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Remarks Made at Trenton City Council 12-21-17

NOTE: At the beginning of last night’s City Council session, West Ward member Zachary Chester announced that Ordinance #17-80, for a 10-year tax abatement proposal for 101 South Warren Street, would be taken off last night’s docket and postponed until next Month, pending review of the application by the NJ Department of Community Affairs. Since I was at last night’s meeting, and can’t make any meetings in January, I gave these remarks anyway.

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I oppose the Passage of Ordinance #17-80, granting a long-term tax abatement for 101 South Warren Street. I oppose it on two main principles. The first is policy-based. The second on the application itself and the  City’s approval process.

During the past year, residential and commercial property owners in the City of Trenton were hammered by the results of the recently-completed property tax revaluation process. Increases in assessed value for many property owners were increased by 100%, 200% or more, while the resulting tax bills spiked in ranges exceeding in many cases 50% to over 100%. Council knows my opinions on this very flawed process, but at this point we are all condemned to live with the results. Or, sell and move out, potentially at a huge loss. Everyone is in the same boat.

Everyone, that is, except the lucky few who can avoid the sting of this tax increase, and petition the City to abate their taxes, often for the same property, time and time again.

How bad is the problem? Last week the real estate site Trulia published a list of the 11 cities and metro areas in the United States that would be poised to suffer the most from the newly-passed federal “tax reform” bill. As part of that exercise, Trulia gave the “Home value at which the local property tax bill will exceed $10,000 a year.”  It’s a very revealing list:

Newark, NJ

$468,957

Chicago, IL

$519,453

Long Island, NY

$522,432

Houston

$583,371

Austin, Tx

$619,641

Fairfield County, CT

$783,275

New York, NY

$848,752

Cambridge, Mass

$866,626

Boston, MA

$988,190

San Jose, CA

$1,561,628

San Francisco, CA

$1,762,341

Trenton, NJ

$212,000

Let me ask you all whether you honestly think that a $212,000 property owner in Trenton is getting the same local services bang for his or her buck as the $1.7 Million property owner in San Francisco, or even the $469K owner in Newark?

How is it that taxes are so low in all of those communities, when the overall cost of living is so high? In most of the above cases, a thriving business community and strong commercial property values help to effectively subsidize residential property owners. Even in Newark!

Here, in Trenton we do the opposite. Our residential property owners are repeatedly asked to help subsidize commercial property, in the form of tax abatements.

The 10-year abatement on 101 South Warren Street would cost City taxpayers at least around $300,000. This is on top of the significant investment the City has already made in the property. The City bought the property in 2001 for $164,000, and awarded $202,425 in Urban Enterprise Zone program funds in 2007. This does not include the cost of a 5-year tax abatement granted by the City in the last decade, which figures aren’t available to me tonight.

The City has already sunk more than $365,000 into this property, and is being asked for another $300,000, or more. Meanwhile, how much have Trenton property taxes increased for everyone else in this room? How many of us have the opportunity to appeal to Council for a bottomless well of subsidy?

None, I will hazard to say.

For this applicant tonight, what is the alternative should this abatement not be granted? In the project Application submitted in March this year, we read on Page 4, “In the event the Applicant is unable to obtain financial assistance for the Project, the improvements and conversions will not be feasible and will not be constructed. Further, the existing multi-use building will continue to operate at a significant loss to the Applicant forcing the Applicant to terminate all leases immediately and shut down the building.”

Really? Is that the only alternative? Can’t the Applicant seek to SELL the building? Is abandonment the only alternative? Are there factors left unstated in this Application that make a sale impossible?

Yes, the current owner might be forced to sell the property at a loss, but isn’t that one of the hazards of owning property as an investment? Isn’t that a reality facing each and every property owner in Trenton right now? Why should we guarantee financial solvency for this particular owner, and why should we have to keep paying to do so?

Since I quoted the Application, I want to make a few brief comments about the second reason I oppose this measure tonight. The application process and the way it has been handled by the City.

As the main rationale for this proposal, the Application states, on Page 4

“Based upon the occupancy of the existing apartments within the building and the location in downtown Trenton (near multiple State offices and private offices) the new, market-rate apartments are anticipated to be occupied by single professionals or couples who work in downtown Trenton. As described in the attached Exhibit J, there is a strong demand for market-rate apartments in downtown Trenton.”

Again, Really? Could the current owners of the Broad Street Bank Building perhaps tell us how strong the demand is for market-rate apartments for single professionals and couples? Perhaps not that strong.

And what does the “attached Exhibit J” tell us about this strong market? Councilmembers may recall that I wrote to you two weeks ago asking to look at this market analysis before approving this? Well, you probably shouldn’t have bothered. The attachment does nothing to bolster the applicant’s case. It is a one-page, three paragraph note written by a knowledgeable City-based commercial real-estate broker that states it is a response to a request for “an opinion regarding apartment rental activity in the Trenton, New Jersey market area.” It goes on to say “In the past two or three years, property owners that offer good quality new or freshly renovated apartments, have reported strong leasing activity with relatively low vacancy rates, typically under 5% overall.”

Vague enough for you? This letter says nothing about downtown, and nothing about single professionals or couples clamoring to rent market-rate apartments downtown. As evidence to support the application’s principle argument, this is entirely unpersuasive.

A more quantitative analysis is available on the website Zillow.com. Their figures and graphs,

https://www.zillow.com/trenton-nj/home-values/ suggest that Rental prices have softened substantially since their recent market peak in 2015, and are projected to be flat over the next year. A “strong market?” In the Trenton metro area, as Exhibit J suggests. In Trenton proper, perhaps not so much, since Zillow shows Trenton city average rents to be only 2/3  of the market area as a whole.

I have problems with the financial projections  attached to this application as well.  In a 10-year projection of income and expenses, the applicant assumes that over the next ten years his apartment lease income will increase only 7.5%, while his commercial lease income will increase 19%, almost three times as fast. So why is the applicant talking about converting commercial space to residential?

I just don’t see the numbers. Is the applicant being overly conservative with his income numbers? Is he understating his income numbers?

There are other odd inconsistencies in the numbers I see in the proposal. In the original March submission, for instance, a note states that the building is to be refinanced for $1.3 Million at 5.5% for 20 years.  In a later undated projection, the note states the refinance amount to be $1.4Million at 7% for 20 years, increasing all of the Mortgage projections accordingly.  It’s a small discrepancy, but in the absence of other narrative or analysis, perhaps telling.

Is this difference in projections inflating his expense numbers while depressing his income, giving an overly pessimistic forecast of the viability of this property? I don’t know. I can’t see that for sure.

Speaking of what else I don’t see, I filed an Open Public Records Act a few weeks ago, which led to the release of materials that contains some of the information I have referring to, which is only half of what I requested. I also asked for documents that the City used to evaluate this application, and which City officials used to recommend the approval of the Abatement Application you are considering this evening.

Documents used in preparation of “the underwriting analysis of the application” as stated in the very  language of the Ordinance. And documents that Director Diana Rogers told Councilmembers Bethea and Reynolds Jackson on December 7 in Session here that she could share with you.

Similar materials I have received from the City in the past, in response to previous OPRA requests  on matters such as Swimming pool and IT contracts, and the selection of payroll services years ago. Materials that showed that other proposals were evaluated by committees of city officials, assigning scores and making recommendations.  There is nothing of that sort attached to this matter that has been released, only a November 17 memo from Director Rogers recommending the project, seemingly on her own say-so.

In this memo, Director Rogers also says, “With the expiration of the short-term PILOT’s, the taxes due have more than tripled which renders the project unsustainable.”

Wow. A huge tax increase. Imagine that. “Rendering the project unsustainable.” Who’d ever think of such a thing?

The City has declined to release further information. As of tonight, I have no way to interpret that refusal other to conclude that the material has not been released because it does not exist, and that this proposal  to be approved by you tonight was advanced solely by the Director herself, with minimal to none formal analysis. Of course, you on Council have the ability to pursue that topic further, to your satisfaction.

To conclude, I oppose this measure tonight because it asks to forego several hundreds of thousands of dollars to this project that has already been the recipient of a great deal of City resources.  I oppose it because this request comes right on the heels of “unsustainable” tax increases the rest of us have to bear, somehow.

And I oppose it because the Application may be very flawed. It bases its economic model on a vague and inconclusive “market analysis,” and the financials suggest suppressed income and elevated expenses. These items bother me about this application, and I have no confidence in the thought that the City performed the detailed analysis that would have been required to address these concerns.

I urge Council to vote no on this Ordinance. Thank you.

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