told the selectmen that he had worked with town finance director Kevin McNabola to be sure that the town could afford the settlement.
“We’re fortunate often that we don’t count every state grant and stuff that we receive as part of an ongoing budget year so that’s extra funding that’s in this year’s budget,” Avena said. “It’s not anticipated that we’ll run into any extraordinary appropriation or mill rate issue moving forward to July 1. It will be absorbed within the present budget of the town and the present appropriations.”
First Selectman Rob Brule said in an interview on Wednesday that the settlement “will definitely have a small impact on the budget for residents.”
Crystal Mall LLC is the town’s third’s highest payer of local taxes, after Dominion Energy Nuclear Connecticut, which operates Millstone Nuclear Power Plant, and Connecticut Light & Power Co. according to documents provided by town assessor Paige Walton.
“Across the nation, malls are experiencing major declines in value”
Walton said in a Wednesday interview that the revaluation reflects a nationwide drop in revenue for brick-and-mortar retailers as a result of consumers shopping online.
Walton began work as Waterford’s assessor in September of 2019, after the valuation that sparked Crystal Mall’s complaint.
“Across the nation, malls are experiencing major declines in value,” Walton said. “It’s difficult for them to keep tenants, and they have to reduce rents just to hold onto the tenants that they have. So we’re seeing a decline nationwide. I think this year they’re up for about a 10 percent decline across the country in value. I think this is indicative of brick-and-mortar stores just taking a hit nationwide with everybody shopping online.”
Crystal Mall’s assessment in 2017, even before the settlement, was lower than its valuation in 2016, according to assessor’s records.
The fair market value for retail properties has dropped, Walton explained, because investors are seeing the mall’s income streams as less reliable than they have in the past.
“When we’re looking at commercial properties — in particular retail properties and large properties like this one — we’re looking at the income approach,” she said, “which is basically an investor-specific approach. What could they fetch if someone were to purchase that property online? They’re looking at the income stream and what they can get out of it and if they know that it’s difficult to retain tenants or to get the rents that they need to maintain that property … Values are declining and this is just reflective of that really.”
Walton noted that the financial health of Crystal Mall also affects other taxpayers in town. In particular, she said that there are just under 100 other taxpaying entities, a collective $7.7 million in property, that are either businesses in the mall, which don’t own real estate but do pay taxes on their other business property, or are otherwise tied to it. Those businesses contributed roughly a quarter of a million dollars in taxes annually, she said.
“So if you look at a declining mall, if it’s left to go vacant, you’re going to lose all of those retailers as well,” Walton said.
Avena, while talking to the selectmen, noted that the mall has historically been critical for the business and tax base of Waterford, which complicates any legal dispute between the business and the town. He added that he was optimistic that the town would retain a relatively strong retail base compared to the surrounding of the region.
“We’re still the shopping corridor for this area,” Avena said. “If you look at Crystal Mall’s maps and their appraisal, a big circle includes Groton and all the way to Old Lyme and all the way to Stonington. We’re still the magnet for people to do the majority of their shopping if we have the variety of stores that they’re interested in.”
Selectman Jody Nazarchyk also said with optimism during the December 3 meeting that the $22 billion submarine contract between the Navy and General Dynamics Electric Boat will bring jobs, residents, and development, potentially a boon for retail in the area.
On Wednesday, Brule said that Waterford should look to expand and diversify its tax base by adding housing stock to attract young families.
“If we give ourselves an opportunity as a town to bring in more families and young professionals then we’re giving ourselves an opportunity to expand the tax base, because people drive the economy. If we have more people in our town paying taxes it offsets the loss of taxes from retail,” he said.