Tax Base Trade-Offs: Policy Trade-Offs with Abatements (UFB-5 and UFB-6)

This post is part of a Civic Parent’s series, Take Your Seat at the Table: A Taxpayer’s Guide to Decoding Your City Budget. This series is a plain-language walk through New Jersey’s Municipal User Friendly Budget (UFB).

In my previous post I looked at the idea of structural imbalance. In this post I want to dig a little deeper and share insights about abatements, which can invite structural imbalance, as we’ve seen play out in Jersey City.

“What happens when an abatement expires?”

This is valid question and one that we can “see” in the tax data; I’ve attempted to thread the needle below so readers can follow along. This post is a very limited view of the issue; this is complicated, laden with nuance, and so I encourage further learning and exploration; see links at bottom of the post for more reading.

Let’s use the UFB budget document to see some of this play out. I’ll also dig into the tax records where the more nuanced details are recorded.

A caveat: this post looks at this issue at a macro level; I am not exploring impact on an individual homeowner (e.g. condo unit owner within an abated high rise) though I invite questions if you have them (comments are open).

Let’s walk through the logic, starting with a primer on abatements vs the tax base.

Abatements <> Tax Base

Abatements are not part of the tax base. This is explicit in the public data, and it’s clarifying to understand why.

First, the state of NJ classifies every real estate parcel with a specific code. For example:

• Class “1” is vacant land
• Class “2” are homes limited to four families
• Class “4c” are apartments with five or more families
• …and so on – read the state law excerpt to learn more …
• And it ends with Class 15f: “Other Exempt” includes “real property exempt from taxation but not described in any of the foregoing classes.” — this is where the abated property is.

*I’d be remiss not to point out: the numbers here are *assessed* values … not market values. A very important metric on this page is the “Average Ratio” and that is 79.59% and that is telling us that all the numbers on this page are only 79.59% of market value. In a way, you can look at these numbers as stale … they are based on a 2018 revaluation and thus dated, like old bread left out and no longer fresh. I do not want to go down a “reval rabbit hole” here but did want to say: evaluate these numbers with caution. 

Now that we’re grounded in “taxable” (aka “the tax base”) vs “tax exempt,” let’s look at an example of a building that recently moved from the right side of this frame to the left side, when its abatement expired in 2022.

Example: $737K of lost revenue when Portside Towers abatement expired

Portside Towers is a rental building in downtown Jersey. Unlike a condo building, its ownership is not fragmented into hundreds of individually owned units on the tax rolls. So it is a simple, and notably big, lens into what happens when a building converts from abated property to conventional property.

Here are relevant facts:

1– Portside Towers obtained an abatement in 1992. I found this interesting article about the building in the NY Times from 1991.

2– The Portside Towers abatement was for 30 years; it expired in 2022.

3– Before it expired, we see it listed in the 2022 User Friendly Budget. We can see some basic facts, including that Portside:

• Was assessed for $114,053,200,
• Paid $1,692,094 in PILOT Fees,
• If taxes had been paid in full it would have paid $2,415,645

4– Then, the next year (viewable in the 2024 UFB budget), Portside dropped off the abatement listing on UFB-6. The abatement had expired.

5–Starting in 2023 we can see the entire property’s tax record online which shows the $114,053,200 assessed value, consisting of $26,730,000 Land value and $87,323,200 of Improvements (building) value.

These are basic, public facts. But this is a big change in just one year; it’s an example of the structural change I referenced in my earlier post, pointing to abatements as “revenues at risk.”

PILOT –> Property Tax and “Structural Imbalance”

I wanted to compare how much revenue this building generated for the Municipality before and after the abatement expired. So I put the data into a spreadsheet (screenshot is below) and here is what happened:

• First, the bottom line: the municipality of Jersey City appears to have lost more than $737,000 annual revenue when this building converted to conventional property. This is because:
  • In 2022, the building was paying its entire $1.6M PILOT fee to the City (a small portion does make its way to the County but it’s marginal and not material to this point)
  • Then, in 2023, the building started paying $953,000 in property tax to the Municipality. The building also started paying property tax to the schools and county. But the Municipality’s share of income went down.

This decrease to the Municipal budget is what UFB 4 is pointing to when it refers to “revenues at risk.”

Policy Trade-Offs

It’s important to point out here: the abatement arguably did its job. This building, which in the early 1990s was “awaiting renewal” is now contributing $2+ million per year in property tax. This is one valid, albeit simplistic, way to interpret this data and the outcome at the far end of 30 years.

The trade-off is budgetary imbalance as the Municipality must grapple with evaporating PILOT revenues among other issues.

Further Reading