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Re: 5-year revised abatement is up for a vote tonight
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Hmmm, so a developer can cancel an abatement once it looks like a bad deal. That's a pretty weak negotiating position for the city. How do the "donations to various groups around town" factor into this? Can they also be renounced?

Anywho, thanks for the info. The city should adjust the overpayment in a more flexible manner and an obvious way would be to open up guaranteed payments to all property owners at whatever premium they saw fit. I'm sure there's a legal reason that this cannot happen but it would be nice...

Quote:

JCLAW wrote:
Quote:
Unfortunately, they failed to make the agreements binding


They actually can't make the agreements without including a cancellation option. The agreements are very strictly limited by the State Enabling Legislation (Fox-Lance) which permits them. There are a couple of reasons for this - one having to do with compliance with Federal Tax law and deductibility of real estate taxes, the other having to do with the NJ State Constitution's tax equitability rules. I'm not going to get into this in great detail - if you really need to know all about it, go to law school!

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I do wonder about whether the developers have more faith in the JC government or are just strapped for cash in a down market.


Really neither. It's just that the spread between the City's required overpayment in exchange for the certainty and the regular tax payment has widened much too far. Also the City imposes the Political cost on the builder even though the City is the financial beneficiary, by requiring the builder to make all sorts of donations to various groups around town, etc. which the builder has to factor in as part of his total cost of buying the tax certainty. If the City lowered the cost of the tax certainty to something approximating a 10% overpayment (all-in including political costs) builders would probably take the deal. At the current metrics, the overpayment is between 30-100% more than regular taxes. This spread is so great that a builder is willing to take the risk. Unfortunately the city loses out because not only does the builder pay less than it would under a PILOT, the City only keeps 40% of what is paid.

Posted on: 2007/5/16 3:40
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Re: 5-year revised abatement is up for a vote tonight
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Five-year abatement approved for Grove Pointe

City Council votes 6-2 for short-term tax deal

Ricardo Kaulessar - Hudson Reporter -- 05/11/2007

FIVE, NOT 20, FOR GROVE POINTE ? The City Council approved by a 6-2 vote a five-year tax abatement for the 458-unit Grove Pointe project (seen in photo).
Last Wednesday, the City Council approved by a 6-2 vote a new five-year tax abatement for the 458-unit Grove Pointe project, located in Downtown Jersey City.

The developer, Schenkman Kushner (SK) Properties based in Bridgewater, pursued a five-year abatement rather than their original 20-year agreement made with the city in 2004. They claimed the 20-year abatement was no longer "advantageous" for them.

Tax abatements are special deals the City Council grants to developers to exempt their projects from regular, fluctuating property taxes. The deals are an incentive for developers to build in blighted areas, but some believe the city has handed out too many abatements. Critics worry that taxpayers will pay more because abatement funds go directly to the city budget, not to county or school budgets. Some have criticized the city for granting long-term abatements of 20 to 40 years.

The Grove Pointe, located at Christopher Columbus Drive and Newark Avenue, is a 29-story building that, when completed, will consist of 67 condominiums and 458 rental apartments. There will also be 535 parking spaces and 20,000 square feet of retail on the site. The project is expected to be completed by this summer.

Under the new abatement for Grove Pointe, the developer will pay no taxes the first year. They will pay 20 percent of full taxes the second year, and there will be 20 percent increases for the next three years. The full taxation, which is $1,512,358, will occur after that period.

But several City Council members were not happy with the abbreviated abatement, claiming it might set a precedent for future abatements presented to the council.

A new kind of abatement

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City councilmen Bill Gaughan and Peter Brennan voted against the abatement.

They claimed it will allow developers to change current abatement agreements with the city whenever it suits them.

City Councilman Steven Fulop, one of the six who approved the abatement, said the short-term abatement was "best for the long-term health of the city." He explained that long-term abatements of 20, 30, and 40 years were only allowing developers to send money directly into the city's coffers and not pay their share of county or school taxes.

Among those also applauding the abatement was longtime resident Yvonne Balcer, a critic of long-term abatements.

That led City Councilman Steve Lipski to quip, "I never thought I would see Yvonne Balcer clap."

What was expected

SK Properties' attorney, James McCann, said the council approval was "what he expected."

McCann said recently that the original 20-year abatement for Grove Pointe would have made the developer pay the city $200,000 to $300,000 more per year than conventional taxes. That is because the rate at which properties are assessed compared to their true value dropped from 51 percent in 2004, when Grove Pointe's abatement was granted at 28 percent, he said. It means a $100,000 home is taxed as if were worth $28,000.

McCann also said the abatement was approved because to the developer waived a pre-payment of $1.6 million to the city for the Grove Pointe project under the original abatement. The developer makes a pre-payment to the city before an abatement goes into effect. That city then returns the pre-payment to the developer.

The city will also retain a $750,000 contribution to its Affordable Housing Trust Fund.

Ricardo Kaulessar can be reached at rkaulessar@hudsonreporter.co

Posted on: 2007/5/12 13:27
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Re: 5-year revised abatement is up for a vote tonight
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OKs shorter abatement
Friday, May 11, 2007

The Jersey City City Council signed off on a five-year abatement for Grove Pointe II Wednesday. Located at Christopher Columbus Drive and Grove Street, the 458-unit market rate rental project is due to open in July.

The developer - Schenkman Kushner of Bridgewater - backed out of 20-year abatement because it would have cost $200,000 to $300,000 more per year than conventional taxes, said James McCann, the developer's attorney.

With Ward F Councilwoman Viola Richardson absent, the abatement was adopted 6-2, with Councilmen Bill Gaughan and Michael Sottolano voting against it.

Under the terms of the abatement, the project will pay zero taxes the first year, 20 percent of conventional taxes the second year, 40 percent the third year, 60 percent the fourth year, 80 percent the fifth year, and 100 percent the sixth year.

To increase the city's incentive to grant the abatement, the developer allowed the city to keep a $1.6 million pre-payment on the 20-year abatement and a $750,000 contribution to the city's affordable housing trust fund.

KEN THORBOURNE

Posted on: 2007/5/11 9:57
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Re: 5-year revised abatement is up for a vote tonight
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Quote:
Unfortunately, they failed to make the agreements binding


They actually can't make the agreements without including a cancellation option. The agreements are very strictly limited by the State Enabling Legislation (Fox-Lance) which permits them. There are a couple of reasons for this - one having to do with compliance with Federal Tax law and deductibility of real estate taxes, the other having to do with the NJ State Constitution's tax equitability rules. I'm not going to get into this in great detail - if you really need to know all about it, go to law school!

Quote:
I do wonder about whether the developers have more faith in the JC government or are just strapped for cash in a down market.


Really neither. It's just that the spread between the City's required overpayment in exchange for the certainty and the regular tax payment has widened much too far. Also the City imposes the Political cost on the builder even though the City is the financial beneficiary, by requiring the builder to make all sorts of donations to various groups around town, etc. which the builder has to factor in as part of his total cost of buying the tax certainty. If the City lowered the cost of the tax certainty to something approximating a 10% overpayment (all-in including political costs) builders would probably take the deal. At the current metrics, the overpayment is between 30-100% more than regular taxes. This spread is so great that a builder is willing to take the risk. Unfortunately the city loses out because not only does the builder pay less than it would under a PILOT, the City only keeps 40% of what is paid.

Posted on: 2007/5/10 9:43

Edited by JCLAW on 2007/5/10 10:27:23
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Re: 5-year revised abatement is up for a vote tonight
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Great response too. My response to people who complained about PILOTs was that it's the fault of the city if it doesn't reap the risk premium of a guaranteed payment over rolling the dice with the JC government's taxes. Amazingly, it seems like the city struck some good deals. Unfortunately, they failed to make the agreements binding so now developers are using their option to get out of them. I do wonder about whether the developers have more faith in the JC government or are just strapped for cash in a down market.

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JCLAW wrote:
Quote:
JCL - If this is the case, why in the world would JC developers require an abatement from the city as a precondition to building?


Good question. Actually GREAT question. The answer is, they are willing to pay a tax premium in exchange for certainty. Jersey City has a long history of playing rope-a-dope and double dealing businesses who invest or develop here. A history that began with the Hague adminstration and has been practiced by nearly every mayor since up to and including the current one. Its one of the primary reasons that Jersey City has bounced from one economic crisis to another - they can't resist raping local businesses for short term solutions to their problems long enough for the business community to thrive and take root. One could write a whole book about these civic shenanigans, and in fact, the late Mayor Smith did just that! Businesses who choose to locate here, invest here, create jobs, tax ratables, commerce, etc. here are willing to pay a little more than regular taxes in exchange for knowing what they will have to pay in advance and knowing that the City can't invent capricious valuations or new and special surcharges on them. Of course, if the overpayment imposed by the City (PILOT) in exchange for the certainty of payments is enormous, the developer/investor will not accept the deal.

Have to get back to work now but if this doesn't satisfy your curiousity I can answer in more detail after 7PM.

Posted on: 2007/5/10 5:19
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Re: 5-year revised abatement is up for a vote tonight
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? would not the muncipal tax increase be partially offset by a reduction in county and school taxes ?


The fraction would be so comparatively small it would be negligible. Remember, the current 'abatements' already pay a 5% surcharge to the county. For every dollar that the city currently gets in PILOT form now, without the PILOT the property owner will pay about 75% of the amount he was paying, of which the county will keep about 60% (instead of the current $0). What that means is that of $80 Million in annual PILOT payments direct to Jersey City, the County would instead get a windfall of $36 million for use in its cities other than Jersey City. Hudson County's total tax haul is more than $800 million. So if they were actually able to use the extra $36 million to cut taxes (rather than just spend it) all residents of the County would get a County tax cut of less than 5% Compared to the Jersey City tax increase needed to fill its budget hole - 37% (yes 37% tax increase on regular taxes to replace lost PILOTs), this 5% decrease doesn't add up to much. So yes, the municipal tax increase would be mitigated from 37% down to 32%. Not a very helpful scenario.

Quote:
? which development project(s) have broken ground without a tax abatement / PILOT agreement in place?


Obviously you only read about the ones that seek a PILOT, since the ones that don't are not reported in the Jokey Journal and I'm hardly a compendium of every construction site in the City. I can tell you that the buzz around City Hall is that quite a few projects, most of them more mid-sized than the mega projects on the waterfront, have been going ahead with no request for a Payment In Lieu of Taxes deal or with only the 5-year short term 'abatement'. At a certain point I risk crossing disclosure lines which are would be professionally unethical and would not to mention get me in some very serious legal trouble, so you'll just have to take my word for it.

Hope that helps explain things a bit.

Posted on: 2007/5/9 22:49
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Re: 5-year revised abatement is up for a vote tonight
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? would not the muncipal tax increase be partially offset by a reduction in county and school taxes ?

Quote:

JCLAW wrote:
If all PILOT's were terminated suddenly (as they will no doubt be over time) the City would have to fill a $40 million dollar budget hole. To fill it, they would have to raise ordinary property taxes by $110 million or $1,600 per household on average. Since the average home is worth $275,000 in Jersey City, if your house is worth 3 times this amount, you can expect to pay an extra $4,800 to make up the shortfall caused by the cancellation of all the PILOT agreements.


? which development project(s) have broken ground without a tax abatement / PILOT agreement in place?

Quote:

What's worse is that the City isn't even trying to replace the PILOT agreements which are expiring or about to be terminated. The PILOT economics and politics are so bad for the builders that almost none of them are even applying for them anymore (other than perhaps the brief 5-year abatements). This will only exacerbate the pain to high-value historic or vintage home owners that will be caused by the impending revaluation.

Posted on: 2007/5/9 16:02
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Re: 5-year revised abatement is up for a vote tonight
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Quote:
JCL - If this is the case, why in the world would JC developers require an abatement from the city as a precondition to building?


Good question. Actually GREAT question. The answer is, they are willing to pay a tax premium in exchange for certainty. Jersey City has a long history of playing rope-a-dope and double dealing businesses who invest or develop here. A history that began with the Hague adminstration and has been practiced by nearly every mayor since up to and including the current one. Its one of the primary reasons that Jersey City has bounced from one economic crisis to another - they can't resist raping local businesses for short term solutions to their problems long enough for the business community to thrive and take root. One could write a whole book about these civic shenanigans, and in fact, the late Mayor Smith did just that! Businesses who choose to locate here, invest here, create jobs, tax ratables, commerce, etc. here are willing to pay a little more than regular taxes in exchange for knowing what they will have to pay in advance and knowing that the City can't invent capricious valuations or new and special surcharges on them. Of course, if the overpayment imposed by the City (PILOT) in exchange for the certainty of payments is enormous, the developer/investor will not accept the deal.

Have to get back to work now but if this doesn't satisfy your curiousity I can answer in more detail after 7PM.

Posted on: 2007/5/9 15:12
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Re: 5-year revised abatement is up for a vote tonight
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Quote:

JCLAW wrote:
The PILOT economics and politics are so bad for the builders that almost none of them are even applying for them anymore (other than perhaps the brief 5-year abatements).



JCL - If this is the case, why in the world would JC developers require an abatement from the city as a precondition to building? The prominence of these arrangements do not seem to jibe with the reality of their economics to the developer (as suggested by the prognostications). Is it that they are designed to create certain savings to the developer at the beginning of the deal?

Posted on: 2007/5/9 14:26
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Re: 5-year revised abatement is up for a vote tonight
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Quote:
It is believed to be the first abatement deal for a Jersey City project in which the developer backed out.


This is simply not true, but then again, this reporter does extremely sloppy research. The nearby Columbus Plaza development by Panepinto Properties did exactly the same thing. Moreover several office buildings in Jersey City have simply terminated their PILOT agreements outright.

The City Council Members are beginning to get worried that their lies about 'abatements' (that they benefit anyone other than the City's budget) are no longer politically tenable and that they will have to find another scapegoat besides the {devil horn} greedy developers {devil horn} to keep their chairs and continue to mismanage the City's budget.

If all PILOT's were terminated suddenly (as they will no doubt be over time) the City would have to fill a $40 million dollar budget hole. To fill it, they would have to raise ordinary property taxes by $110 million or $1,600 per household on average. Since the average home is worth $275,000 in Jersey City, if your house is worth 3 times this amount, you can expect to pay an extra $4,800 to make up the shortfall caused by the cancellation of all the PILOT agreements.

What's worse is that the City isn't even trying to replace the PILOT agreements which are expiring or about to be terminated. The PILOT economics and politics are so bad for the builders that almost none of them are even applying for them anymore (other than perhaps the brief 5-year abatements). This will only exacerbate the pain to high-value historic or vintage home owners that will be caused by the impending revaluation.

Posted on: 2007/5/9 13:00
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5-year revised abatement is up for a vote tonight
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5-year revised abatement is up for a vote tonight

Wednesday, May 09, 2007
By KEN THORBOURNE
JOURNAL STAFF WRITER

Peeved that a developer bowed out of a 20-year abatement deal with the city, Jersey City officials are now aiming to strike a more profitable five-year abatement with the developer.

The five-year abatement - calling for incremental increases in the amount of conventional taxes the developer pays over five years, so that by the sixth year the developer is paying 100 percent - is up for a vote tonight.

James McCann, the attorney representing Schenkman Kushner, builder of Grove Pointe II, at the corner of Grove Street and Christopher Columbus Drive, said his client dropped the 20-year abatement because it would have cost $200,000 to $300,000 more per year than conventional taxes.

It is believed to be the first abatement deal for a Jersey City project in which the developer backed out.

The five-year plan, endorsed by the mayor's Tax Enhancement Committee, calls for no payment the first year, 20 percent of conventional taxes the second year, 40 percent the third, 60 percent the fourth, and 80 percent in the fifth year.

As a sweetener, the developer agreed to the let the city keep a $1.6 million pre-payment on the 20-year abatement and a $750,000 contribution made to the city's affordable housing trust fund.

On Monday, Ward A Councilman Michael Sottolano called for a higher-paying five-year abatement: zero percent the first year, 40 percent the second, 60 percent the third, and 80 percent in the fourth and fifth years.

"I think this is good deal for the city," said City Council President Mariano Vega about the deal endorsed by the mayor's Tax Enhancement Committee, which he chairs. "At the same time I like to entertain issues the council members raise."

The 458-unit market-rate rental complex is due to open in July.

Posted on: 2007/5/9 12:42
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