I’ll get to the answer but first I’ll recap the problem and the solution.

Our economic problems are dangerous

Trenton’s revitalization issues can be characterized in two important and related ways:

1. We have a large income gap, Trenton has a $17,000 per capita income vs. $35,000 for NJ
2. We have a structural deficit of approximately $70,000,000 (approximated from 2010 Trenton city budget and our recent tax increase)

Our income gap is a problem because Trenton can’t sustain the services needed to support its relatively poor population nor does it have the disposable income necessary to support amenities like stores and restaurants.  Furthermore, our lack of wealthy residents with access to capital make it much less likely that local business formation will take place that would create a private sector economy.

Our structural deficit is a function of years of operating with this income gap.  Expenses like crime prevention, schools and social services have gone up while revenues from property tax have proportionately gone down.   The state makes up the gap in our structural deficit.  However, if funding dries up (which has started) Trentonian’s will be left with massive tax hikes (which have started) and severe reductions in service (which have also started).

Trentonians need to be reminded that we fund only 10% or our school budget and 25% of our municipal budget.  We’re at the mercy of the state for most of the rest.  This is a risky proposition and we’re now suffering the consequences.

If this situation continues, many Trentonians will be bankrupt by their high property taxes and property values will decline, perhaps sharply.  As service levels go down and taxes rise, a house in Trenton becomes less attractive to a new buyer.  Homeowners will not be able to sell their homes if they need to move and the elderly will leave less in their estates to their children.  The structural deficit destroys the value of all our investments in Trenton.

Our solution is massive immigration to Trenton

There is much to say about these two problems (however none of our political candidates have tried), bet let’s assume for a second that the solution is attracting new people to Trenton.

Readers should remember that though Trenton’s population has fallen to around 80,000, it once housed approximately 140,000 citizens. We have both the land and infrastructure necessary to accommodate significant growth in population.

We can fix both our deficit and our income gap by going on a crash program of attracting new residents.  And given the choice, we should strive to attract middle class and wealthy residents that have no need of social services and schools.

The kind of crash program that will make a difference will attract 30,000 new residents to Trenton and lead to the development of 15,000 new homes.  These homes will average $200,000 a piece (a low estimate) and will increase the tax base by $3 Billion.  Assuming a 2.5% municipal tax rate, our property tax revenue would go up $75 Million.

Such a crash program to stimulate mass immigration into Trenton will go a long way towards resolving both our structural deficit and income gap problems as these residents would have incomes closer to or above the NJ average.

ALL current Trentonians both wealthy and poor, homeowners and renters benefit from this.  All of us have an interest in avoiding the destruction of property values and the preservation of our level of municipal service.  All Trentonians prefer to see more not less amenities in Trenton.  None of this will lead to residents being forced out (we have plenty of underutilized space) or having their taxes increased (new taxpayers will help us eventually lower our taxes).

Our upside is huge

30,000 new residents seem like a lot of people.  At our budget committee meeting I wondered how we could attract such a large number.  I asked, “Wouldn’t we be limited to some subset of the people who move to Mercer County every year? “

A developer in our group corrected my thinking, and pointed to the REAL upside for Trenton.  Trenton can attract new residents not just from the pool that plans to settle in Mercer County, but rather from the entire New York and Philadelphia metro region.

The few developers active in Trenton are already drawing buyers from Philly and New York that can’t or don’t want to afford to buy in those cities but still want an urban lifestyle.  They are also drawing buyers from the suburbs who have grown tired of the sameness of strip mall life.  Furthermore, new residents to Trenton are typically middle income professionals with no children.  Also they won’t need jobs in Trenton.  These people exist in the two adjoining metro regions in vast numbers.  30,000 new residents is a small objective given the size of the potential market for housing in Trenton.

We need an aggressive plan to make this happen

Trenton’s development community needs both help and company.  They need help from a city administration that takes away ALL roadblocks to development.  The Inspections Department needs to take 4 hours instead of 22 days to approve a plan.  Developers should be able to easily buy city owned land not wade through a cumbersome process.  Owners of vacant private land (i.e. speculators) need to be forced to sell.  Politicians need to stop demanding that developers hire a quota of Trenton residents.  We need a revenue neutral property reassessment to lower our tax rate and make Trenton a better deal for new construction.  We need targeted infrastructure and police investment in neighborhoods being revitalized by developers.

If our city government, with the support of the citizenry, can force an overhaul of our development regime and effectively market Trenton’s relative attractiveness, new developers will enter the market to take advantage of the opportunity.  These new developers will join the existing ones in marketing their projects to buyers throughout the region.

Trenton does have upside potential, but so far you’ve not heard our 2010 candidates talk clearly about it.  Perhaps no one has explained the math to them.  I hope this article helps. But if it doesn’t, I hope residents can start asking how our politicians plan to close the $70 Million budget gap and the $18,000 per capita income gap.  I hope you’ll ask about how they propose to help developers attract 30,000 new residents to Trenton in the next five years.

The administration officially proposed a budget that raises property taxes by almost 20% which would make Trenton’s rate by far the highest in NJ.

The Mayor spoke first.  Let me summarize.

• The State doesn’t give us enough money given that they occupy a lot of land in Trenton
• The national economy is bad
• The petitioners that are fighting to have a public referendum on the sale of the suburban portion of Trenton Water Works are blocking a fix to the budget.

City Council asked a few questions mainly

• Why don’t you give us a 5 year plan – Annette Lartigue
• I’m not happy about this – Manny “The Grandstand” Segura

I take exception that our situation has been beyond our control

• The city’s budget and economy has been a problem for years.  Yet, as Ms. Lartigue suggests, there’s never been a real plan to fix it.  I wish she’d demanded it 5 years ago. I pointed out to Council and the admin two years ago that a minor retrenchment in state funding would cause a severe tax hike.  Nothing happened.
• It’s always been the case that the economy might go south, yet during the boom years our Mayor was literally encouraging sub prime loans in Trenton.
• The Mayor and City Council did the wrong thing by not letting the Water Works sale go to a vote, and now it’s backfired.  What were they afraid of?

The administration is guilty here but Council has blame; as they have an obligation to be guardians of our budget.

• At any point, they could have forced the issue of a 5 year plan for revitalization.
• At any point, they could have appointed a citizen’s commission (which might have included the petitioners) to review the budget and recommend fixes.
• At any point, they could have asked the administration, who claims they’ve been planning to sell the Water Works for 10 years, to sell the idea to the public.

Council did none of these things until last night (2/23/2010), just as the citizenry is about to be very angry about a catastrophic tax increase one month before an election.  An election, by the way, which finds three of the council members running for mayor and everyone else leaving office.

I’m not the only one that feels let down.  However, I’m not giving up quite yet and I have a plan.

I am forming a citizens group to review the Trenton budget and develop a way forward. I ask economically-minded citizens to get involved by emailing me at dan@trentonlofts.com.

We won’t wait for approval, rather we’ll band together to lobby for a revitalization minded budget that works to not just cut services to avoid bankruptcy, but serves to make Trenton great again. I’m busy and wish I didn’t have to do this but like many Trentonians, my property tax bill will for the first time be higher than my mortgage.  What’s worse, this structural deficit and resulting tax policy will push away investment in Trenton, which will further deflate the value of my property.

A group of citizens is doing this in Princeton and is having some effect.

I can’t afford not to bring my business background to bear on this problem.  I hope thoughtful Trentonians will join me.

We’ll review the budget, decide what’s important for investment and what should be cut.  We’ll create our own 5 year strategy. Then we’ll present our recommendations VERY publically.  If enough of Trenton’s citizens can help, we’ll be a formidable force.  Hopefully, the administration and council will welcome our help.

While our elected officials should be accountable for our economic problems, we’re all to blame.  Let’s take our role as citizens seriously and fix this.

How did we accumulate such a big shortfall? This is a subject that doesn’t get enough attention.

The reality is that Trenton has been focusing on the wrong priorities for quite some time.
• We’ve given lip service to attracting high income and middle class residents.
• We’ve scared away business development by threatening to force investors to hire Trenton workers.
• And, we’ve embraced every program for the poor there is, thereby increasing our overall cost to serve.

We thought we could get away with all of this because we were pretty successful at begging the State for charity (Trenton pays only 12% of its municipal and school budget).

So now we have a $13M shortfall because the economy turned south and the State’s budget is taking its own hit. As Reinvent Trenton predicted almost two years ago, when the State coughs, Trenton will get pneumonia. See, Trenton’s budget is in worse shape than you think.

The Mayor wanted to put a band-aid on the problem by selling off an asset, The Water Works. But a group of citizens decided to challenge the tactic for a variety of reasons, some more sound than others. The net result is that the petitioners in their effort to block the sale are rubbing the Mayor’s nose in his budget failure. The Mayor can’t argue that it’s the petitioner’s fault. An ongoing concern should never have to sell off assets in order to balance an operational budget.

In a way, the petitioners are rubbing all of our noses in our failure to elect mayors and council members that understood how a city works well enough to avoid this budget disaster. If you look at it that way then they’re probably doing us a favor. We failed in our role as voters. We need to correct our error at the polls this May.

However, the petitioners are wrong in two major areas:
1) The Water Works outside of Trenton is NOT strategic to our city and therefore SHOULD be sold. If not now, then it should be sold sometime in the future.
2) The dramatic increase in taxes will accelerate Trenton’s demise by scaring away investment.

Cooler heads could have prevailed to work out a deal to force a constructive compromise. However, both sides were too stubborn to do what was best for Trenton. The administration could have agreed to aggressive tactics and citizen oversight to fix Trenton’s management issues. The petitioners could have realized that the sale was non-strategic and in the best interest of the city. They didn’t and now both the Mayor and the petitioners are likely to take the ship down with them.

We, the voters will get what we deserve.

Ask any Trenton native and they’ll tell you how proud they are of the city, “I’m Trenton Proud”.

What?

We’ve done such a great job running the place that our industry has left town, our education level is among the lowest in the state and we’re on the verge of bankruptcy.  Yea for us!

And now here come the candidates.

You’d think running on Trenton’s record of achievement and their role in it would be a dubious strategy.  But you’d be wrong.

The very first words on candidate Eric Jackson’s web site are, “Born and raised in Trenton ….”.  He’s as much as saying yep I’ve been part of this mess all along.

Keith Hamilton takes a curious nostalgic view.  The first words on his site are, “Keith grew up in Trenton, making him a part of its past.”  Candidate Hamilton is directly linking himself to our past failures.

Alex Brown holds out to the end of his Mayoral pitch to provide his Trenton bonafides, “As a life long resident of Trenton and a graduate of Trenton Central High School”.  Of course Brown may have bigger issues if he’s running on his record as a school board member of the under-performing Trenton School System.

In a refreshing respite from the Trentonitis that infects our municipal elections, candidates Pintella, Lartigue and Mack have chosen to refrain from playing the “born and bred” card.  Instead their web sites deal mostly with their positions on issues.  Whether or not you agree with them you’ve got to respect a candidate who doesn’t resort to nativism in a potentially divisive campaign season.

Candidates Segura (not born and bred), Weeden (also not born and bred), Watson (not born and bred), Harmon (born and bred) and Fuller (nobody is certain of his origin) unfortunately don’t have web sites preferring to remain mysterious.

So what’s really wrong with “born and bred” as a campaign platform?  What harm can there be in making this accident of biology and geography central parts of the stump speech?

In a campaign, candidate’s messages have meaning.

• When they make a virtue out of one thing, they imply its opposite is a vice.
• When they brag about a quality they possess, they are saying those without said quality are lesser in stature.

It came up in the 2006 election cycle when Councilman Coston was attacked for his relatively short eight years of Trenton residency.

It’s as if the candidate is saying, “The other guy is no good because he wasn’t born here”.  By extension, they’re also saying that every newcomer to Trenton is inferior due to the unfortunate circumstances of his/her birth city.

As one young native Trentonian pointed out on a recent FB discussion on the subject:

“Hell, we have had homegrown folks (the Mayor and most of City Council were born and raised in Trenton) running this city into the ground for the last 20 years and look where it has gotten us”

It seems a bit counter-intuitive to run on “Born & Bred” as a strength unless you had another message in mind.

“Born and bred” divides Trentonians into us and them.  It’s code to other Trenton natives that newcomers can’t be trusted.  “All those sneaky “carpetbaggers”, they’ve moved here to take advantage of you.  Stick with me and we’ll show them”

So who is the code language aimed at?  Me, for one.  I’ve been here only nine years.  Similarly it refers to all of the other new Trentonians that have invested in neighborhoods like Mill Hill, Hiltonia, Glen Afton, Cadwalader Heights and Trenton Ferry.  Trenton’s new middle class are easy targets.

But who else?  Well, a big majority of Trenton’s various Hispanic communities weren’t born here.  They’re foreigners for gosh sake!  Just like in Martin Scorsese’s “Gangs of New York”, nativist candidates are creating a sense of us versus them. It’s an ugly political tactic we see playing out in national politics as well.

Most importantly the “born and bred” crowd is suggesting that non-native candidates like Segura and Weeden are simply unqualified because they didn’t spend their formative years watching Trenton decline.

Some might think this doesn’t matter much.  After all don’t we have bigger issues?  We do, but let’s not continue to brand newcomers as outsiders.  It’s important to Trenton’s revitalization that it be perceived as a place where you can quickly put down roots and be part of the community.  Creating an extra qualification for inclusion in the inner circle of city life is counter to the objective of growing the city.

I’m sure the apologists and campaign workers for the candidates will say, “they’re just being proud of their heritage”.  I say, words have meaning.

Show your pride with campaign platforms that will make a difference.  Don’t beat us poor unfortunate non-native voters over the head with the superiority of your birth pedigree.

Eminent domain should be an issue in our 2010 elections as it is front and center in the city’s train station redevelopment plan.  Furthermore it has been used or threatened over the years in many Trenton development projects.  Do we as Trentonians want our new crop of political leaders to wield this weapon?

There are two types of negotiations: successful ones and unsuccessful ones.

A successful negotiation is where a deal is struck.  A deal can only be struck when both parties feel they have profited from it.

We’ll use the example of a developer wanting to buy a property from a homeowner.  The development is large($100,000,000) and will cost the developer $200,000 to change the plan if he can’t buy the house.  The homeowner wants $60,000 but fears it will only be worth $50,000 if he doesn’t sell because there will be a big office building next door.

There is a key concept at play here called BATNA.

• BATNA stands for Best Alternative To a Negotiated Agreement.
• Each party has an implicit BATNA and has it in the back of their mind.
• The BATNA has a certain value to the party.

With no eminent domain on the table the homeowners has the power.

For instance, in the case of a homeowner, not coming to a deal might mean they have to stay in their home.  However, the future value of their home might be diminished in the case where a developer is building around them.  So, although the homeowner might like to sell for $60,000, in the back of their mind, not coming to an agreement is unsatisfying because their properties value will be diminished.  The BATNA would therefore be the perceived value of the property after development has happened around them plus the intrinsic value of not having to move or pay transaction costs let’s say $50,000.

In the same deal, the developer has a very different situation.  He might be happy to buy for $60,000, but if he can’t make the deal bad things will happen.  His “alternative” to striking the deal is to redesign the project or maybe relocate it.  This could be expensive so it’s conceivable that the BATNA could be very high, perhaps $200,000 for a large project.

If the above negotiation is unsuccessful, everybody loses.  The homeowner’s property is de-valued AND the developer gets a big hit in costs.

In this situation you might say the homeowner has all the power, and you’d be right.  Conceptually the developer would pay up to $200,000 for the home in order to avoid change costs.  The savvy homeowner knows this, so he likely won’t settle for just $60,000 and will try to stick it to the developer.  The property is simply worth more to the developer than to the homeowner.

Conceivably they could come to a satisfying deal at very close to $200,000.   The developer can’t economically reject the deal and the homeowner would be crazy not to milk it for everything its worth.

Enter eminent domain.  Eminent domain is the power of government to condemn and force the sale of a property.

City’s and lets be clear about who the “city” is in this case.  Politicians who have an interest in new development either because they’re honest and seek tax revenues or because their dishonest and receive donations from the developers, have big interests in development.

Therefore, they have extended the use of eminent domain, from its traditional use in clearing land for roads and schools to the modern manifestation in preferring developers over small home and business owners.  There is much more tax revenue and/or graft to be had from a $100,000,000 office building than a $60,000 home.

City and state lawmakers in NJ have agreed that eminent domain should be used to tip the balance of power in a property negotiation.

With eminent domain in the mix the power shifts to the developer

The homeowner wants to sell for $60,000 but know that if he doesn’t reach a deal he’ll be forced by the city to sell at a price set by a third party.  Furthermore, he knows that it will cost up to $5,000 in lawyer’s fees to challenge the price offered by the developer.  Let’s say the homeowner spends $500 for an appraisal that says the house is worth $50,000.  The implicit BATNA is therefore $50,000 – $5,000 – $500 = $44,500.  The homeowner’s BATNA is now $5500 worse than without eminent domain.

On the other hand the developer has a different BATNA as well.  Assume the same appraisal and legal costs and the same $50,000 excepted sale price should the government have to step in.  The developer’s BATNA is therefore $50,000 + $5,000 + $500 or $55,500.

If all parties are thinking clearly they will come to a deal  likely at $44,500 because the developer has no reason to go higher than the homeowner’s BATNA.  This is $15,500 worse than $60,000 he wanted.

So what’s the problem here?

There is a gap in value of $155,500 in potential deal price for the homeowner before and after eminent domain.

In this case, we as citizens would have sanctioned the right of the developer through the power we have vested in our government to use force in such matters, to overcome that $145,000 difference.  We have said to the homeowner that his land isn’t really his to sell, it’s ours and the politicians that represent us, to do with as we please.  This legal concept has been upheld as being consistent with property rights from our days as English colonies when the King literally controlled the use of all property.

In Trenton, we can choose to use eminent domain or not.  The same is true for NJ.  However, we as Trentonians have the opportunity to decide whether our neighbors will be forced to negotiate with the effect of having a gun to their head or not.  We can choose to take eminent domain off the table or not. City council can resolve to deny eminent domain requests.

The effect of this decision will be that smaller development projects will be more likely in Trenton because large ones have the bigger requirement to acquire large parcels of land.  The overall cost of development for large projects will necessarily go up.

The negotiated deal price without eminent domain isn’t as dire as I have left it.

Remember the BATNA for the homeowner was $50,000 and for the developer it was $200,000.  There is therefore a wide range of prices, from $50,000 to $200,000 that will make both buyer and seller happy.  Studies show that more often than not (and depending on all sorts of negotiating tactics) the price will be exactly in the middle of the two BATNAs or $125,000.

The homeowner will be ecstatic and the developer will be OK.

There will certainly be homeowners that will stand in the way of progress no matter how much money they are offered.  And yes we as citizens will be held hostage to what is often a deranged approach to negotiation.  It happens.  However, we all have our reasons for loving and wanting to hold our property.  The city can wait until we’re over it.

For such a drastic action to be taken against homeowners the Train Station committee should have shown some benefits. They have a lot of questions to answer.

• Will the new buildings pay taxes? How much and when?
• What is the likelihood of long term success?  Please show your work and assumptions.
• What impact on income in Trenton will the development have?  Won’t most white collar workers commute to Trenton?  Again, show your math and be prepared to explain why secretaries in the new buildings from Trenton will simply changing jobs for the shorter commute.
• How would income levels rise?  Are these new white collar jobs going to Trenton’s unemployed?
• What costs will the city bear in upgrading infrastructure?  Be honest and include everything.
• If all we’re doing is creating secretarial jobs in Trenton so some folks can have a shorter commute then don’t we feel silly asking our neighbors to give up their homes.

There are many policy choices a city can make short of taking away peoples homes that will favor development.

• We can limit eminent domain to abandoned properties
• We can change our tax system to favor dense development (i.e. the land tax)
• We can reassess property in Trenton to force older homes to pay their fair share and put old and new development on an equal tax footing
• We can clean up our neighborhoods making them more attractive for investment
• If it’s really important to us, we can sweeten the deal for a developer (though let’s make sure the property will pay taxes)

Finally and well beyond the economics of the situation …

• Ask yourself who in the current and future crop of politicians has an interest in any aspect of the development
• Are they associated with development of any part of the project including Hope VI?
• Have they received campaign contributions from any entity involved?
• With so much money involved and so much pain likely to be caused, are we doing it for the right reasons?
• Hopefully, our journalists, competing candidates and bloggers will be able to uncover any hidden truths.

Which are you?  How do you think Obama leans?

Taxation is a major tool of public policy. It shapes our lives whether we know it or not. We reward home ownership with the mortgage deduction. We keep fuel taxes low relative to other countries because we want to prop up interstate commerce. We tax the rich at higher rates in order to redistribute the wealth.

When the modern US tax code was shaped, cities were perceived to be dirty and propping up the auto industry was important. Sixty years later the US is full of single family homes in suburban sprawl with high debt to income ratios vs. other countries.

Trenton’s budget is mostly spent on basic services. It’s hamstrung in that Police, Fire, public works, debt service and schools make up close to 75% of our total spending. This leaves a relatively small amount with which to spend on policy choices that might affect revitalization and taxation as the only powerful tool in our revitalization arsenal.

Trenton’s tax rate is among the highest (top 10%) in NJ. In 2008 (the latest NJDCA data), Trenton’s effective tax rate (2.639%) is the 43^rd highest among 566 taxing municipalities in New Jersey.

The effective tax rate is the tax compared to the actual property value rather than the assessed value which is set artificially low in most towns.

As an example the city might legislate a 4% tax rate. But that rate is applied to the assessed value of a home. Assume a home is worth $100,000. The assessed value is often kept lower (either by custom or because recent assessments haven’t been done). Let’s say the assessed value is $60,000 (a typical discount in Trenton). Then the tax would be $2400. The effective tax rate would be $2400 / $100,000 = 2.4%.

Comparing the effective rate rather than the dollar amount allows us to compare apples to apples. For instance, people in Princeton might say their taxes are high (their effective rate is 1.69%) but they aren’t. A home assessed at $200,000 in Princeton would yield property taxes of $3380 but the same home in Trenton (our effective rate is 2.639%) would yield a whopping $5278.

It’s true that homes in Princeton are more expensive than Trenton. However it’s also true that while taxes on a $500,000 home in Princeton would be expensive, they would be crushing in Trenton.

Our high tax rate is a deterrent to investment in the city and furthermore our high taxes suppress home values and vice versa.

Trenton has systemic chronic budget shortfalls. Our combined municipal and school budget is around $400M per year. Of that, Trentonians pay only around $56M. If the State or Federal money that funds 75% of our expenses dries up (as it currently is), Trentonians will face either massive tax increases or massive decreases in services (see Trenton’s budget is in worse shape than you think).

Because Trenton has continued to lose residents and failed to attract new ratables and because the State and Federal governments are no longer providing the same levels of aid, Trenton is in a budget crisis. Estimates are that we may face shortfalls as large as $20M within two years.

We’ll never overcome this chronic problem unless we find a way to attract new ratables. We’re not talking 10 or 100 units, Trenton needs to grow by over 50%.

Since 1999, Trenton’s ratables have gone up .5% per year. Meanwhile, the average for NJ cities has risen 7.7%. While Trenton has had an increase (as the Mayor correctly claims) it is less than inflation and far behind our neighbors. This lack of economic growth explains the yearly increase in our tax rate of almost 2% per year over the same period. (Source: NJDCA)

Our taxes are unfair and don’t reward investment. All property taxes in NJ are based on the value of the property being taxed. This provides a disincentive to invest in property improvement, the very thing that cities like Trenton need. We are structurally crippling revitalization.

Cities put a band-aid on the problem by abating taxes or offering developers PILOTS that allow them to avoid paying property tax. However, this is unfair to those who are paying full freight.

Furthermore, taxation in Trenton is unfair because assessments of property values are not done regularly. There are properties in Trenton that have not been reassessed in over 10 years. This is unfair to newcomers whose properties are automatically reassessed at purchase time. Newcomers are subsidizing long time residents. This is another disincentive to attracting new residents when we need them most.

How can Trenton’s tax system lead to revitalization?

Reinvent the property tax system to align with a forward looking strategy.

Let’s fix the government policy that affects every current and future Trenton resident the most: taxes. Let’s reward dense urban development rather than punish it. Let’s welcome new residents with the same tax rates as long time residents. And finally, let’s simplify the tax structure and publish it (and the budget) on the City’s website for all to see.

This proposal is meant to be revenue neutral. The subject of how much tax we need to collect is very different and indeed less important than how we collect it.

The Reinvent Trenton tax plan proposes to

• raise assessed values,
• lower the tax rate,
• shift tax burden to owners of vacant land and
• reward dense “energy efficient” development.

Land based taxes will stimulate investment. Every Trentonian will agree that vacant property is an important problem. Yet we’ve done nothing about it.

Owning vacant land year after year is damaging to the value of property around it and invites criminal activity that seeks out unlit and unwatched shadows.

So why would a property owner not develop the land? Because they can get away with it and speculate that something will happen to increase its value without their having to invest a dime. The answer is nothing will happen and the vacant property prevents it. Because property tax is based on the value of the property and a vacant property has little value, the owner’s tax burden is low. So the owner pays little and destroys value around him at the same time.

Instead let’s shift our tax burden to these negligent property owners. We can tax all property owners a land tax based on the acreage they own. We would do this byassigning, say 20% of the tax burden to a land tax and reducing the property value tax accordingly. This works out to about $420 per parcel of land in Trenton (divide 20% of tha tax bill by the 24,000 parcels of land in town). Existing homeowners will be made whole by decreasing their property tax rate from 4.4% to closer to 2.3% as in the example below

Pre-existing Homes*	Today		Reformed
Trenton‘s Average House Value		$104,066		$104,066
Average Assessment	60%	$62,439.60	100%	$104,066
Land Tax				$ 420
Property Value Tax	4.4%	$2,747.34	2.3%	$2,393.52
Total Tax		$2,747.34		$2,813.52.0
Effective Tax Rate		2.64%		2.70%

* 2008 numbers from NJDCA

With a new land tax speculators won’t make out so well. A vacant land owner with a $10,000 piece of land would pay about $260 a year today to keep taxes current. With the land tax in place that would be more than doubled to almost $650. Importantly, that land owner would have an effective tax rate much higher than the city average and would be incented to either sell or develop the land.

Vacant Land	Today		Reformed
Trenton‘s Average Lot Value		$10,000		$10,000
Average Assessment	60%	$6,000	100%	$10,000
Land Tax				$ 420
Property Value Tax	4.4%	$264	2.3%	$230
Total Tax		$264		$650
Effective Tax Rate		2.64%		6.5%

Many Trenton residents complain that the city itself holds too many vacant properties. With the new tax structure in place, there would be a much greater incentive for the city to sell or even give away its inventory of property in order to generate land tax revenues (see The case for dumping city owned property).

With the land tax in place there will less need for abatements as new construction will be taxed at a much lower rate. The new 2.3% would be similar to Hamilton’s rate, rather than Trenton’s current 4.4% current rate.

Fairly distribute the tax burden. While we’re revamping our tax system it’s only fair to make the city’s assessments current. Trenton’s long time residents need to pay their fair share. While reassessment will naturally raise taxes, it should also lead to an overall reduced tax rate. In theory, if 95% of homes haven’t been reassessed in 10 years, then even a 100% increase in home value would lead to a tax increase of only 5%. This assumes the budget stays constant and the tax rate decreases by 50%.

Having all Trentonians on the same tax payment plan is only fair and again will serve to incent immigration to Trenton. Trenton can quickly become a tax-friendly city for newcomers if we’re all paying the same rate.

Make budgets and taxes transparent

Finally, a sure way to keep taxes and budget in control is to make sure it’s easy for the voting public to see both. Today that is not the case. Trenton’s current tax rate is not on the city’s website, nor is access to the current property tax database. Citizens and activists have to search 3^rd party websites for information about Trenton’s finances. The first step to revitalization is transparency (see Trenton as a Turnaround Opportunity).

With the combination of a land tax, property value tax, reassessment and transparency: Trenton can use its most powerful power tool, taxation, to revitalize the economy.

Bill “S-3116” greatly expands the role of CCRC by

• Board Composition – Adds the Commissioner of Transportation and the Commissioner of Community Affairs to the board of directors of the CCRC to replace two gubernatorial appointments and adds two more public members to the board. Of the seven public members, four shall be appointed by the Mayor of the City of Trenton and three shall be appointed by the Governor. In addition, the bill provides for staggered terms of the board members appointed by the Mayor;
• Gubernatorial Veto – Provides for gubernatorial veto of the minutes of board meetings;
• Conflict of Interest – Prohibits a member, officer, employee or agent of the CCRC from being interested, either directly or indirectly, in any school facilities project, or in any contract, sale, purchase, lease, or transfer of real or personal property to which the CCRC is a party;
• Oversight Committee – Eliminates the Capital District Oversight Committee;
• Loan & Grant Fund Management – Transfers the management of the Capital City Redevelopment Loan and Grant Fund from the State Treasurer to the CCRC;
• Borrowing Capacity – Authorizes the CCRC to borrow money and issue bonds and notes and other obligations of the CCRC;
• Fee Collection – Permits the CCRC to charge and collect fees;
• Marketing – Allows the CCRC to market all private development projects undertaken within the Capital City District;
• Joint Partnerships – Permits the CCRC to enter into partnerships or joint ventures with private developers and public entities for the purpose of community redevelopment;
• Redevelopment Authority – Authorizes the CCRC to act as a municipal redevelopment entity on behalf of the City of Trenton and authorizes the CCRC to act as the redevelopment entity on behalf of the State for any State surplus property located within the Capital District; and
• Subsidiaries – Allows the CCRC to form, purchase or assume control of one or more subsidiaries.

What good can come of this?

• If you read the above with a suspicious eye, as one should when reviewing political deals, you’ll recognize the potential for malfeasance.
• The first four bullets describe who gets to feed from this trough of political favors and the second seven bullets describe the trough.
• How would you fee if the state created an authority to exert this kind of control over your neighborhood?

The citizens of NJ and their legislatures should tread lightly on the relationship between the citizens of Trenton and their government. If the state seeks to take over Trenton as it has in Camden, then the Governor should be clear about it. This proposed “half takeover” leaves the citizens of Trenton in a governmental limbo.

The history of urban revitalization shows government spending as the problem, not the solution.  Government gave us Rt. 29 which cut off our waterfront, Canal Banks which destroyed a neighborhood through urban renewal and arenas that don’t stimulate revitalization. The state built a $105M tunnel in Trenton that doesn’t accommodate commercial traffic as intended. In 2004, Trenton’s government supported a developer’s plan to bulldoze 8 square blocks of the South Ward through the use of eminent domain. Another quasi-governmental agency, Trenton Housing Authority sought to get federal funds to build a new HOPE VI project in South Trenton, which luckily failed and instead a private developer has built market rate townhomes on the same property.

Even today, NJHMFA, another government enabled “authority” continues to fund Trenton development only when those developments include subsidized housing. Most Trentonian’s agree that we’ve absorbed too much subsidized housing in the city. Yet NJHMFA continues to force us to take it as a pre-condition for its help in funding revitalization. In this regard, NJHMFA is rogue authority.

Famed urban studies author Jane Jacobs called government revitalization money “cataclysmic”. She goes on to link the availability of government money to the rise of underworld influence.  This bill would be a disaster as it puts Trenton’s fate in the hands of non-elected government bureaucrats.

CCRC and its board won’t have their own financial skin in the game rather they will be playing with yours and my money. Despite the best intentions of the individuals involved, they will be subject to non-economic political forces that will warp this use of taxpayer funds. CCRC claims that they are self-sufficient which is disingenuous. If they didn’t depend on the power of the government to force tax collection, pay debts and levy fees they would be better off being a private development company. But they’re not a developer; they are a government agency pretending to be one.

There are developers in Trenton who will support this measure as they may benefit from the largesse the CCRC will be able to throw around. But on whose back is that largesse created? The answer is the taxpayers of NJ and the common citizens of Trenton. The opportunity for government to enrich a few and the expense of the many will be ever present in the CCRC after the adoption of this bill.

To be clear, Reinvent Trenton desperately wants developers to be successful in Trenton. But trampling on the rights of citizens is no way to do it. Further confusing the role of government is no way to encourage progress.

Developers in Trenton will all be happy if

• the state would simply sell off its downtown Trenton property (i.e. the parking lots)
• the city of Trenton could streamline its technical inspections operations
• NJHMFA could lend money at good rates but not complicate the development process with subsidized housing requirements

Citizens would be happy if when developers bought these state lands, those lands were immediately returned to the tax rolls by virtue of a land tax. A land tax would discourage speculation and encourage development as the value of the improvement would be taxed at a lower rate than today. (See The “Reinvent Trenton” Guide to Fixing the Budget)

But this is not what Bonnie Watson Coleman is proposing (the bill is sponsored by Senators Raymond J. Lesniak and Joseph M. Kyrillos Jr.). Rather than proposing government get out of the way of the development process, they propose that government take a bigger role in it.

Is this what Trentonians and New Jerseyeans want their government to do?

]]> http://livingonthenet.com/wordpress/an-ill-conceived-partial-state-takeover-of-trenton/feed 4 http://livingonthenet.com/wordpress/the-arrogance-of-green-economics http://livingonthenet.com/wordpress/the-arrogance-of-green-economics#comments Fri, 18 Dec 2009 22:52:57 +0000 adminst http://livingonthenet.com/wordpress/?p=55 How many of us have started industrial scale businesses that have gone on to produce great value and therefore great wealth? How many have started industrial companies that produce “green” products?

I suspect none.

I know plenty of entrepreneurs (some successful) but not one has started a successful industrial, much less “green”, company. One can argue that the U.S has regulated all industrial production green or otherwise out of the country.

The fact is that there just aren’t that many new industrial scale companies including “green” companies making solar panels, electric cars and alternative energy production equipment.

And yet politicians at all levels of government have the arrogance to suggest that they are smart enough to prefer “green” companies over all of the other endeavors that men can set their minds to. Why so arrogant? Well, because the public buys it.

Most of us aren’t sophisticated enough to know that new business formation is extremely risky. We typically don’t understand that even when things seem obvious that they’ll work they won’t. We don’t understand the depth of investment and commitment a new industrial scale business takes. That’s why forming a successful business, needs to be very rewarding. Because, more often than not, they fail.

Yet politicians at federal, state and local levels continue to champion “green” over all other businesses. Do they know something that the rest of us don’t? Yep they know that the public will eat up their rhetoric and doesn’t understand the underlying economics of business formation. “Green” is the darling of moment and talking about it is like using candy to entice a child.

The Obama administration has perhaps taken it further than even the most arrogant politician could imagine. They are putting “green” patent applications ahead of all others. Effectively this means that a process for increasing fuel efficiency in lawn mowers will step ahead in the already long line for other patents. Fuel efficient lawnmowers could beat out a process to cure cancer. How warped. How arrogant.

Trenton has its share of arrogance. There are politicians running in the 2010 municipal elections who are touting green jobs in Trenton. Really? Are those politicians prepared to invest their own money in a solar panels or electric cars? Not likely, it would be far too risky an investment given the uncertainty of the underlying technology and the scale of worldwide competition chasing an industry that survives on government subsidies.

Instead they are counting on us to think they are singlehandedly finding jobs for the unemployable and combating global warming with just their words. If anything they’ll look for ways to use our money (tax dollars) to fund risky investments that they’ll claim are beneficial.

It’s a con.

Really, is Trenton so picky that it would turn down “non-green” business investment?

As an alternative, Reinvent Trenton suggests you pay attention to politicians who propose to create a better overall business climate in Trenton. Short of bribing businesses to locate here, how will they improve the investment atmosphere?

Today’s Trenton business atmosphere is toxic. Development is hard and cumbersome. The tax rate is high. There are few wealthy residents living here that might invest. There are few educated workers. And, Trentonians are generally hostile to industry.

Yet, in the face of these hurdles, Trenton’s politicians are talking about “green” jobs. Who do they think they’re kidding?

Last Christmas, I wrote an article about how community spirit is a necessary and present ingredient for Trenton’s revitalization.

“Community spirit as an economic engine”

Beautiful Trenton is the best example of that spirit to date but there are problems.

A small group of citizens have taken it upon themselves to assemble a larger group of Trentonians (around 150) to discuss Trenton. All of the organizers and most of the 150 are people who’ve been civically engaged before but many were new. I always wonder what the other 82,850 residents are doing.

The Beautiful Trenton meeting was interesting not so much for the content but in the assemblage of both veterans of Trenton’s civic life and newcomers. I hope the newcomers stick with it. I really hope those newcomers find their way to reinventtrenton.com.

However, as wonderful as it was to meet new people, the Beautiful Trenton movement is fatally flawed and I sincerely hope the organizers will address the issues.

The current process includes:

1. Inaugural Community Café to identify and examine emerging themes and questions for a vision of the future of Trenton

2. Written Responses from invited participants exploring the questions and ideas generated from the Café.

3. A day of reflection, using a model of reflective discourse, in which invited participants will move beyond their authored pieces and engage each other in conversation.

4. A Culminating Community Café, held after the day of reflection, in which both the general public and invited participants will seek to identify actions Trenton residents can take to guarantee effective and responsive leadership in Trenton.

5. The results of the culminating Community Café will be used to produce a Candidate Questionnaire for all mayoral and city council candidates.

If it sounds “New Age”, that’s because it is.

As I see it, there are several important problems with this process.

The expected output is unsatisfying.

• The output is a questionnaire, not too different from the countless questionnaires produced by various groups every election cycle
• There’s a lot of time and effort being spent to produce an output short on the depth necessary to show the way forward and teeth sharp enough to make insure plan is followed.
• There is no plan for building a lasting political force in Trenton
• We don’t need talk, we need rocket scientist level thinking and in your face political force to change Trenton

Beautiful Trenton is undemocratic

• Beautiful Trenton seeks to be part of the democratic process, however the group’s outputs will be interpreted at the whim of the organizers
• The organizers will then be free to represent their interpretation as the will of the participants. Notice that the written pieces are written by “invited” / hand selected people
• There is no democratic check and balance over the interpretation (i.e. no vote)
• There’s nothing stopping the organizers from using this exercise as a power building platform
• By the end of the process not a single vote will have been cast and no membership role will have been created

All is not lost however, the organizers just need to make some modifications to their process.

I suggest Beautiful Trenton become a “new” political party

• A new political party could build its platform using a process similar to Beautiful Trenton’s current plan
• Citizens would explicit identify themselves as members of the group
• Meetings would be held with citizen volunteers to develop different aspects of the platform

• Debates on platform planks would be held
• Beautiful Trenton Members would vote on the resulting platform
• They would also vote on the leadership of the group
• Members would vote to support candidates who adopted the platform
• The party would take an oversight role going forward (for instance budget and policy reviews)
• The group doesn’t ever have to run a candidate just organize people to keep the ones we have in line
  

Community spirit is only useful when it turns into tangible results rather than meaningless talk. Voting is the difference between serious political action and a mob rally.