Here’s the problem: Jersey City has been under-counting the number of (a) residents and (b) public school students that will eventually live in each abated building. The City has been using demographic estimates from the early 1990s instead of updating its estimates – as it should have done – in 2006 when a new demographic report was published by Rutgers University’s Bloustein School of Planning & Public Policy (“the Bloustein School”). [The Bloustein School has not updated its report, thus the 2006 report remains the most recently available estimates.]
For example, the “JSQ 2” tower – one of three market rate rental buildings that will sit adjacent to JSQ PATH – was approved in November 2013 with only three public school students estimated to live in the building. If updated estimates had been used, the number would have been closer to sixty-eight. Each student carries a per-year cost of $3,005, thus the total impact to the City is approximately $195,000 in abatement cost that the City did not recognize when it approved the abatement.
Abatements have increased from 3% of our City budget in 1991 to 21% of the budget in 2013; there are 151 PILOTs listed in the 2014 City Budget. They have been used since the early 1990s to help incentivize developers to build in Jersey City.
To gauge the financial impact of this problem, I analyzed five abatements approved since July 2013 and found1:
- A total error of $1.2 million in incorrect cost estimates
- Four out of the five abatements were shown to be a net-cost to the City if updated estimates were used.
Abatements are neither “all-bad” nor “all-good.” When used appropriately, they can be beneficial for the City in alleviating blight. But this error suggests our City leadership is neither in control of, nor aware of, the full scope of its own abatement processes.
Let’s get civic and break it down.
Jersey City: Dramatically Changed Since Early 1990s
Jersey City demographics are markedly different in 2014 versus the early 1990s. More people live here, and more students attend our public schools.
In the early 1990s, much of the downtown waterfront residential property was not yet built, the light rail system did not exist, and the public schools did not yet have free Pre-K3 and Pre-K4 (free preK began in 1997-1998 with the Abbott V decision). Since 1998, free preK has been an economic incentive for parents to stay in Jersey City at least through preK4 because in most of NJ – including neighboring, competing suburbs like Maplewood, South Orange, and Millburn – parents must pay for preschool.
Jersey City in 2014 is also larger than it was in the early 1990s. US Census data shows the City’s population has grown 11% from 1990 to 2010. The school district’s recently released demographic reports reveal that public school enrollment is expected to increase by 25% by 2017-2018, almost all in Prek through Grade 5. (see link, page 8, 16).
The City’s Error
Since the 1970s, the Center of Urban Policy Research at Rutgers University’s Bloustein School of Planning and Public Policy has been publishing reports that help cities estimate the number of people who will live in residential buildings. The most recent report was published in 2006. The City should have been using this updated report, but it hasn’t been; instead, the City has continued to use demographic assumptions from the early 1990s. This has resulted in under-estimates of the residents and public school students who will live in abated buildings.
Members of the City Tax Office explained that they lack authority to change the estimates. Further, they explained that while the City used to have a staff person dedicated exclusively to the abatement process, that person is no longer with the City. The process now falls on individuals who must split their time between abatements and their existing duties.
The City’s Hidden Expense is the Developer’s Hidden Gain
Generally speaking, if the number of residents and students is kept erroneously low, then the cost of the abatement is effectively at a discount to the developer. His profit margin will be higher because he is able to charge 2014 rents on a building that was purchased based on early 1990s cost estimates.
But if you increase your demographic estimates to reflect the upward growth in people and students, then the abatement becomes more expensive. The developer then has to pay more in PILOT and administrative fees to cover the costs, and that will necessitate him to charge higher rents OR cut into the profit margin on the building. But the City benefits, because its cost estimates are more accurate, thus it is less likely to have net-negative abatements in the City Budget.
A Complex Problem, A Meaningful Solution
I believe it would be irresponsible and a further compounding of error to blame this problem on a single politician, Council body, or city office for many reasons, including:
- The reality is that these abatements were approved over many years, through legal, democratic process.
- The abatements were drafted by the tax office, reviewed by city administration officials, heralded as necessary by successive Mayors in office, and approved by successive City Councils.
- Every approved abatement went through two City Council votes and the public had its right to scrutinize during each final vote. Only a small fraction of the public has actually protested these abatements on a regular basis; the majority of the City is simply not tuned into this issue.
- The people of Jersey City were put on notice years ago that abatements were problematic. In 2009, New Jersey Policy Perspective released a report warning taxpayers about the flaws of abatements, and the report specifically called out Jersey City as a repeat abatement offender. In 2010, NJ Comptroller A. Matthew Boxer released a report that also detailed the problems, highlighting many of the same issues as NJPP. Both reports offered remedial steps.
The easy political “out” is for the City to simply adjust the multipliers and say “we fixed it.” But this would not truly fix the problem; it would simply be a band-aid on top of a gushing wound. A much broader, more comprehensive fix is required.
Here are some of my suggestions on what the public can do to help fix this problem:
- Call for a moratorium on all abatements until a review of the abatement process can be performed by an independent party AND the public fully informed as to the results and outcomes of the review. Some officials claim this will “freeze” development but any stall in development should be measured against the risk of approving flawed abatements that have multi-decade impact on the City and unfairly burden conventional taxpayers.
- Call for greater transparency around abatements, including the digitization of all abatement data and town hall discussions on this topic. Partnering with local community groups like Civic JC, Open JC, and Sustainable JC would likely advance this goal.
- Call for the City to engage in a productive partnership with the Jersey City Board of Education (BOE) so that the City can fully understand the demands, dynamics, and future trends of our public school system.
- Call for City Council members to read and consider the remedial suggestions offered by NJ Comptroller Boxer in his 2010 report, “A Programmatic Examination of Tax Abatements.“
- Call for City Council members to petition the Bloustein School to update its 2006 report, so that the City can use more current demographic estimates.
- Finally, it is absolutely crucial that we support City Council members who are willing to abstain or vote against these abatements until the public can be given plain English explanations around each abatement.
Jersey City government contact information can be found here.
I raised my concerns to the City on May 8th, prior to publishing this article. At the May 14th City Council meeting, a 20-year downtown abatement was up for a second ordinance (final) vote. At the meeting, I was informed by Mr. David Donnelly, an administration official who attends the Council meetings on behalf of the administration, that the estimates had been corrected. Here are the details:
- The City’s original estimate based on the early 1990s methodology was 1.5 students.
- The 2006 Bloustein report stated the estimate should have been 20 students.
- Mr. Donnelly stated that the City’s corrected number was 12 students.
When I asked if the City could present a documented methodology justifying the lowering of the 2006 estimates from 20 students to 12 students, I was told such a document did not exist.
During public comment I asked the Council to consider the fact that estimates were being changed last minute without any written documentation as to the justification or accuracy of the new estimates. The Council ended up approving the abatement by vote of 6-3 (Lavarro, Osborne, and Yun voted against it).
1. Using documents obtained by the City tax office and the Rutgers University’s Bloustein School of Planning and Public Policy, I compared each abatement’s cost using 1990s assumptions versus 2006 assumptions. My analysis and supporting documentation can be found in electronic format here.
My sincere thanks to the Jersey City Tax Office, who helped me understand this issue.