At a time when Jersey City residents are struggling with tax hikes and facing a revaluation of their property that could raise taxes even more, the last thing they want to hear about is tax breaks for those who can more than afford to pay their fair share. But a recent report about abatement policy has taxed their patience.
The state comptroller Matthew Boxer issued a 25-page report, “A Programmatic Examination of Municipal Tax Abatements,” in August. It details changes that can be made in tax abatements in various municipalities to ensure they are monitored more thoroughly and are not only granted properly but also achieve their desired effect.
Tax abatements come about when developers enter into agreements to avoid fluctuating property taxes and instead pay a separate yearly service charge, usually based on a percentage of their profits. That payment goes straight into the city budget, forcing taxpayers elsewhere to bear the burden of school and county taxes. Abatements were first granted back in the late 1970s in Jersey City as incentives to develop the waterfront and reverse years of decline.
“I thought it was a useful but certainly incomplete beginning of the discussion.” – Eugene Paolino
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Since the report was issued, lawyers for developers of abated properties and city officials have struck back at the issues it raised.
Rethinking abatements
The state’s report said that Jersey City has granted tax abatements on approximately $2 billion worth of real estate as of this year. The report said if these properties paid regular taxes, their share of city tax revenue would be $120 million per year, and that county government loses $30 million per year because of the exemption. However, the county does get five percent of the PILOT (payment in lieu of taxes) that is sent to the municipality.
Another obvious result of the exemptions that come from abatement is that “any remaining revenue must be obtained from the remaining tax base.” In the past five years, the city’s municipal tax rate has gone up at least 80 percent, with the most recent a 24 percent hike approved by the City Council to cover a $40-plus million budget deficit, an increase that has aroused public anger and ignited a recall effort against Mayor Jerramiah Healy and several council members. One council member last week even suggested what the city may need is a local income tax.
Approximately 160 properties are currently under abatement in Jersey City. Two different types of abatements are granted: long-term abatements that span from 20 to 40 years and cover mostly large-scale developments, and five-year abatements that homeowners can seek when doing renovation work on their homes.
The report also looked at abatements in towns as close as Hoboken and as far as Atlantic City and made suggestions about how abatements can be more beneficial to those who are left out:
• The school system, the county and the regular taxpayer should have a greater role in the granting of abatements
• Payments should be structured to further benefit schools and county government
• Thorough cost-benefit analysis of community impact should be made before an abatement is granted
• Stringent criteria should be in place to ensure abatement applications follow guidelines before receiving approval
• Abatement applications must be due before a project begins construction.
Retorts to the report
Longtime development attorney Eugene Paolino, a partner at the Jersey City law firm Schumann Hanlon, is a strong advocate for abatements and their benefits. Paolino started dealing with abatements in the late 1970s when he worked in the Jersey City law department.
Paolino currently represents the developers of such abated residential developments as 77 Hudson Street near the downtown Jersey City waterfront (20-year abatement) and the Beacon condo complex (30-year abatement), located at the site of the old Jersey City Medical Center on Montgomery Street.
Paolino said last week that he read the report “cover to cover” and had a mixed reaction on the state’s analysis.
“I thought it was a useful but certainly incomplete beginning of the discussion,” Paolino said. “Its emphasis was on the failures and not the successes of tax abatements.”
Paolino said he did agree with the report in that tax abatement policy across New Jersey including Jersey City should be studied again to address any flaws. But he said there should not be any question of the value of abatements, when he sees the changes wrought in his hometown.
“I don’t have to use my imagination to wonder if Jersey City could have been developed without abatements,” Paolino said. “You wouldn’t have had Newport, the Goldman Sachs building and others if it wasn’t for abatements.”
City Councilman Steven Fulop, who represents the downtown area that is the location of many abated buildings, agrees with much of the report’s take on abatements and he stands firmly on how abatements should be applied.
“The problem has been the city’s [abatement] policy has been based on personal relationships as opposed to a set criteria and process,” Fulop said. “Abatements should be defined by where you want people to build, and you need to incentivize development to go to the areas that the city wants to stimulate.”
Ricardo Kaulessar can be reached at rkaulessar@hudsonreporter.com.