The potential sale of a Liberty Harbor North property has raised the question of whether a tax abatement is a tradable commodity. It also has resurrected the debate over whether tax abatements are a benefit to the city or a drain on local taxpayers, and brought into question the current valuation of downtown property.
A 20-year tax exemption is a condition of an exchange in which developer Steve Hyman, owner of the Flintkote property – a 3.75-acre parcel on Luis Marin Boulevard – will sell the property to developer Dean Geibel for $25 million.
Members of the City Council called the deal into question two weeks ago because the property, which is surrounded by the Liberty Harbor North redevelopment plan, was taken off of the redevelopment plan in a plan amendment two years ago.
This meant the city would not take over the property by eminent domain. Since now a private developer (Geibel) could buy it rather than the city, Hyman was able to get a much higher price for it.
Council member Bill Gaughan claims the move was initiated surreptitiously by Housing, Economic Development and Commerce Director Mark Munley, a former business associate of Hyman.
After purchasing the property, Geibel intends to build a 16-story tower, an eight-story tower, and a four-story tower with approximately 432 residential condominium units and 12 commercial and retail condominium units in approximately 35,000 square feet of space with parking for 442 cars.
Had the property remained on the redevelopment plan, the city would have paid Hyman a sum far lower than the $25 million on the table.
A conflict of interest?
Gaughan raised attention about the Flintkote property because he felt it was removed from the Liberty Harbor North Redevelopment Plan under suspicious circumstances. According to Gaughan, Munley got the council to remove the property from the plan by placing a sentence in the last line of a seven-page document.
“They worked together as developers,” Gaughan charged. “[Munley] never should have been involved in this.”
But City Spokesman Stan Eason said there was no conflict. (Munley deferred all comments to Easton).
“Mark Munley was never a partner with Mr. Hyman in any financial or real estate ventures, period,” said Eason. “The sole relationship of Mr. Munley and Mr. Hyman occurred in 1998 when Mr. Munley was one of many engineers and consultants hired by Mr. Hyman to develop a site plan which was approved by the redevelopment agency [prior to his employment with the city]. I think it objectionable and unfortunate that our councilmen, particularly second- and third-term councilmen, would claim they’re voting on documents that they have not read. If they change their minds about an ordinance, they should stand up, show some integrity, and admit that.”
Tax abatement controversy
The discrepancy between the valuation and the sale price prompted Geoff Elkind, an attorney who specializes in financial and economic restructuring issues, to speak at the Feb. 11 council meeting.
Elkind spoke about tax abatements, which are incentives that cities give to developers to build there. The developers are subject to a specific tax agreement rather than to the regular fluctuating property taxes.
“We need a top-to-bottom review of the structure of our tax system to get to the bottom of why there is a disproportionate burden of property taxes that falls on the residential homeowner,” said Elkind.
A developer receiving a tax abatement pays a predetermined amount to the city instead of taxes, known as a Payment in Lieu of Taxes (PILOT). While a PILOT payment can often bring in more money for the city than taxes, the county and school systems often receive none of it. This can lead to increased school taxes for city residents and higher taxes for homeowners throughout the county.
In 1998 and 1999, Secaucus initiated a lawsuit against Jersey City, claiming Jersey City paid a disproportionately low share of county taxes, based on the valuation of certain Exchange Place properties. North Bergen, Bayonne and Hoboken joined the suit in 2000, 2001, 2002 and 2003 and were awarded a total of $1,200,000.
Jersey City resident Mia Scanga, a certified public accountant, said the city is supposed to do a revaluation if the assessed valuation of city property is less than 70 percent of what the properties are being sold for. The last citywide revaluation went into effect in Jersey City in 1988.
“The $25 million is a commercial assessment,” said Elkind at the meeting. “Undervaluation encourages warehousing properties [to be flipped] for profit.”
The debate has come up again because Hyman promised that the property would be tax abated, as are some neighboring properties, as part of the sale to Geibel.
The council voted at its Feb. 11 meeting to introduce an ordinance increasing the abatement minimum service charge from 15 to 16 percent for this property. The service charge is a percentage of the development’s annual gross revenue each year, which they pay in instead of taxes.
The abatement ordinance will be voted on again at Wednesday’s council meeting.
Some residents doubted the necessity of an abatement as an incentive.
“From Weehawken to the Jersey Shore, developers are clamoring for property,” said resident Steven Gucciardo. “We do not have to stimulate development through an abatement.”
Resident Peter Zirnis agreed. “If a developer can’t make money without a tax abatement, they should get into another business,” he said. “Vote no, and that development will take place anyway.”