Final Cost of North Center Project Remains Unknown

The total cost to complete a project that would allow for the sale, lease and possible buyback of the North Center School as part of a plan to move the Board of Education and several town departments to the North Main Street school remains in question as the town waits to hear if the renovations would be tax exempt as a municipal project.

Town officials said this week that they are still waiting to hear from the state Department of Revenue Services.

“It’s something that has been passed onto attorneys for the department,” said Mark Sciota, Southington Town Attorney. “We hope they will come back with a favorable decision and determine that this is something that should be exempt as a municipal project.”

The town council had approved a measure in May that would allow the town to sell the North Center School to Borghesi Building and Engineering of Torrington. The company would then renovate the facility to specifications agreed upon with the town and lease it back to the town, giving them the option to buy it back after eight years.

The initial lease was to be $375,000 for the first year and $387,000 for each year after that – an eight year net cost of just under $6 million after buyback costs – but that plan hit a snag when earlier this month the state Department of Labor ruled that due to the town’s involvement, it should be considered a municipal project.

Prevailing wage laws in Connecticut require different wages for private and municipal projects, the department wrote in a decision to Borghesi, and as a result it increased costs by $314,725.

Now the Department of Revenue Services could add on a tax under state laws that could push that additional cost to $568,460.

Department of Revenue Services staff did not return messages seeking comment.

“They haven’t made a ruling yet and Borghesi has agreed to hold their bid until a decision is made,” Sciota said.

Sciota said if the state does decide to tax the project, however, the town will move forward in seeking another opinion from the Attorney General’s office. Sciota called a tax a “double dip” as it would mean one department ruled the project to be a municipal one while the other is calling the project a private venture.

“Simple logic says it can’t be both,” Sciota said.

Under vague Connecticut general statutes, however, it may be classified as both. Labor laws determine whether a project is private or municipal based on the scope – whether $100,000 or more in renovations are done for the benefit of a town.

Gary Pechie, director of the Wages and Workplace Standards division of the State Department of Labor, said in his letter that it surpasses the threshold as the town would be paying for the renovations in the form of lease payments.

Similar decisions have been upheld on state project in the past, according to information released following a Freedom of Information request made to Pechie.

In 2002, the department ruled that a similar project in East Hartford that would lead to a renovated facility for the state Department of Information Technology. The Department of Labor ruled that in that case, the renovations, while privately done, were funded through lease agreement.

Tax laws have a different way of determining a project, however, based on ownership.

The state’s tax laws state only that the owner of a facility under renovation would be used in determining whether a tax should be assessed. In Southington, the contract stipulates the sale of the building to Borghesi – a private business – for the purposes of renovation.

To protect the town’s interest, however, the contract also stipulates that the title will not be given to Borghesi until renovations to the building are complete. In such, Sciota said the town would have ownership of the building during renovations and it should be considered a municipal building and be tax exempt.

“We’re just thinking logically,” Sciota said. “Ultimately, if they decide to tax it, the attorney general would be one with the power to make a final determination.”