Three different ordinances involving tax exemptions for developers have been introduced by the North Bergen Commissioners recently, and officials say the measures will set a precedent on how the township will offer abatements in the future.
A tax abatement is an agreement between a developer and a municipality allowing the developer to pay a separate fee to the city in lieu of regular taxes. It benefits the developer because he or she can predict future costs rather than being subject to fluctuating property taxes. The fee sometimes ends up being close to the same amount as regular taxes, and can be based on a percentage of profits. The money goes directly into the city budget rather than partly to the schools and county.
Abatements have been controversial in some towns, like Jersey City, because taxpayers believe they may have been overused.
But North Bergen has introduced new plans to use them in certain situations.
“As rental revenues go up, the amount required through the abatement would go up too.” – Christopher Pianese
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An ordinance “authorizing long-term tax exemptions” was introduced on Wednesday, Jan. 12. If approved, it will offer retail and residential developers in blighted areas two different options.
The first option would be to pay the municipal tax amount after the building’s completion in stages, beginning at 20 percent and increasing to 40, 60, and 80 percent over the course of the agreement.
However, the township will favor a second option that lets them collect municipal taxes based on a percentage of gross revenues, which will be decided through financial agreement negotiations with the developers.
“The minimum I would collect if we are successful in our negotiations is [around 11] percent, which is far in excess of what I would have collected if we were on a conventional basis,” said Township Administrator Christopher Pianese, explaining why the township prefers the second option.
After both parties agree on a percentage, a specific agreement for that developer would be introduced as an ordinance, given a public hearing, and would to be adopted the board of commissioners.
Two financial agreements introduced
Meanwhile, the town has introduced some specific abatement deals already.
On Jan. 12, two 30-year financial agreements with Urban Renewal, LLC, a company building 164 rental units and retail space on Kennedy Boulevard near 56th Street, were introduced. The first pertains to the residential units, while the second would cover the 17,247 square feet of retail space planed for the site.
The ordinances are scheduled for a public hearing at the Jan. 26 commissioners meeting.
Pianese said that the agreements would not begin until after the first certificate of occupancy is awarded. If these agreements are approved, construction would have to be completed within 18 months from that date in order for them to remain valid.
North Bergen has offered abatements to developers in the past, more recently to Vornado Realty Trust, which constructed a shopping center along Tonnelle Avenue and 88th Street.
Depends on gross revenue
Pianese said the township was still negotiating what percentage of gross revenue they will collect from Urban Renewal, but that he believes they will probably end up somewhere between 11 and 13 percent.
“To put things in perspective, current taxes in round numbers [just on land for that property are] $200,000,” said Pianese. “If it was conventionally taxed and we didn’t offer the abatement, they would probably be paying total taxes to the tune of $600,000. An abatement based on current rental projects that are for that building in that area of that size, the current rent projections would allow the township to collect $525,000 in local taxes in one year.”
If conventionally taxed, the township would only receive around $275,000 directly, he said, eith the remainder split between the board of education and the county. If the township achieves a 13 percent agreement, that could mean $625,000 in taxes.
“The beauty of the abatement over the 30-year term is, these projections are based on a projected rent roll today,” said Pianese. “As rental revenues go up, the amount required through the abatement would go up too.”
In a difficult economy, Pianese thinks that similar abatements may help jump start development in North Bergen.
“There were factories on the property, [and] then [a big furniture store there] left,” said Mayor Nicholas Sacco last week. “It really wasn’t attractive. Buildings were decaying.”
He believes this development will be an addition to the area.
What do you think? Do you agree with township officials, in that tax abatements will prove beneficial to North Bergen by providing additional municipal taxes? Visit www.hudsonreporter.com to take our online poll.
Tricia Tirella may be reached at TriciaT@hudsonreporter.com.