Tax Abatements 301: Two Sides of the Same PILOT

This is article #3 in my series about abatements.  Article #1 is “Tax Abatements 101: The Basics” and Article #2 is “Tax Abatements 201: Abatement Impact on Conventional Taxpayers.”

In my previous post, “Tax Abatements 201: Abatement Impact on Conventional Taxpayers”, I focused on the orange slice of the pie pieces below.  In this post I focus on the blue slices – the PILOT payments.  

To shed light on PILOTs, I am using two reports from 2009 that offer opposing points of view:

1. New Jersey Policy Perspective’s (NJPP) “All That Glitters Isn’t Gold: Property Tax Abatements in Jersey City,” a highly critical report of Jersey City’s abatements.
2. Jersey City’s counter-point response to the NJPP report, titled Tax Abatements in Jersey City, A Vehicle for Growth and Prosperity.

Background – the Sugar House Abatement

In 1999, Jersey City granted a 20-year abatement to the Sugar House, a luxury condominium in the downtown  Paulus Hook neighborhood.  On its website, the Historic Paulus Hook Association (HPHA) describes the neighborhood’s history from the 1980s through the early 2000s, and it indicates that the neighborhood suffered a period of blight followed by a period of intense redevelopment starting in the early 2000s:

“By the mid 1980s, Colgate, Onyx Chemical, McConnell Oil Company, and others had shifted manufacturing operations to other locations, and had begun to demolish more than 37 waterfront acres in anticipation of redevelopment to include Colgate’s high-rise office center and high-rise housing projects like Portside. Then the bottom fell out of the real estate market, and for most of the next ten years, the land lay fallow and park-like along the Hudson River; some lots remained weed-covered, while other were used as commuter parking lots for the newly installed New York Waterways Ferry.  The next wave of development arrived with the Hudson-Bergen Light Rail Tram [in 2000] and construction of several office towers. A huge wave of redevelopment activity in Paulus Hook was underway. Hundreds of units of rental housing, several dozen new restaurants, and a few new condominiums grew in and around Paulus Hook during the fading years of the 20th Century.” 

NJPP Criticism of Abatement

New Jersey Policy Perspective (“NJPP”) is a state think tank that investigates issues of public import.  In 2009 it authored a report, “All that Glitters Isn’t Gold: Property Taxes in Jersey City.”  The report included an analysis of the Sugar House.⁠¹ In its report, NJPP analyzed (a) what Sugar House owners actually paid (via PILOT) in 2007 versus (b) what they would have paid that year via conventional taxes if the abatement did not exist.  I visualized their analysis below^⁠2:

When looked at in isolation, the following can be noted for the Sugar House abatement in 2007:

• The PILOT generated $728,298 of revenues to the City.  The conventional taxes of $1,627,108 can be interpreted as the true cost of city services (police, fire, sewage, snow removal) for Sugar House residents in 2007.  The difference between the PILOT and the conventional tax of $898,810 can therefore be thought of as funds foregone in 2007 as a result of Sugar House paying a PILOT instead of conventional taxes.
• Jersey City (the municipality) consumed 95% of the PILOT, siphoning money from the county (which received 5%) and and schools (which received 0%).
• If conventionally taxed, Sugar House would have contributed $455,965 to the public schools, or 28% of the conventional tax.

In a succinct summary of its analysis, NJPP stated in its report that “taxpayers throughout Hudson County, and throughout the state, are underwriting Jersey City’s abatement program.” 

One final but important note: NJPP’s report implicitly assumes that Sugar House would have been renovated without an abatement, and therefore would have been paying conventional taxes in 2007.   But if the abatement had not been granted in 1999, it’s possible that development would have been foregone or delayed for an unknown number of years, thus calling into question the estimated revenues for 2007.   

Which takes us to the City’s rebuttal.

Jersey City Rebuttal – Sugar House as a “Vehicle for Growth & Prosperity”

In 2009, Jersey City responded to the NJPP study with a written document and presentation titled “Tax Abatements in Jersey City: A Vehicle for Growth & Prosperity.”  On slide #11 of the presentation, the City asserted the following about the Sugar House abatement:

• “Under a P.I.L.O.T. agreement, The Sugar House in downtown Jersey City paid $652,216 to the city in 2007
• “Under conventional taxation, the Sugar House would have paid a total of $1,016,044 in taxes that year, of which Jersey City would have received $466,364”
• “Jersey City received 40% more revenue through the P.I.L.O.T. than it would have through conventional taxation.”

Jersey City and NJPP were using slightly different numbers for 2007 revenues; this illustrates that transparent, easily referenced data is difficult to compile, thus making the public debate about this issue more confusing and opaque.  But putting the difference in numbers aside, here is what Jersey City’s data looks like using the same pie graphs as above:

The City derived a financial benefit from the abatement; it received more funding through the PILOT than it would have through conventional taxes.  These revenues helped fund Jersey City so the benefit here cannot be dismissed.  But it is interesting to note what the City did not mention in its presentation: “county”, “school district”, or “county open space fund.”  The City’s deliberate omission of the $549,680 when it was attempting to show the value-add of “growth & prosperity” can be interpreted to be what NJ Comptroller A. Matthew Boxer called a “perverse incentive” in his 2010 report, “A Programmatic Examination of Tax Abatements.”  By being both a stakeholder and a primary negotiator, the City is incentivized to squeeze other public services – like the schools – out of the abatement process.  

Another interesting aspect of the City’s response is found on page 9 of the written document that accompanied its presentation.  The City asserted “most of the condominium and market rate rental developments are geared toward young professionals and older couples who do not have children attending the public schools.”  The City made an explicit assumption that new residents would not enter the public school system.  Its abatement program, in essence, was intended to foster a transient, cash-positive community instead of a long-term community that, over time, becomes more complex to serve and plan for.

PILOTs Today

Jersey City’s explanation of the Sugar House abatement suggests it prioritized attracting transient residents with strong purchasing power over residents looking to plant roots in Jersey City for the long-term.  This may make sense from a municipal governance perspective, but does it make sense from the perspective of the public schools or other city services that lose revenue due to PILOTs?  It is likely a complex question with myriad answers depending on fact and circumstance.  Which makes public discussion and dissemination about abatements all the more important.

Stay Tuned…

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¹ Bressler, Naomi Mueller, 2009.  All That Glitters Isn’t Gold: Property Tax Abatements in Jersey City. (page 3).

² Jersey City released a report in response to the NJPP study, in which it cited different amounts than those presented in the chart above.  The city’s report can be found here: http://www.cityofjerseycity.com/uploadedFiles/City_Government/Department_of_Business_Administration/Abatement%20presentation%20final.pdf