Press Releases, Property Taxes, and the Value of Spin

Mayor Fulop announced last week the hiring of a new communications director for Jersey City, 26-year old Ryan Jacobs, at a salary of $110,000.  The current communications director, Jennifer Morrill, earns $100,614 and will remain as press secretary “to assist…with day to day operations.”  Jersey City taxpayers are now paying over $200,000 for spokesperson duties.

A city spokesperson is a reasonable role to fill; it is in the public’s interest to have information regularly communicated from City Hall.  But this $200,000 revelation should ring an alarm bell about what exactly taxpayers are paying for.  To underscore this point, let’s look at a recent “taxes”-related press release from City Hall.

“Stabilizing Taxes”: Fact or Spin?

On July 28, 2015, Mayor Fulop  announced via press release that:

  • “The City’s tax base grew substantially increasing by $57 million in 2015”
  • “…the Fulop Administration continues to stabilize taxes…”

Are these facts, or spin?  Let’s get civic and break it down.

“The City’s tax base grew substantially increasing by $57 million in 2015”

The growth was not “substantial.”  Let’s look at the facts:

  • The assessed value of the ratable base – what’s used to compute the general tax rate – was just under $6 billion as of 2014 (per state data that you can find here).
  • The $57 million added to the ratable base in 2015 represents a 0.95% increase to the existing $6 billion assessed value.  But to gauge if 0.95% growth is meaningful, we should look at city spending because the entire purpose of the ratable base is to help fund the city budget.
  • Total spending in this year’s city budget grew by 5%, from $516 million in 2014 to $540 million in 2015.  This spending growth exceeds the current annual inflation rate of 0.1%.
  • City spending grew by 5% yet the ratable base grew by only 0.95%.  This is the same trend that, as I explained in my last Tax Bites post, will cause tax rates to rise over time.

“…the Fulop Administration continues to stabilize taxes…”

Mayor Fulop did avoid a municipal tax hike in 2015.  But how did this happen if the ratable base growth was so anemic in comparison to city spending?  Two revenue sources provide insight: abatements and surplus spending.

Abatements are the second largest source of revenue in Jersey City, comprising 22% of 2015’s budgeted $540 million in revenues. When Mayor Fulop took office in 2013, abatements comprised 21% of revenues.  Abatements have been a blessing and a curse in Jersey City for over a decade.  The blessing: they do incentivize developers to build here.  The curse: the city seems unable or unwilling to ween itself from abatements in areas that are already built up (which are lower risk areas for a developer). Mayor Fulop is now advocating for abatements near Newport and Hamilton Park, two high-priced neighborhoods in Jersey City.

Jersey City Revenues 2015

The surplus is an excess of revenues over expenses. The city has a surplus balance that rolls forward each year.  And each year, money is taken from that account to fund the city budget.  What’s noticeable in 2015 is that surplus revenue jumped 57%, from $16 million in 2014 to $25 million in 2015.  From 2007 to 2014, the average surplus revenue was $15 million.  As for the surplus account – the money that rolls forward each year – it started out in the beginning of the year at $35 million, $25 million is budgeted to be spent in 2015, and so by the end of the year the balance will be depleted down to $10 million*.  

Mayor Fulop stabilized the tax rate in 2015, but he needed abatement revenue and two-thirds of the city surplus to do it.

The Value of Spin

The harsh reality is that  “stabilizing taxes” in Jersey City is an extremely difficult task given the structural imbalance between city spending and the growth of the ratable base. This reality will only be worsened if the state continues to flatline, or worse, retract state education aid.  Mr. Fulop could choose to be upfront about this problem and start to implement structural solutions.  After all, he didn’t create this problem; he inherited it. Unfortunately for taxpayers, he’s not fixing the problem. He’s spinning it.  And with the hiring of Mr. Jacobs, that spin just grew $110,000 more expensive for taxpayers.

* The ending surplus balance is not correctly represented in the 2015 approved budget online (there is a typo error in the budget), but it is available in the 2015 annual financial statement which can be obtained from the city.

13 Comments

  1. The city/council stabilized taxes (not spending) by taking taking $4m this year ($30m+ total) in over payments made to the JCMUA instead of returning to the rate payers. The franchise fees paid to the city by the MUA also were increased.

  2. With regard to pilots in downtown:The author doesn’t understand how state and federal tax credits related to affordable housing work. No city pilot (usually irs/hud require 20-30yr terms) means no state or federal credits for low income housing, no credits means no affordable housing. I don’t think that the author hates the poor and wants to keep low income children segregated (which sociologists agree creates ab ongoing culture of endemic poverty) but her lack of knowledge while speaking from a podium (as if she is an expert on development, taxes, & urban economics) is espousing those policies. Then again, I don’t know the author so I don’t know if she is ignorant to these facts or just wants to spread false information to serve another motive.

    • Interesting…I never asserted any knowledge of how tax credits work with respect to affordable housing. In fact, my post doesn’t contain the term “affordable housing” at all.

      Affordable housing isn’t something I’ve researched in detail but if you’d like to submit a detailed explanation showing the pros and cons of affordable housing vis a vis abatements I’m happy to share it on my blog. All I ask is that you source your numbers, provide a clear analysis that’s competently written, and that you provide a transparent explanation about who you are, what your background is, and why you care about this topic. Thanks for taking the time to comment.

      • In fact, my post doesn’t contain the term “affordable housing” at all.

        Exactly, but that is what practically all of the long term abatement/pilots that have been granted in the past year have been related to.

        For several years I worked for a real estate finance firm that focused on multifamily housing (it once had a large focus on affordable housing but that was declining by the time I joined, nonetheless, I was forced to learn about the dynamics because it was still a part of the firm’s legacy business). I’ve been out of that industry for a couple years now and have no connection to the industry or firm anymore. I care about the topic because I care about decreasing the socioeconomic divide that seems to be widening at an accelerated pace over the past 15 years. Furthermore, I am frustrated by the misinformation that seems to flourish in jersey city, espoused by self-taught

        • The data I’m looking at doesn’t substantiate your assertion that “practically all of the long-term abatements/pilots that have been granted in the past year have been related to” affordable housing. Is there additional data on your end that substantiates your assertion? If so I’d be interested in seeing it.

          Here’s what I’m seeing.

          City data here (http://cityofjerseycity.com/uploadedFiles/Data/Tax%20Abatement%20Dashboard%20File.xlsx) shows the 2014-15 long-term PILOT breakdown as:
          TOTAL PILOTS approved: 18
          TOTAL Affordable housing PILOTs approved: 3
          TOTAL MARKET RATE PILOTS approved: 15. Of which:
          – 2 are 30 year PILOTs
          – 4 are 20 year PILOTs for commercial hotels
          – 5 are 20 year PILOTS for market rate condos or rentals
          – 1 is a 20 year PILOT for an emerging market condo
          – 3 are 10 year PILOTs for market rate rentals or condos
          Note, this 2014-15 data does not yet include the “hybrid” PILOTs that include a minority % of affordable units in the building (PEP boys site and 431 Marin Blvd). There is a bit of a lag in the city release of data.
          Also – note that that this data includes 11 short-term (5 year) abatements).

          • as you mentioned, hybrids aka mixed-income developments (those with 20% affordable units and 80% luxury/market rate) are not listed as affordable.

            The constant complaining about PILOTs has been misdirected. The problem isn’t the impact to the ratable base (its a red herring). The real issue with pilots is the (sometimes questionable) inputs that are accepted and used for calculating the payment for rental buildings (where payment is based on X% of gross revenue). If the inputs were perfect then there should be very little difference in the total pilot bill versus a traditional tax bill (the pilot would still be preferable as it provides certainty which is important to loan originators and housing authorities/regulators). But as accountants, including you I’m sure, like to say… “garbage in, garbage out.”

            This is evident by the fact that several buildings with PILOTs are actually paying more in PILOT payments than they would under traditional taxes. I’m willing to bet that you will see a big change in the quality of the inputs for the PILOT-setting around the time of Schundler and declining further in quality under Cunningham and even further under Healy (thanks Bob Antonicello?).

            The fact that Mayor Fulop put in place an actual policy for setting abatement tiers is a huge step in the right direction. Hopefully it isn’t viewed as the last step as there are plenty of great options out there for improving how PILOTs are offered. But, in any case, GI-GO will always pose a risk (as it does for setting the ratable base and everything else).

          • “The fact that Mayor Fulop put in place an actual policy for setting abatement tiers is a huge step in the right direction.”
            Not really, because the policy is smoke and mirrors. The first policy (which used education “give backs” as an excuse to get PILOTs downtown) illustrated this…developers ‘bought up’ to longer abatement terms for relatively negligible terms given the cost of the tax break and the resulting impact on school funding. Both JC and NJ taxpayers will feel that impact. My post about his first abatement policy covers this in full.

  3. One major thing to note is that Jersey City’s official $6 billion valuation is not its real (“Equalized”) valuation. Jersey City’s Equalized Valuation is like $19 billion and is the highest, by far, in New Jersey. Equalized Valuation is used to apportion county taxes and state aid.

    (the $19 billion figure does not include PILOTed properties. PILOTed properties probably have an equalized valuation of $8 billion.)

    Jersey City has one of the biggest gaps in NJ between its official valuation and its Equalized Valuation.

    http://www.state.nj.us/treasury/taxation/pdf/lptval/2014/2014TEV_State%20Totals.pdf

    • Thank you for your comment. Yes, I 100% agree with you. I’ve looked at this data in detail Jersey City is one of the most disconnected in the state, vis a vis assessed vs equalized value. And equalized value doesn’t even capture the abated value. I’ll be writing more about this disconnect, and JC’s abated value, in upcoming posts.

    • Let’s be precise here. By “real valuation” I assume you mean market valuation, in which case you’re correct; that is about $19 billion excluding abated property. But I clearly state that $6 billion is the *assessed* valuation which has important meaning in terms of (a) lack of revaluation since 1988, (b) reason for relatively high tax rate at north of 7.00% and (c) reason for relatively low equalization ratio in the high 20s/low 30s. I realize that from a state education aid perspective, you’re probably more concerned with the market, or equalized, valuation since that’s what’s used in the state aid formula as an indicator of Jersey City’s wealth. But for taxpayers in JC, the assessed value has meaning too given it’s what used to compute the tax rate, and given the inequity that currently exists throughout the city due to certain areas that have seen great market appreciation vs. other areas that have seen a degrading of market values due to crime, foreclosures, lack of investment, etc. Hopefully this makes sense but let me know if you have questions or there is any lack of clarity. Thank you

  4. CP,

    Yes, you clearly said “assessed” valuation. I was only making the comment about the Equalized Valuation being much, much higher for the sake of informing readers. Since the post was about Jersey City’s valuation changing I thought it was worth pointing out that there is a huge gap between the assessed valuation and the Equalized Valuation (or “real valuation” or “market valuation.”)

    There actually is a way that Jersey City’s PILOTs could cost the school district state aid.

    The formula for a district’s Local Fair Share is based on Total Income and Equalized Valuation. Local Fair Share, in turn, is part of the equation for Equalization Aid, which is the major stream of education aid in NJ.

    The formula for Local Fair Share, FYI is:
    LFS = Equalized Valuation x 0.014909959 x 50% + District Income x 0.052921406 x 50%

    The valuation of the PILOTed properties does not count towards Local Fair Share, but the income of the residents does count. So, for every $10 million in total income a district adds or loses then its Local Fair Share changes by $264,606. If a district added or lost $100,000,000 its Local Fair Share would increase or drop by $2.6 million.

    The formula for Equalization Aid is:
    Adequacy Budget – Local Fair Share = Equalization Aid

    Anyway, the DOE does not distinguish between income from residents in taxable property versus residents from PILOTed property. Thus even PILOTed property would lower Jersey City’s state aid, although not as much as it would be lowered if the properties were not PILOTed.

    IF (that’s a big if) the state redistributed school aid Jersey City would lose aid due to all the development that has happened and part of that loss would be caused in part by PILOT-resident income driving up Jersey City’s Local Fair Share. The non-PILOTed property owners would thus have to make up for the lack of school tax paying by PILOT residents.

    Jersey City’s Local Fair Share is over $330 million. The real Local Tax Levy is only $110 million. With thousands of new apartments being built in Jersey City Jersey City’s Local Fair Share could soar to the point where it does not even merit Equalization Aid. If JC’s development were not PILOTed I think JC would already be at the point where it does not get Equalization Aid. (assuming SFRA were ever followed.)

    Jersey City is thus already due to lose a large amount of state aid. Ironically it’s Christie who is protecting Jersey City by refusing to allow any redistribution and refusing to follow SFRA altogether. At some point that protection will end and Jersey City’s aid will finally come down. At that point the controversy over the wisdom of development-by-PILOTs should intensify.

  5. StateAidGuy – thank you for comment above…very interesting and informing. I’ve shared your thoughts with others in JC.

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