Tax Abatements 401: The Transparency Issue

In his 2010 report, “A Programmatic Examination of Tax Abatements,” NJ Comptroller A. Matthew Boxer highlighted numerous weaknesses with abatements.  One issue he touched upon was transparency.  He stated, “Information concerning abatement[s]…is not published in a transparent manner or centralized location, making it difficult to impossible for the public to compare, calculate the effect of, or be fully aware of those agreements.” (See page1 of the link.)

The Transparency Scale

The Comptroller’s assertion invites us to ask:  with respect to tax abatements, what level of transparency should we expect from our local government?  Consider this question along a scale with a minimum level of transparency on the left (regulatory transparency) and increasing transparency as the scale stretches to the right:

Transparency Scale v32314

  • Regulatory transparency is the bare minimum required by law.  Information may be disparately stored online or in hard copy format, making it more onerous for the average taxpayer to seek information.  Public decisions can be made more quickly because there is less debate (due to lower public engagement), but the cost is a lessening of public trust; citizens make assumptions – perhaps fair, perhaps unfair – that opaque governance is due to illicit motivations.  
  • Good government transparency is above and beyond the regulatory requirement.  City leaders proactively inform the electorate about issues of import, fairly presenting pros and cons for debate. Information is centrally located, data is open and available, and the public has ready access to information required to healthily scrutinize government.  Public decisions are slower because there is more debate, but general consensus is achieved.

Mr. Fulop spoke to the need for “good government” transparency in a 2013 campaign pledge which included: “Accountability and transparency need to be more than just words thrown around during a campaign. These ideals are the foundation on which a good government is built. Without them, everything else an administration does will be questioned.”

With this framework of transparency in mind, let’s look at Mayor Fulop’s first abatement.

Education Funding & the KRE Abatement

When then-Councilman Fulop ran for mayor in May 2013, he made an education-related campaign pledge which stated:

The City’s tax abatement policy has longed robbed the school system of necessary resources. New real estate development tax revenue should be allocated in equal proportions to the County, City, and Board of Education. Instead, the City allocates 100% of revenue collected through tax abatements for municipal expenditures. Under Mayor Fulop, the policy will immediately change. A portion of the tax abatement revenue will be allocated to a dedicated, non-discretionary account for school funding. In this way, real estate development will help fund Jersey City public schools. (Bold added for emphasis)

On October 22, 2013, Mayor Fulop announced the City’s plans for its first signature abatement: the redevelopment of Journal Square with the $666 million, three tower “KRE” deal, comprised of 1,840-rental units and 36,000 square feet of ground floor retail space.  On November 13, 2013, three weeks after the announcement, the City Council voted on the abatement.

The Vote 

Per regulation, the ordinance (the 40-page legislative document that the Council ultimately voted on) was made available to the public via the City Council website prior to the vote.  The night of the vote, more than 30 members of the public spoke during the public comments portion of the meeting.  Their comments, coupled with comments from administration and Council officials, can be read in full via the meeting transcript.  The comments offer insight into multiple pros and cons of the abatement and a lack of understanding, perhaps due to a lack of transparency, about exactly what was being voted on. (A repeated argument for the abatement was decades-long stagnant growth in Journal Square; a repeated argument against the abatement was the 30-year length, a term some deemed as too generous for the developer).

KRE’s rendering of “Journal Squared” upon completion. Photo taken from Jersey Digs – click on image to go to Jersey Digs article about Journal Squared.

During the public comment portion of the meeting, several members of the public criticized the abatement because it did not fund the public schools.  But it was not until one public speaker – Marlene Sandkamp, president of the Van Vorst Park Association – explicitly juxtaposed Mr. Fulop’s campaign pledge against the KRE abatement that a dialog among city officials ensued about educating funding.

Ms. Sandkamp stated, “I was…caught off guard that there [were] no taxes…given to the [schools]…”  She then asked if the pledge about education funding was reflected in the KRE abatement.⁠1  

Mr. Farrell, the City’s corporation counsel (i.e. the administration’s lawyer) then explained that the abatement would not fund the schools, but would instead fund the historic Loews theater.2  

Then City Council President and at-large Councilman Rolando Lavarro stated, “I didn’t realize that the $2.5 million for the Loews was the education set aside so I’m going to need clarification on that…”3 and “…my understanding is that … we would have a tax abatement policy that would dedicate a certain portion of funds to education.”4  He then spoke to the importance of the KRE vote as a precedent-setting abatement, stating, “it is important to get this right I think on the first time around.”5

Mr. Lavarro then motioned to table the vote.⁠6

But Diana Jeffrey, an administration attorney who worked closely on the abatement deal, pressured the Council to vote, stating “you might have time, but the developer doesn’t and they are going to lose their tax credits…you can table it, but you might as well vote no.”⁠7

Mr. Lavarro pushed back, stating that administration officials had indicated there would be time to discuss the details, and he stated his willingness to call special meetings to enable further discussion.  He proceeded with a motion to table the vote but the motion failed (Councilman Yun seconded the motion, Ms. Watterman abstained, and all other Council members who were present voted not to table the vote).

When the vote on the abatement did occur several minutes later, Mr. Lavarro voted for it, stating “I am here to vote on the ordinance itself [the KRE abatement] and not the tax abatement policy.”⁠8

And when it came time for Ward F Councilwoman Coleman to vote, she was unclear about what exactly she was voting for.  She stated “…I am totally confused.  We are not voting on the tax abatement right here?”  She eventually voted to approve the abatement.⁠9

The JSQ abatement was passed by a vote of 6-1-1.  Ward E Councilwoman Osborne was absent, at-large Councilwoman Watterman abstained, and Ward D Councilman Yun voted no.

The Aftermath

Reading the November 13th transcript, it appears that there was a general lack of transparency around the KRE abatement.  This sense of opaqueness was further compounded by public pressure exerted on the Council by the administration to approve the abatement, despite a clear lack of understanding on the part of the public and at least two Council members who voted for the abatement.  That the administration was focused on the developer’s financial position at the expense of concern for the public’s understanding indicates a potential disregard for transparency on the part of the administration.

Legitimate questions remain: (1)  Did the Council fully understand what it was voting on?  (2) Was there a sufficient check and balance from the legislative branch of government (the Council) on the executive branch (the administration)?  (3) Should the administration have been more forthright regarding the abatement’s lack of education funding?

The Journal Square KRE development has become the signature initiative of the Fulop administration.  The pros and cons of the abatement are likely to be debated as the towers are built, but legitimate questions about the abatement terms, and the manner in which it was voted upon, persist.  But perhaps the relevant question related to transparency is this: what level of transparency do we – the electorate – ultimately expect from Mr. Fulop’s administration?  Do we expect the bare minimum of regulatory transparency or do we expect good government transparency?  

Stay Tuned…

Please stay tuned for additional articles in this series.  And please connect with me:

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1 City of Jersey City. “Transcript, Regular Meeting of the Municipal Council.”  Schulman, Wiegmann & Associates, Certified Court Reporters. November 13, 2013. (page 133)

2 Ibid, page 133.

3 Ibid, page 134.

4 ibid, pages 146-147.

5 Ibid, page 147.

6 Ibid, page 152.

7 Ibid, page 153.

8 Ibid, page 160.

9 Ibid, page 162.

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