The controversial use of tax abatements has drawn ire from critics in the past, bringing it to the forefront of last year's mayoral campaign. With long-term tax abatements, developers are exempt from regular fluctuating property taxes. Instead, they pay 2 percent of their construction costs annually or 15 percent of the property's annual profits to the city. The money does not go to school or county taxes.
On one hand, it's a good incentive to bring major developers to a city. On the other hand, the practice has been criticized in recent years because Jersey City is no longer so blighted that it has to offer incentive development. Critics want the more run-down parts of the city to gain when waterfront developers get these exemptions.
Cunningham said in the future, he wants to use tax abatements to lure developers west of the waterfront into areas more in need of new construction, like the Lafayette district. That objective is generalized in the policy's introduction that calls for tax abatements to secure "clear social and economic benefits for the residents of the city."
Departing from his inaugural promise to have the policy's creation led by Louis Manzo, a former mayoral candidate, Cunningham kept the project in-house. The policy's chief architects were Mark Munley, the director of Housing, Economic Development and Commerce, and Joanne Monahan of the Law Department.
While a memorandum from the mayor to the City Council cites Cunningham's long-term objectives for giving out tax abatements, the policy stays clear of specifics. For instance, an Affordable Housing Fund is described in the policy, but does not include any amounts or percentages that developers should contribute in exchange for the abatement.
As an alternative to contributing to the fund, Cunningham said that he would like to see developers create new affordable housing on their own and sell it on the market for the cost of the project, without making a profit.
Once again, though, this idea is not a requirement, but an item to be considered before abatements are granted. Each abatement would be negotiated on a case-by-case basis, city officials said.
Cunningham gave the policy to the City Council as an executive order on March 27. The council may look at it and decide if they want to change city ordinances based on it.
Case by case
Judging the effectiveness of the new tax abatement policy will have to be on a case-by-case basis as well. While Cunningham's rhetoric remains in line with his campaign promises, the policy forces his administration to realize those promises in practice.
"I will also advance legislation to mandate a direct link between the creation of market-rate housing and affordable housing and the construction of commercial office space with training and educational initiatives," Cunningham wrote in his memo to City Council. "Until that legislation can be mandated, I will ensure that this administration supports and prioritizes projects whose developers undertake some of these initiatives on a voluntary basis."
Cunningham said that legal requirements prevented the administration from using "tougher" language in the policy that would guarantee what is required from developers.
Instead, the policy enumerates a checklist of items that the Division of Tax Abatement Management would consider before recommending the abatement's approval.
Most of the items in that checklist mimic the former administration's policy, which was harshly criticized by the new administration for developing the waterfront while the rest of the city remained stagnant.
"I see this policy as an affirmation that what we were doing in the last administration was correct," said Ward D Councilman William Gaughan.
One difference separating the two policies involves the Affordable Housing Trust Fund. Former Mayor Bret Schundler's administration created a similar fund for recreational projects that allowed councilpeople to beautify parks and create activities for their ward. The new one would be for affordable housing.
Another difference is that the city's tax abatement committee, which studies each abatement, will now include a citizen. It presently includes the mayor (or a substitute for the mayor), Tax Assessor, Tax Collector, HEDC director, a mayor-appointed councilman, and the city attorney.
The issue about when to give tax abatements and what the city should get in return became a heated topic in the waning days of last year's mayoral election as Cunningham criticized the former administration's lack of judgement when handing them to waterfront corporations.
In specific, he cited the abatement given to Goldman Sachs as questionable, wondering whether the giant investment firm really needed such a financial incentive.
No longer using Goldman Sachs as an example, Cunningham said that he plans on issuing a study on the history of Jersey City's tax abatements to find out which ones were successful and which ones were unnecessary.
The overview will also allow the administration to audit companies given abatements in the past to ensure that they live up to their part of the bargain by being honest about construction costs and profits. In the past, the city realized $50 million in absent revenue when auditing Newport's tax abatement.
Having a tax abatement policy, period, is enough to make people angry. Critics of tax abatements contend that million-dollar corporations create more of a tax burden on homeowners by not paying full taxes. They say there shouldn't be abatements at all.
Those who support tax abatements say that the tax incentives are necessary to compete with other metropolitan areas for corporate dollars, and that the city receives the payoff in new jobs and new money spent in the area. Since Jersey City granted its first tax abatements in the early 1980s, the City Council has generally supported using them, differing in opinion on how the city should negotiate them with the developer.
"It's very important to have the mayor's perspective on how he's going to proceed with the abatements so the council will have input," said Council President L. Harvey Smith of the new policy. "From what I read, I saw minor changes that I would make."
In particular, he would like to see more specifics about how and where the city intends to build affordable housing. He would also like the term "affordable" to be defined in dollars, as it tends to have different meanings legally according to the income level addressed. But Smith does not think the city should negotiate solely for affordable housing either, remarking that some of those funds could be used to pay down the $54 million structural deficit the city is facing.
One Planning Board commissioner who didn't want his name used said that this policy resembles the former administration's policy and that it "should put to rest all the campaign issues brought up about abatements."
He noted the lack of new development in the city since the new administration came into office, amidst a looming a recession, and said that it demonstrates that "development ceases to prosper unless developers are given incentives."
Manzo said that the issue of whether or not tax abatements are needed in Jersey City should be studied by an independent organization before adopting policy changes. Where inner-city areas may need to provide an incentive to lure developers, the waterfront has a proven track record of making corporations money, Manzo said. Therefore, he said, the investment is less of a risk than it was when the Lefrak Organization first arrived on the banks of Hudson County.