The price of progress?
Think tank says state law allows tax millions to be diverted for private projects; questions NYC financial firm move to JC
by Ricardo Kaulessar
Reporter Staff Writer
Oct 17, 2010 | 2995 views | 0 0 comments | 10 10 recommendations | email to a friend | print
NEW HOME FOR SUBSIDIZED FIRM – The Depository Trust & Clearing Corporation (DTCC), a Manhattan-based financial services firm, is planning to relocate 1,600 jobs to Jersey City by 2013 in the 570 Washington Blvd. building (pictured here). In order for DTCC to relocate, a subsidy package of tax incentives was offered to the firm from the state’s Economic Redevelopment and Growth (ERG) Grant program. The DTCC deal is the subject of a recent report weighing its pros and cons.
NEW HOME FOR SUBSIDIZED FIRM – The Depository Trust & Clearing Corporation (DTCC), a Manhattan-based financial services firm, is planning to relocate 1,600 jobs to Jersey City by 2013 in the 570 Washington Blvd. building (pictured here). In order for DTCC to relocate, a subsidy package of tax incentives was offered to the firm from the state’s Economic Redevelopment and Growth (ERG) Grant program. The DTCC deal is the subject of a recent report weighing its pros and cons.
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You do the math: $100 million in public investment, to attract 1,600 jobs to Jersey City. That works out to a grand total of $62,500… per job.

The think tank New Jersey Policy Perspective has issued a report titled “The Good, the Bad and the ERGly” showing how the state and municipalities take advantage of the Economic Redevelopment and Growth (ERG) Grant program, New Jersey’s newest tax increment financing law, to redirect state and local taxes to subsidize private projects.

One example cited in the report is The Depository Trust & Clearing Corporation (DTCC), a Manhattan-based financial services firm, which promises to relocate 1,600 jobs to Jersey City by 2013 – once $100 million in tax subsidies are used to entice the company to cross the river.
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A $100 million subsidy package was used to attract 1,600 DTCC employees to Jersey City.
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The report also shows how the ERG, which it says can be effective in some ways, contains flaws that need to be addressed.

The DTCC deal was considered a successful chapter in the city’s continuing effort to brand itself as “Wall Street West.” Getting the company to move those 1,600 employees was a project two years in the making. But as the report points out, it comes at a very high price in public investment.

The ERG, whatever its flaws, is still seen by local officials as a helpful tool to bring businesses to Jersey City. They tend to see attracting business as an end in itself, without talking much about what the end benefits are for the city and its tax-burdened residents.

An ERGly situation

The ERG, created in July 2009 during former Gov. Jon Corzine’s administration, is an example of what is known as tax increment financing (TIF).

TIF is a complex subsidy, used in 49 states, that applies anticipated tax returns to pay for improvements in a redevelopment area. Undeveloped land usually has a low property value and tax assessment, but if a project is proposed for the property that will increase its value, TIF allows a municipality to borrow against those anticipated tax revenues to help finance the project, and then pay off the loan when the tax revenue rolls in. If you’re a developer, it’s a way to reduce your financial risk by letting the municipality help pay for your project by borrowing against tax revenue it hasn’t even collected yet.

An example of how a TIF would work is one that was considered for Jersey City a few years ago. In 2008, the developer of a two-tower, 1,500-unit project in Journal Square was pursuing a TIF setup to finance the construction, which would cost an estimated $600 million.

The project was controversial precisely because of the borrowing the city would have had to do. Then the economy soured, and with that, the project remains a concept, never having started construction.

Attracting a firm to JC

In the case of DTCC, there is no building to be constructed for the firm, yet a $100 million subsidy was offered to the corporation consisting of a patchwork of grants and redirected taxes.

A $14.6 million grant, part of a package to be paid out to DTCC for 20 years, will be financed from a portion of the corporate business taxes DTCC would otherwise be obligated to pay the state.

This grant for DTCC, according to the NJPP study, typifies the problems the think tank found with the ERG program in general. In particular, eight state taxes, including gross income tax and hotel and motel occupancy tax, and 11 local taxes, including property taxes and PILOTS (payments in lieu of taxes) done under an abatement agreement, have been redirected to finance the ERG grant.

Along with the $14.6 million grant, the subsidy package was also made up of a whopping $74.6 million Business Employment Incentive Program (BEIP) grant by the state; Hudson County threw in $5 million, or one third, of its entire $15.1 million allocation in tax-exempt Recovery Zone Facility bonds from the American Recovery and Reinvestment Act; Jersey City bestowed on the firm $5 million, or over half, of its $9.7 million allocation in federal tax-exempt Recovery Zone Facility bonds, as well as $1 million in Urban Enterprise Zone (UEZ) relocation grants to be paid out over four years.

In contrast to these arrangements, the NJPP report recommended that no state level taxes should be eligible for an ERG, and every ERG project should be approved by the state, municipality, county and school district where it is to be located.

City welcomes incentive

Jersey City officials prefer to see the good rather than the “bad and ERGly” in offering such incentives to attract businesses.

Jennifer Morrill, spokesperson for the city, is quite clear on the city’s intention to continue using the ERG. “Yes, we will be looking to utilize [the ERG], and other, financial incentives on a project-by-project basis.” Less clear, or at least not mentioned by anyone in officialdom very much, are exactly what tangible benefits those 1,600 new jobs will bring to the city.

City Councilman Steven Fulop, who represents the downtown area where DTCC is relocating, also favors the use of the ERG to bring businesses to town.

“My feelings have always been that Jersey City contributes more in jobs and revenue to the state budget than what we receive in turn,” Fulop said. “So, when there is an opportunity for state grants and leveraging state programs, Jersey City should capitalize on it.”

Fulop, who is running for mayor also touted the other benefits of so much money being committed to attracting so few jobs.

“From my standpoint, the more people working, the more you see living near work, and they energize the area by shopping and eating,” Fulop said.

The city was in agreement with Fulop’s points on the benefits to the city that comes with businesses relocating to Jersey City as well as one major financial upside.

“Additionally, having global corporations like the DTCC on this side of the Hudson River, brings millions of new income tax dollars to the State of New Jersey,” Morrill said.

Ricardo Kaulessar can be reached at rkaulessar@hudsonreporter.com.

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