Taxpayer: New policy only benefits developers -- Longtime resident complains about city's abatement changes

Ricardo Kaulessar -- Hudson Reporter -- 08/24/2007

WHAT ABOUT OUR ABATEMENTS? ? Longtime Jersey City resident Yvonne Balcer spoke on the city?s new abatement policy at the Aug. 22 City Council meeting. The City Council at their meeting this past Wednesday heard some feedback on their new tax abatement policy - and it wasn't good.

A tax abatement is an agreement to exempt a developer from regular, fluctuating property taxes. Developers often enter into a deal to pay a separate fee to the city in lieu of taxes, which may sometimes be equal or nearly equal to the current taxes. Those payments benefit the city because they go straight to city coffers rather than into school and county taxes. But some residents believe they help developers and hurt other resident taxpayers.

At a council meeting earlier this month, the city moved toward a new abatement policy in which specifically developers of rental housing will have the choice of three tax abatement levels: 10-year terms, paying 10 percent gross annual revenue to the city; a 15-year term paying 12 percent, and a 20-year term paying 14 percent. They approved two 10-year abatements and a 20-year abatement that reflect the new abatement policy.

This past Wednesday, the council approved the changes. They also revised their current five-year abatement policy, whereby rental and condo projects valued at $10 million and over can still get five-year abatements, but with new tax-paying benchmarks.

Owners will pay regular taxes the first year. However, they will pay using various formulas for the subsequent four years. The second year, they will be 39 percent of taxes, and 59 percent the third year. They will pay 79 percent in year four, and 80 percent in year five.

Then they will go back to paying regular taxes again. Five-year abatements usually have a 0/20/40/60/80 formula.

Yvonne Balcer, a Downtown Jersey City resident for over 30 years, said while she approved of the changes to the five-year abatements and short-term abatements in general, she questioned why developers have the option of which level of tax abatement they can choose to pursue, since those options are not available to homeowners like her and her husband.

I want the same thing

The city has endured criticism for years for giving developers abatements. They are meant to entice developers to build in development-strapped areas. Residents say that they are not needed when Jersey City has a booming waterfront.

However, officials like to lure major developers to the area.

Balcer said she wanted to see fairness for residents who own their homes and have seen their taxes go up substantially in the past two years.

Business Administrator Brian O' Reilly, along with several council members, said to Balcer that the new abatement policy is being implemented because developers were opting for five-year abatements instead of longer ones. They explained that this allowed them to pay conventional taxes in increments over a short period of time, rather than making direct payments to the city under the long-term abatements.

Developers were pursuing the five-year abatement because they felt they were paying too much money under the city's current 30 percent tax assessment ratio when compared to paying conventional taxes. A property selling for $1 million was taxed as if it had a value of $300,000, officials said.

Ricardo Kaulessar can be reached at rkaulessar@hudsonreporter.com

The horse has already run off.

New deals for developers

JC will change its tax abatement formulas

Ricardo Kaulessar - Hudson Reporter - 08/17/2007

WORKING WITH A NEW POLICY ? While the city?s new abatement policy is not yet official, the City Council will consider it as they will vote on two rental projects in downtown Jersey City, each with 10-year abatements. Mayor Jerramiah Healy is planning to announce after Labor Day a new set of tax abatement formulas for Jersey City.

The city has endured criticism for years for giving developers "tax abatements," which exempt those developers from paying regular, fluctuating property taxes. The deal usually means the developer's annual payments will go straight to the city rather than to the city, the county, and the schools. Thus, regular taxpayers may have to contribute more to those budgets.

However, the new policy probably will not stem much of that criticism. Instead, it sets formulas for certain types of developers, in order to be more fair to the developers and close a loophole.

According to city Business Administrator Brian O' Reilly, the new policy will apply specifically to developers of rental housing. Those developers will have the choice of three tax abatement levels: 10-year terms, paying 10 percent gross annual revenue to the city; a 15-year term at 12 percent, and a 20-year term at 14 percent.

Usually, developers who receive 20-year abatements pay 16 percent of their gross annual revenue, whether it is it a rental or condominium. Condo projects will still be granted abatements with that 20/16 formula, or some variation thereof.

O'Reilly said last week the changes are being made because developers were opting for five-year abatements. He said this allowed them to pay conventional taxes in increments over a short period of time, rather than making direct payments to the city under the long-term abatements.

Also, developers receiving five-year abatements do not have to comply with the city's Project Labor Agreement, adopted by the City Council in June, mandating that developers with projects worth $25 million or more use union labor, and that 20 percent of the apprentices be Jersey City residents.

"They were taking advantage of a loophole, and we had to close the loophole quickly," O'Reilly said.

City Council President Mariano Vega said in an interview before the previous City Council meeting on Aug. 22 that the new abatement policy was needed.

He explained that developers complained to him that they were paying too much money under the city's current 30 percent tax assessment ratio when it compared to paying conventional taxes. A property selling for $1 million was taxed as if it had a value of $300,000.

"[The city] wanted to have a clear policy so the development community can say, I like it, I don't like it," Vega said.

Stopping a taxing situation

O'Reilly was honest about the other reason the city was changing its abatement policy - to prevent the city from losing money.

The city depends on the revenues from long-term abatement agreements. One is the prepayment that helps the city bridge any shortfalls before the City Council approves the city's budget. Another is the payment that goes into the city's Affordable Housing Trust Fund.

O' Reilly pointed out that the five-year abatements will still be used by homeowners who want to make improvements on their homes, allowing them to pay discounted taxes to offset any costs for improvements.

That was the intended use of the five-year abatement, as homeowners will pay no taxes the first year. Then they will pay 20 percent of full taxes the second year, and there will be 20 percent increases for the next three years. By the sixth year, it is full conventional taxation.

Some still get five-year

Rental and condo projects valued at under $10 million can still get five-year abatements.

Owners will pay regular taxes the first year. However, a new formula was created where the second year will see 39 percent of taxes paid, followed by 59 percent of taxes in year three, 79 percent in year four, and then 90 percent in year five.

It is known unofficially as the Michael Sottolano Rule, as the City Councilman representing the Greenville section of the city came up with the new formula in response to developers seeking five-year abatements and paying under the old formula.

Looking short-term for the long term

One of those projects granted five-year abatement was the 458-unit Grove Pointe project located at Christopher Columbus Drive and Newark Avenue. The abatement was approved by the City Council in May and allowed the developer to pay taxes within the 0/20/40/60/80 paradigm.

The lawyer for the developers, James McCann, told the Jersey City Reporter at the time that his clients, SK Properties, went with the five-year abatement and rescinded its original 20-year abatement for Grove Pointe. It would have made the developer pay the city $200,000 to $300,000 more per year than conventional taxes.

McCann said the tax assessment ratio dropped from 51 percent in 2004, when Grove Pointe's original abatement was granted, to 30 percent as of this year.

When asked recently about the city's new abatement policy, McCann said it was "helpful to the development community."

"What [the city] did was drop the percentage, so that the developer pays something close to conventional taxation would be but it's stabilized or fixed," McCann said.

McCann also said he hopes the city will look at the abatement policy for condos in the future.

But McCann does not have a lot to complain about, as 10-year abatements (at 10 percent payment of gross annual revenue) for two rental projects, to be built in Downtown Jersey City's Liberty Harbor North Redevelopment Area by his client, are up for approval at the next City Council meeting.

Ricardo Kaulessar can be reached at rkaulessar@hudsonreporter.com

New abatement formulas in works for rental projects

Wednesday, August 08, 2007
By KEN THORBOURNE
JOURNAL STAFF WRITER

Bending to the realities of Jersey City's out-of-whack tax assessment ratio, the administration of Mayor Jerramiah Healy is considering a new menu of tax abatement options for rental developers, city officials said this week.

The city is considering offering the developers of rental housing three tax abatement options, Business Administrator Brian O'Reilly said at the council caucus meeting Monday: 10 years, paying 10 percent gross annual revenue to the city; 15 years, paying 12 percent; and 20 years, paying 14 percent.

These abatements are a deviation from the 20-year abatement where a developer pays the city 16 percent of gross annual revenue.

The city is making the changes given the roughly 30 percent tax assessment ratio in the city right now, meaning that a property that could sell for $1 million is taxed as if it were worth $300,000.

Developers of new rental properties have been applying for short-term, five-year abatements, which phases in the payment of full conventional taxes over six years.

The city has to share conventional taxes with the county and local school system, while with long-term tax abatements, the city keeps virtually all of the "payments in lieu of taxes."

To help steer the developers to the long-term option, the City Council is scheduled to vote this morning to bump up the terms of five-year abatements so they're more expensive to developers than10-year abatements.

James McCann, a prominent real estate attorney in the city, endorsed the changes, but predicted the city would soon have to make them for condo developers as well.

Currently, condo owners locked into a standard 20/16 abatement pay slightly less than conventional taxes, McCann said.