I’m hopeful that our current city council will be inspired to act on these ideas as it has shown signs of willingness to move in a new direction.  I’m encouraged by many of their private and public comments especially around the subject of refocusing our economic development efforts on attracting disposable income. 

However, as promising as they are, they are still a legislative body and require leadership. 

If the Mayor chooses to exert leadership or at least anoints others to do so in his stead (perhaps citizen leaders), these are some of the big low cost ideas that we might pursue.  They are in no order and not mutually exclusive.

1)      Abandon residency restrictions

Our recent miss-steps and hiring disappointments should convince us that restricting employees to city residents is folly.  There are many smart public service oriented people out there that might help run a water department, a public works department or even a police department that for one reason or another can’t live inside Trenton’s city limits.  Trenton isn’t for everybody.

We shouldn’t let a person’s address stop them from helping us manage our way through a very difficult period.  We need help and we should look outside our city limits for it.  The old rationale for residency has proven to be false, let’s not let our provincialism hold us back.

2)      Accelerate property revaluation

The County is doing us a favor by forcing us to revalue our property.  As it stands now we’ve implemented a Rube-Goldberg approach to setting tax rates and then discounting them.  We have no idea what our actual property values are except when a property is sold or renovated. 

It’s only when investment actually happens that we can properly tax the hell out of it.  Meanwhile, older properties of equal value skate by at a lower effective discount off of market value.

It sounds unbelievable but we’re actually using our single biggest policy tool (taxation) to discourage investment in Trenton.  A smart city administration and council will recognize this and rush to fix it.  This is a specific area in which Fix Trenton’s Budget seeks to work with the city.

3)      Create a Master Developer for city owned property

This is brand new idea at Reinvent Trenton.

I recently made a big stink about a non-profit call Trenton City Home that the city uses to dispose of some city owned properties.  That complaint had two parts to it.  First, no one on council (much less the public) knew what it was.  It’s a shadowy subsidiary of the city with no public board and likely no tax returns. The second complaint was that the city was using this entity to funnel property to other non-profits and low income housing developers.

My read of the public and city council is that they are through with stimulating low income property uses and would rather see Trenton attract high disposable income residents. 

The Master Developer idea is similar to Trenton City Home except it won’t be secret, won’t be non-profit and will be aligned with citizen goals for increased population and disposable income

I propose that Trenton appoint a Master Developer to form a for-profit company with a public board to develop ALL of the city’s abandoned property.  This is a bit like a land bank. 

The company will be partially owned by private developers, the city of Trenton and private investors (including Trenton residents).  The city will deed clear title to this company on property it receives.  The developer, in turn, will seek to maximize return either by developing property itself or selling it to third parties. It will undoubtedly do this by focusing on creating critical mass for development neighborhood by neighborhood, rather than in a scatter-shot method as the city currently does.  Furthermore, this entity will be free to move quickly to capitalize on opportunities.  Specifically, the developer will undoubtedly find it expedient to resell properties to smaller developers who will augment efforts in a neighborhood.

By the city taking an ownership position in the entity, citizen’s interests are aligned with the developer’s profit motive.  The developer may also operate an investment fund that could allow individuals to invest their own money into the entity and thus create an additional financial opportunity for Trentonians (I’d invest). 

There are a lot of details to work out in this plan, but the key idea to move fast and increase flexibility in order to attract middle and upper income residents.

4)      Establish a partial land based tax

Reinvent Trenton has written many times about the land tax.  It remains one of the most intriguing mechanisms for using our tax code to encourage rather than discourage investment.

Today we discourage investment with a progressive tax that taxes high value investment more than low value investment.  At the same time there are private speculators who own vacant land in Trenton and pay very low taxes. 

Vacant land brings down the value of neighboring property and thereby destroys value.

We can both encourage investment and discourage speculation by establishing a land tax.  The land tax would compromise only a portion of the property tax (say 25%) but in so doing would increase the tax on vacant land and provide a mechanism to lower the tax on property improvements. Most homeowners would not see a difference in their tax bill.

However, new development would tend to be high end (you’d be better off building your mansion in Trenton than Princeton) or dense (with a lower tax on improvements why not build a tall building).  Meanwhile, we’d increase our revenues by increasing the tax on vacant property.  Speculators would be forced to sell to someone who could actually develop the land.

5)      Create a Strategic City Budget

Trenton’s city budget and departmental operations are a collection of years of neglect and are hopelessly out of date as no top to bottom realignment has been done in recent history.  Now that we have to do more with less, we need a thoughtful approach towards aligning our operations with our civic priorities. 

The Fix Trenton’s Budget Committee has proposed a priority based budgeting approach and along with Beautiful Trenton and TCCA plan to assist the city in implementing it.  We’re only waiting for a willing partner in city hall to work with us.

6)      Dissolve the city or at least rush towards regionalization

I’ll call this the “Mickle Plan” in honor of The Trentonian editor who put it out there.  Why are cities in NJ knocking themselves out to run so many school districts, police departments and public works departments?   All of the municipal funding problems the state is wrestling with (including Abbott Districts) would vanish with strong county governments.  Counties would naturally include economically diverse populations that could take care of their own local affairs.  Let’s remember that with 21 counties and 8,700,000  NJ residents, no NJ county government would be larger than a mid-sized American city.  Our most populace county is Bergen and has fewer than 900,000 residents.

A natural first step towards dissolving our municipalities is aggressive regionalization.  There are State sponsored programs encouraging this and though it isn’t likely that collapsing any service into a county-wide operation will save more than 10% in cost, 10% IS a big number.  Furthermore, we’ll be able to attract a higher caliber of management to a large county department than we could to a smaller city operation.

Other than a county-wide school system, which no sane person should oppose, complete elimination of our cities is a last resort or a far off goal.

There’s nothing on this list that can’t be done.  Even the “Mickle Plan” is within reach.  We just need leaders who aren’t afraid.

Editors Note:  I’m told John McManimon first laid out the ”Dissolve Trenton” idea  in a Trentonian Op-Ed last spring.  So all credit to him.  It must be the echo from him, as I bought my current house from John.

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.