In what some City Council members say could be a dangerous precedent-setting case, a divided City Council has approved a revised tax abatement deal for a new residential development in Jersey City Heights.
The vote on Wednesday was reminiscent of a situation in 2009 in which the developers of Crystal Point in the downtown waterfront area requested that their abatement deal be modified due to bad housing market conditions. After the council agreed to sweeten Crystal Point’s deal, other developers with abatements requested similar consideration.
The amendment approved Feb. 22, modifies the city’s abatement agreement with Hudson Palisades Urban Renewal LLC, the developer of 325 Palisade Ave., a three-story, 21-unit residential building.
Developers often enter into a tax abatement agreement, or payment in lieu of taxes (PILOT), to pay a separate fee to the city instead of paying fluctuating property taxes. This keeps their tax rate stable over a number of years. The amount they pay is sometimes equal to regular taxes, and can be based on a percentage of their profits. The money goes directly into the city budget and does not support local schools, although developers pay a nominal fee for county taxes.
However, such deals are controversial, because regular taxpaying residents feel they must shoulder a bigger burden of the taxes that the developers avoid.
The original intent of such deals was to draw developers to blighted areas.
Under the city’s original 2009 contract with Hudson Palisades, the developer planned to renovate the dilapidated building and convert it into market rate rental housing. In lieu of conventional taxes, the developer further agreed to pay the city a 10 percent fee based on its annual gross revenues for 10 years. For the next 10 years of the 20 year deal the developer agreed to pay 12 percent of its annual gross revenues.
“This creates nothing but a bailout.” – Councilman Steven Fulop
Thus, the developer requested, and the council approved, that the building be converted to condos instead of rental units.
Under the new agreement, which still carries a 20-year term, Hudson Palisades will pay a 10 percent fee for the entire duration of the abatement. The developer also agreed to pay a two percent administrative fee and to make a one-time contribution of $34,973 to the city’s Affordable Housing Trust Fund.
Changes to the Hudson Palisades agreement were approved by a vote of 5-4. Council members Steven Fulop, Viola Richardson, Rolando Lavarro Jr., and Michele Massey voted against the ordinance. Council members Michael Sottolano, Nidia Lopez, Peter Brennan, David Donnelly, and William Gaughan voted in favor of the measure.
“This creates nothing but a bailout,” Fulop said. He argued that development comes with risks and property owners who pay conventional taxes should not assist developers who “mis-time the market.”
He further added that developers with abatements essentially have two options: they can either fulfill the terms of their abatement, or decide to pay conventional taxes.
“What you’re essentially asking for now is a third option, which doesn’t exist,” Fulop said to DePierro.
Richardson agreed. “I feel [DePierro’s] pain, because Palisade Avenue is an area that is in need of redevelopment,” she said. “But...there are people who have lost their jobs, who can’t afford to pay their taxes. They don’t have an opportunity to [renegotiate] their taxes…He already has an abatement. I’m not willing to take that away. But I’m not willing to amend it either because I don’t want to see that kind of precedent. I remember when we did this downtown for Crystal Point. We did it and then right after someone else came for the same thing that we had given to the other development.”
In June 2009, Fisher Development Associates, the developer of Crystal Point, went before the City Council and requested that its abatement deal be improved. Due to the downturn in the economy, and tightened credit requirements for potential homebuyers, Crystal Point had sold only 24 condo units at that time. The 36-story development has a total of 269 units.
The developers asked the city to extend their abatement from 20 to 30 years and lower their annual tax payments.
A divided City Council approved the sweetened abatement deal by a vote of 6-3. Within months of that decision K. Hovnanian Homes and EQR, the developers of 77 Hudson, requested that a similar deal be approved for their residential housing project. In that instance, the council unanimously rejected that request.
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