Archive for April, 2014

Historically (before Mack and Christie) the state funneled four main sources of revenue to Trenton:  Capital City Aid, CMPTRA, PILOTs on State Buildings and Energy Tax Receipts.

Two of those sources, CMPTRA and Energy Tax Receipts, are meant to be pass-through payments the state collects from corporations on behalf of every city in NJ.  CMPTRA includes business taxes (but in the case of Trenton also included some ill-defined PILOT payments). Energy Tax Receipts are paid from utility company fees.  It turns out that the State has been shortchanging cities across NJ for many years in both of these revenue streams.  Neither of them have transparent funding formulas.  The NJ League of Municipalities has taken the State to task over this but Trenton has been silent up until now.  Support for A-2753 to end diversion of Energy Tax Receipts is especially important.

There is no very accurate measure of the level that we have been shortchanged but experts in Trenton estimate the amount to be in the millions.  The next Mayor of Trenton will add his voice to those of other municipalities in formulating a better mechanism for transferring the money that rightly belongs to the cities.

The State discontinued the Capital City State Aid program in 2011.  It was essentially replaced with Transitional Aid though, at a lessor amount as you can see in the revenue charts below.    Capital City State Aid was a very undependable source of funding because it had no formula and was supplied through a yearly act of Legislation.   Obviously this Governor has decided that this outright grant is untenable.  I agree with him.

Transitional Aid was meant to be transitional, a gradual decrease in State funding with a lot of conditions monitored by the Dept. of Community Affairs (DCA) but really, the State wanted a plan to revitalize the city, a plan that it never got.  All of us in Trenton are aware of how that has gone under the Mack administration.   Because DCA and the Governor couldn’t trust our former Mayor, funding was cut and the restrictions became tighter.

The final form of funding is what’s most important for our future relationship with New Jersey.  Several State owned buildings in Trenton have had negotiated PILOTs with the City.  There is no rhyme or reason to this other than it was a mechanism in which to transfer additional funding to the City for various reasons.  Only a handful of State buildings have PILOTs.  The total amount comes out to about $9M.   This is an ad hoc approach to funding.

No State in the U.S. has any obligation to pay a City anything.  Governments can’t tax each other.  However, many States understand that especially in Capital cities the state is a major property owner and employer and must behave more like a corporate landowner.   I propose that we formalize this approach through negotiation and State legislation to generate a funding PILOT based on either the assessed value of State land in Trenton or the proportion of land owned by the State.   The Fix Trenton’s Budget group has analyzed this issue by examining the city’s tax rolls and report that the State of NJ owns roughly 19% of all property value in Trenton.  However, we have reason to believe these values are under-assessed by quite a bit (perhaps 50%).   Additionally, the State owns about 28% of the acreage in the City.

The question is, if the State were taxed like a corporation, what would it pay?

Let’s say that after a reassessment the State is found to own 30% of the land and property value.  Total values in Trenton are roughly $4B.   Our current tax rate is 3.85%.  Therefore the State could theoretically pay 30% X $4B X 3.85% = $46.2M.   This is more than it pays today in Transitional Aid and PILOTs (roughly $32M) but less than it did in 2010.   This is a good formula.

Trenton is in a dire situation though and we do need the State of NJ’s help in recovering from this.   Our next Mayor will do well to ask for State assistance in many areas mainly around legislative relief to overhaul our tax system and create incentives to invest in Trenton.   In the meantime we will request that Transitional Aid be maintained until our economic plans can begin to bear fruit, likely 4-5 years.

Jim Golden’s Trenton Forward plan is unique in that it includes a detailed plan to revitalize the city that specifically seeks to rid us of the need for transitional aid as long as our funding formulas can be formalized.   The BIG goal in that plan is to make Trenton much more self-sufficient.   Our lack of self-sufficiency puts us all at risk because our budgets will be uncertain.   We’re entirely too dependent on the whims of a Governor or Legislature.

Trenton Revenue Source Comparison

Source:   Trenton City Budgets, Fix Trenton’s Budget.

Trenton Forward “Asks” to New Jersey: Beyond the Funding Formulas

• Support for consulting project to define and implement Best in Breed
• Seek a Land Value Tax capability to replace PILOTs and Vacant property registration fees
• Allocate $50M to a Residential Investment subsidy over 10 years
• Enact enabling legislation for Income Tax Credit Zone that caps state income taxes in Trenton
• Continued funding for temporary police assistance

The fundamental reason Trenton has abandoned / vacant properties in Trenton is that it costs more to rehab a property than it would be worth once completed.   We can help developers and potential homeowners by lowering their financial cost, establishing a more fluid market for vacant / abandoned properties and creating a marketing message that includes more people who might be interested in living in Trenton.

I estimate the number of abandoned / vacant properties to be over 3,300.

In general Trenton will have to attack the problem of revitalization of abandoned / vacant properties one neighborhood at a time starting with downtown.   We don’t have the resources, yet, to address the entire city at once.

Our efforts will address both city owned and privately owned abandoned, vacant and underused properties.   For city owned property our goal will be to get them on the tax rolls, not make money from selling them.

1) Lower the cost of revitalization

Enhance our tax and subsidy package for redevelopment

• A standardized Revenue PILOT for large projects reduces risk for developers and provides transparency for all taxpayers into how the city works with large developers
• A graduated abatement on improvements of up to 15 years.  This includes the existing 5 year abatement plus a new abatement in redevelopment areas as per NJ law
• We will add an additional subsidy on improvements in the downtown district

Reduce risk for redevelopers by

• Improving the public safety situation while development is going on
• Increasing code enforcement on adjacent buildings in focus areas

Launch Homesteading in a few neighborhoods

• Properties will be sold to homeowners for $1
• Abatement Programs will apply
• Buyers will be matched with local contractors and architects where needed
• Neighborhoods will apply to participate and will be required to show support

Demolition: where a buyer wants it and our professionals agree it’s appropriate, we will sell a property to a developer, cleared.

2) Establish a more fluid market.

Use the NJ Abandoned Properties Act in Trenton for the first time.  It’s been used now in Jersey City

Track all vacant properties with help from

• Efforts from non-profits like Isles, TCCA
• Expanded responsibilities in our economic development and inspections department to track and identify vacant properties (our proposed budget will include funding for this)
• Making a city-wide ticketing system available that allows residents to report abandoned properties

Outside Legal help on Closings to speed up a process that has been woefully slow and disorganized

4 hour inspections appointments instead of the current practice of allowing 22 days to review simple plans

3) Create demand by

Establishing a public / private marketing entity “Trenton Sells” co-founded with realtors and developers. This group will be the conduit for our marketing efforts.  It will:

• Publish a web site and newsletter
• Target Millennials along the Northeast corridor
• Publish our vacant property inventory on the web site
• Hold regular Open houses for the city

Matching up homebuyers with architects and contractors.   We can make renovation easier for buyers buy helping them find local development help that knows how to work in Trenton

Developing a neighborhood level branding plan. Neighborhoods will have the opportunity to sell their neighborhoods by establishing the right message. Hopefully the Master Plan includes this work

Pitching to New Urbanist Developers. There are developers who specialize in building urban neighborhoods.  They are part of a large and growing national trend.  A revitalization-minded Economic Development department will seek out these developers and invite them to Trenton.

Key Reorganization tactics

Reorganize inspections under the Economic Development Department. This will focus inspections on the job of meeting our goals

Set measurable goals that require us to put property back on the tax roles

• Increase our ratables by 10%
• Increase our population to 90,000
• Track our progress on reducing abandoned properties

State regulatory Asks

The job of a Mayor is to make sure the State is working for us, not against us.  A Trenton Mayor should work with our legislative team and urban Mayors across the state to enact pro-redevelopment legislation.

Land Banks: Potential enhancements to our ability to use Land Banks beyond what is currently in the Abandoned Properties Act.  We want to provide mechanisms engage for-profit firms to help and to make sure our laws help us deal with quiet deeds and that they don’t prefer subsidized housing.

Land Value Tax: A two tier tax system can be used to make it harder to hold on to vacant land and profitable to develop it.  Land Value Tax legislation would provide a cleaner mechanism to encourage redevelopment than tax abatements as it would be available to all property owners.

Urban Income Tax Zone: Push to have Trenton become a test city for an urban income tax zone.  The maximum income tax bracket in Trenton would be set at 2% instead of 5% making it very attractive for higher income New Jerseyeans to move to Trenton.