Posts Tagged ‘NJ’

She didn’t stand for the foolishness

The news of Trenton City activist Pat Stewart’s passing has hit me hard.

It’s difficult to let a friend go, especially one that you’ve stood beside for so long and in so many capacities.  I can’t remember exactly when I first came across Pat Stewart.  I was new to Trenton’s political scene and Pat seemed to know everybody.   Everybody.

But no matter who she was talking to, whether friend or not, she spoke her mind including to me.  Pat would not tolerate what she saw as foolishness.  And frankly we’ve had more than our fair share of that in Trenton.

The Reinvent Trenton blog owes quite a bit to Pat Stewart.   My first foray into real politics was with the Lamberton Historic District Committee over Doug Palmer’s plan to tear down the Kearney homes and replace it with a new government housing project.   She  couldn’t understand  why we’d  tear  down  one  housing project which, in her words “was strong enough to withstand  a nuclear war”  just to build  another one.   We like to think that our efforts helped defeat that project.  Because of that effort we now have very nice market rate (non-government) housing on that site.

Pat, along with that same group, rallied the South Trenton neighborhood in opposition to Leewood  Development’s proposal (again with Doug Palmer’s support) to bulldoze 8 square blocks of historic housing stock along Centre Street.  Though  hers and  the group’s  efforts   over 300 residents showed up  at several citizen’s  meetings to oppose  the  project.   The opposition was eventually too intense for Palmer and Leewood and they retreated.

With these successes under her belt she encouraged former City Councilman Jim Coston   to organize an urban studies book club for residents who wanted to be better educated about revitalization issues.   For many of us, this group was our education.  We read the literature on urban revitalization and invited guest speakers of national renown to talk with us.   It’s an education that led directly to this blog. Pat Stewart was a ring leader of that group.

My affiliation with Pat has continued throughout almost all of my civic endeavors.   She was a leader in the Trenton Council of Civic Associations and was vocal with the Trenton Republican committee.   She joined me in Fix Trenton’s Budget and Majority for a Better Trenton. She put her hat into the ring in the 2009 Special election for South Ward Council and as everyone with an ounce of familiarity with Trenton politics knows, Pat Stewart was a fixture at City Council.

Pat, who was self-admittedly intimidated by technology, even started her own blog, Lamberton Lilly.  She made short and to the point comments about the goings on in Trenton.  She had a following.

Pat was everywhere and so much a part of Trenton for me that it I’m sure I will think of her often in the years to come.    I know that when our next administration finally crafts a real strategy for Trenton and it includes a real marketing plan for our city, I’ll probably shed a tear and hope that Pat knows that her constant admonition has finally come to pass.

In many ways Reinvent Trenton has been written with Pat in mind.  It puts into words the ideas she had in her head.   I know this because she constantly encouraged and commented favorably on my articles.       I knew I was on the right track if Pat liked the article.

Of course Pat’s influence goes far beyond what I know about personally.  She was a leader in the STARS civic association for many years, sat on the Zoning Board and was recently appointed by City Council to sit on the Ethics Commission.    These are places of honor in Trenton.

I know that her son Nicholas knows how we all feel about his mom.   I also know that the most important thing for a family member to know when a loved one passes is that the loved one will be remembered.   Nicholas, that is a certainty.

Trenton’s Most Foolish Ordinance Yet

Even the State of NJ thinks the recently passed   “New Jersey Economic Opportunity Act of 2013” is a bad idea.  However, the Act was confirmed by Trenton’s   City Council and made applicable to Trenton by Ordinance 13-58.

The Act is meant to stimulate certain types of investment and create jobs in NJ. However, it does so at a high price of over $400,000 per job in tax credits and the loss of local property tax revenue for 20 years.  It is targeted at four NJ cities including Trenton and requires those cities to forego substantial taxes that would otherwise be collected from property owners.   The State’s Office of Legislative Services (OLS) did an economic analysis of the Act which estimates that in the best of circumstances the State’s   investment would return 10% over 20 years.   That’s .05% per year.     We’d be better off investing in a savings account.

The OLS summarizes its findings below:

The Office of Legislative Services finds that the revenue impact of the substitute (the Act) is indeterminate with certain revenue losses due to tax incentive agreements which may or may not be fully offset by revenue increases from expanded business activity. The magnitude of the revenue losses from tax incentive agreements cannot be known because ERG and GROWNJ have no aggregate award cap from January 1, 2014 through the program expiration on July 1, 2018.

What’s worse is that the .05% yearly return assumes that the alternative is that no new   jobs are created unless this Act is in place.  That’s a horrible assumption and the OLS so much as admits it.  Read the full analysis here.

So why did our City Council sign on for a bill that is so terrible for both the State and the City of Trenton?

It’s hard to say and there has been much speculation amongst activist.  Some of facts surrounding the passage the Ordinance are as follows:

  • Council passed it in a hurry with little to no public comment and on a Friday evening when the public was not likely to be in attendance at the meeting.  This was suspicious.
  • One person who did make it to the meeting was a developer from Robert Torricelli’s Woodrose development who stands to benefit from the Act.
  • Days  later  that same Woodrose development  handed  out  500 free Turkeys at their  development site  in Trenton and invited local politicians Marge Caldwell-Wilson and  Eric  Jackson  to  be seen as  having something to do with the gift.
  • Robert  Torricelli was  reprimanded in the US  Senate for corruption

So on the surface this deal is smelly and reeks of connected developers getting rich on the backs of taxpayers.

Given the OLS’ analysis it’s clear that NJ taxpayers are being shafted.  The question is, “are Trenton taxpayers getting any benefit?”

First, we have to assume that Trenton taxpayers are suffering from this bad investment in a similar manner to our suburban friends.    Our State income tax dollars are being wasted.

Then there’s the matter of lost property taxes that many in the activist community have complained about.   This is trickier.

The deal is that a developer would pay no new taxes on improvements to a property for 10 years.   During years 10 – 20 taxes on improvements would gradually be raised to reach 100% by year 20.

So this could stimulate new taxes, just not in some of our lifetimes.    There is no guarantee that any property in Trenton could ever be developed (many abandoned properties have negative value).   So getting something on those difficult plots of land  and having the State stimulate that future tax benefit does have a positive benefit.  Perhaps that’s what our Council members are reacting to (I’m giving them the benefit of a doubt).

But here are the problems:

The deal is unfair

This tax break is not available to all citizens or even all types of investment.  For instance, there are exclusions on retail investment such as stores and restaurants.  The deal is not available to homeowners or even condo owners.    You and I can’t benefit from this Act and are in fact subsidizing those that do. The state and city should not be in the business of preferring one type of investment and one type of investor. They’re not that smart.

The deal will have unintended consequences

Trenton does not have unlimited developable land.  The Act heavily incents developers to build non-retail commercial space or residential rental property.  If all the prime development spots were taken for these purposes, then the price of retail and owner occupied development will go up.   Many in Trenton’s revitalization community believe that if anything, Trenton needs to over index on owner-occupied housing and new retail amenities.  This bill is likely to make that more difficult.  In this regard we’re shooting ourselves in the foot.

There are better alternatives

A maxim in real estate development is that a building or land should find its highest and best use.   This Act warps that concept by preferring only certain developers with certain kinds of projects.   A better alternative is to establish a standard PILOT agreement and stimulus that are available to anyone investing  in our cities.  One such PILOT plan would offer a very high tax rate on land but a very low rate on improvements thereby rewarding high value or high density development no matter what type it is.  This PILOT could even be made optional to existing landowners.  This would be especially beneficial to home owners seeking to improve their homes.    It could do away with existing abatements and negotiated PILOTs (long an opportunity for abuse).    The state could directly and more transparently provide tax credits on the total value of a project of say $200,000 or more.  This standard subsidy gets the   State out of the dicey business of trying to manipulate the economy.

I suspect that the City of Trenton did not have a real voice at the table when this scheme was cooked up.  Certainly it was foisted on the citizens of Trenton in a rush.  This is a big problem as there is no evidence the State is acting in best interest of Trentonians.

An Act and Ordinance of this scale and importance (it fundamentally   changes our tax structure) should never be considered in the current political situation where a Mayor indicted on corruption charges related to real estate development has only 6 months left in his term.   Rather we need to let the next administration determine whether this deal fits into a strategic plan for Trenton.   Let’s vote on it by making it one of the issues in the upcoming election.

Our City Council has done the citizen of a Trenton a disservice by allowing us to be bullied into the deal. There is an online petition being run to show opposition to Ordinance 13-58. I encourage all to sign it.

Petition to Oppose Ordinance 13-58

My choice for Trenton’s next Mayor

After 24 years of mayoral leadership that has gone from bad to worse, we once again have the chance to change direction in Trenton.  Like we did in 2010, we’ll have a crowded field of candidates.  Unlike 2010, in 2014 we have several viable options.

In this very difficult time in Trenton’s history, we as citizens need to be equipped to make a smart choice.   We’ve all seen how poor choices at the voting booth can materially damage our city.  This time around:

  • Voters need to consider all aspects of what will make a good Mayor, and
  • The campaigns need to communicate clearly to voters.

The question I have for myself is, what can I do to help this process?  What can I do differently in 2014 to help elect a leader that will chart a more productive direction for Trenton?

I’ve tried quite a few approaches to improving Trenton.

  • I’ve blogged for years trying to bring new ideas for revitalization to the city.  The evidence will show that my blogging hasn’t helped.
  • I formed Fix Trenton’s Budget to provide an economic point of view in the 2010 election and later assist Mayor Mack in setting budget and economic policy.  The evidence shows that didn’t help.
  • I helped form The Majority for a Better Trenton in order to create an unaligned political force in the city.  It turns out the group had organizational challenges, so that didn’t help.
  • All along I’ve been an outspoken critic on Facebook, in the press, at City Council and on my blog.  Sometimes that makes me feel better, but it hasn’t helped.

As I’ve often said, doing the same things over and over again in Trenton and expecting better results is the definition of insanity.  So this election cycle I’ll do something I’ve not done before.

This election cycle I’m going to choose one candidate to not only support but also to volunteer for during the campaign.   This implies quite a bit.

It implies that I will have to make my own informed decision about the candidates well ahead of walking into the voting booth.   I’ve done some homework in preparation for my decisions.  I have:

  • Talked to each of the candidates I would consider,
  • Read their websites, and
  • Reviewed their track record in Trenton.

To put all of these conversations, impressions and histories into perspective I created an objective scorecard to help.  The scoring approach rates the candidates along several dimensions and weights the scores based on how important that dimension is for a good Mayor.  It’s like coming up with GPA for the candidate but allowing the flexibility to weight one course as more important than another.

Being numbers driven seems appropriate for me as I’m constantly encouraging city leaders to be objective, unemotional and fact driven in their approaches to our problems.   It’s sometimes hard to do but often provides clarity where a muddle of data and opinion cloud the issues.

For each dimension I scored the candidate 1-10.  The dimensions and weighting are as follows:

Table ‑1 Candidate Selection Criteria

Dimension Weight Description
Approach to Strategy 9% Thinks critically about cause and effect.  Is data and fact driven.  Results focused.
Planning 15% Organized, clear and thoughtful about actions and timing.  Considers risks.
Campaign 12% Well run campaign with people who share a focus on revitalization and diversity.
Motivations 9% Setting an example for urban revitalization in small post-industrial cities.
Management Style 12% Disciplined.  Has an air of gravitas.  Reads people well.  Transparent.
Track Record 12% Has participated in thoughtful activism in Trenton.
Budget awareness 15% Understands the budget and what drives it.  Appreciates its role as the central policy tool.
General Capability 9% Smart.  Hard working.   Well written and well spoken.  Well educated.
Sacred Cows 9% Has revitalization minded positions on regionalization, residency, reassessment, etc.
100%

To be fair I didn’t talk to all of the candidates.  Walker Worthy’s strict partisanship and lack of presence in Trenton politics ruled him out as an option.   Kathy McBride’s frequent missteps, support for Tony Mack and lack of interest in policy rule her out.   Bucky Leggett was so uninspiring the last time he ran that I voted for Doug Palmer.  Each of the other four candidates:  Patrick Hall, Eric Jackson, Jim Golden and Paul Perez are fine people by all accounts, including my own.   They deserved serious consideration.

Of course, whoever I support may very well not win the election.  That’s not the end of the world and we have good options.   I certainly hope that even if I wind up on a losing campaign team, the winning Mayor will take me up on my offer to do whatever I can to help his administration succeed.  I made that offer to Tony Mack, he just didn’t follow through.

Also, I’m not going to say anything negative about any of the other candidates except maybe to critique a policy idea here and there.

After several months of talking and thinking about the next Mayor of Trenton I’ve decided I’d like to support Jim Golden to be our Mayor.

Jim is seeking to bring the best thinking in the country to bear on Trenton’s revitalization problems.  He has good initial insights especially on our crime issues. He has good experience in running large organizations.   He’s been openly committed to setting measurable goals and setting up feedback mechanisms to track our progress.

Jim was an early and vocal critic of Tony Mack and actively supported the recall effort.  He’s conscious of the budget and its limitation, especially the biggest component, police.

In every conversation I’ve had with Jim, he’s sought to think through pragmatic steps towards making Trenton more livable while eventually lowering our tax burden.  Finally, his motivations are simple and clear, he’s a retired resident of Trenton who wants a better town in which to live, so do I.

I’ll enjoy working with him both on the campaign and the transition into office.   I know his heart is in the right place and that he has the right skills and temperament.  Most importantly for me, he did the best in my candidate qualification scorecard, earning 7.7 out of 10 points.

I look forward to working with Jim and his campaign but wish all the candidates well.

Hoping for a pro-regionalization campaign

I can’t think of any urban city in New Jersey which one would classify as truly “great”.   A great city provides the intellectual, creative and financial juice to form new companies that fuel economic growth and the resulting high quality of life.

There are large cities in America that do this like Boston, San Francisco and New York.    There are small cities that have done it as well; Raleigh and Austin come to mind.

As we wonder what it will take to make Trenton great again, we’d be foolish to think we could copy any of those cities.  After all we live in a unique state at a unique time.  But surely the ingredients for greatness are within our reach.

Much has been said about regionalization in New Jersey and how it can help.  But let’s be honest, Princeton is a poor comparable for Trenton, Passaic, Irvington and Camden.

The question is what does regionalization mean for Mercer, Essex, Passaic and Camden counties?  Does a rising tide raise all ships in those places?  Will a regionalized police force lead to lower crime rates and is that a measurably good thing for not only the urban centers but the suburbs as well?  What about schools?  What about economic development?

My suspicion is “Yes”?  Let’s seriously explore being a great county.

The analysis I have read about regionalization points to cost savings from combining operations.   This is obviously a good thing.  However, best guesses are that this amounts to around a 10% overall savings.  This is nothing to sneeze at but given the severe imbalance in property taxes vs. cost of services between a poor city like Trenton and its wealthy neighbors, it may not be worth the risk.

If, on the other hand, we saw an overall reduction in crim, county wide and not just in the urban center, then that kind of improvement would certainly grab a safety conscious suburbanite’s attention.

Schools could benefit too.   As it stands, suburbs currently fund not only their own schools but the lion’s share of the cost of urban schools.  Those urban schools produce generally poor results for a premium dollar.   But what if by integrating schools on a county level we were able to reduce the overall cost of providing a decent education?   There are thousands of examples of where this has happened in the USA.  If I lived in West Windsor, I’d much rather have a vote on how my money was spent in Trenton than not.  And as I’ve said many times, I’m the product of an integrated public urban school that I’d gladly compare to Princeton High.

But the real benefit could come from economic development.  Our suburbs struggle to attract ratables while at the same time fight the ugliness and hassle of sprawl.   But what if they benefitted from development in urban centers which typically have a surplus of developable land and welcome it?  Couldn’t that be a home run?  Imagine what would happen if county leaders could, in good conscious, focus their development efforts on cities knowing that the ratables their efforts generate would fund county-wide budgets.
This all sounds good but there is quite a bit of work to do to turn these ideas into real plans for action.  The fortunate thing in our favor is that a lot of the work has been done by State regionalization task forces and our current State administration is solidly behind those plans.

What is needed are Mayors and City Councils who are willing to lead their municipalities into a form of government that give up traditional autonomy in favor of a more balanced regional economy.   A strong leader in Trenton will need to find and sell the benefits of regionalization not only to the city but to suburbanites as well.

We’ll have to recognize that there is a good bit of well-deserved fear involved in a suburban town throwing in with a city like Trenton.  And Trentonians would have to realize that they would no longer call their own shots.

My hope is that at least one Trenton campaign in the 2014 election sets as its centerpiece, mutually beneficial county-wide regionalization.  Let’s explore sharing our library, Cadwalader park, our communication center, our schools and our developable land with our neighbors in return for becoming integrated back in to the region’s economy.

Causes and Effects: A Guide to disciplined policy discussion

The world is made up of causes and effects.  Hurricanes cause storm surges.  Hitting a cue ball hard into a break causes pool balls to scatter.  A bad earnings report causes a company’s stock to go down.  And so it goes in business, sports, life and cities.  High crime rates cause visitors to stay away from a city.  High taxes slow development.  High college acceptance rates attract students to schools.  This is what economists spend their time thinking about.

Most people think about these causes and effects abstractly.  Common sense tells them that one thing ought to affect another.   For instance, an after school program keeps kids off the streets and therefore should reduce the crime rate because kids on the streets sometimes commit crimes.    Another example might be, making a city’s inspections process less expensive to lower development costs and stimulate investment.   Or perhaps, opening a new museum will increase tourism.

Most people are comfortable making statements like the above, but generally don’t know the details.  For instance, they can’t answer questions like:  If we spend $1,000,000 on foot patrols how many FBI index crimes will be avoided?  Or, if we lower inspections fees by 50%, how much incremental investment should the city expect to see over the next 5 years?   These are fair and important questions.  Most citizens can come nowhere close to answering these types of questions, and that would be OK but sadly, most policy-makers in a city like Trenton can’t answer them either.

So how can normal citizens get better at thinking through the policy issues that face us every day?

Without researching every policy assertion that’s ever made, how can we begin to really understand causes and effects?

We make better choices by knowing whether a policy has a 1st order or 2nd order effect and whether the effect is strong or weak. Of course we need to start with clarity on our goals (investment, crime, education, population, income). But after being clear on goals we must carefully consider causes and effects so we can begin to decide whether policy assertions are important.  This kind of thinking is often called “systems” thinking and is used to better understand complex things, like cities.

There’s a difference between 1st and 2nd order effects

In pool, when the cue ball strikes another ball and knocks it directly into a pocket, we call that a 1st order effect.  One thing caused another.  However that same pool shot may have left the cue ball well positioned to allow the player to sink the next ball.  That’s a 2nd order effect.  The difference is that  in order for the good “leave” to have happened, many more effects of physics had to take place over and beyond the just hitting the first ball in.  The cue ball had to be deflected just so, the spin had to be just right and perhaps the cue ball needed to bounce off the bumper with just the right angle.  The good “leave”, assuming it was intentional, had a much less likely chance of success than hitting the first ball in.

And so it is with city policies.  An afterschool program will most definitely get some kids off the street.  Getting kids off the streets is a 1st order effect and can be measured fairly simply.  It’s the number of kids in the program minus the percentage of those kids who would have otherwise stayed at home or in the library.  For instance: of the 100 kids in the after school program we might say 40 of them would have been home.  So the program got 60 kids off the street.

But how does an after-school program affect crime?  It’s not likely that a kid staying home would cause a crime.  But what about the 60 who would have hung out on street corners.  It’s a bit harder to say because crime reduction is a 2nd order effect.  For example, not all of those 60 kids would have ever committed a crime.  Of the several who might be inclined to commit a crime they might do it when they weren’t in the after-school program.    But then again, maybe the program has a long term effect on the child, or maybe it doesn’t.  As you can see, the 2nd order effects begin to get murky.  This is why sophisticated policy makers don’t depend on them and often point to 2nd order effects as “potential side benefits”.

In Trenton, we shouldn’t base our important policy decisions on 2nd order side effects.

Strong vs. weak effects and the importance of context

Even when causes and effects are 1st order, the linkage between the two can be weak.  For instance in buying a used car, high mileage may not dissuade you from buying it.  This is a 1st order effect but not a strong one because you’ve already decided you could accept a few miles on the car.  However, dented side panels may just completely turn you off.  The big dents might be a strong 1st order effect and keep you from buying the car.

It’s the same with public policy.  Let’s return to inspection fees for a new home.  Let’s say we want to stimulate growth by reducing the fee from $1000 to $300.  That’s a big drop.  And because it directly affects the price of the house, it’s a 1st order effect.  However, that $700 drop in cost is fairly small in comparison to the $300,000 that you’ll eventually spend on the house.  Other things like lumber, labor, land and property taxes easily dwarf the inspection cost.  So while the reduction in inspection fees may be annoying to the builder, it has a weak effect (though 1st order) on the eventual buyer.

2nd order effects can be weak and strong as well.  For instance, we can imagine a school retention program that lowers the high school drop-out rate.  This program might have a good 1st order effect on education but also a 2nd order effect on crime reduction.  That 2nd order effect might be considered strong because we know there’s such a high correlation between high school graduation and likelihood of committing a crime in the future.  Compare that to an after-school basketball program which should have a 2nd order effect on crime reduction (as we discussed above) but that effect may be weak.  Certainly the research and evidence linking graduation to crime reduction is stronger than that linking basketball to crime reduction.  That’s not to say there’s no effect, it’s just not likely to be as strong.

The cause and effect of crime also varies widely.  Economists have shown that each incremental index crime in a city leads to one person moving away.  However, the rate of emigration is 5 times higher for high income people and 3 times higher for families with children.  Poor, single people are much less likely to move away due to a high crime rate.    Therefore we can say that a high crime rate has a strong effect on high income people leaving a city but a weak effect on the poor leaving (likely because they have fewer choices).

Just understanding this differences in the effects of crime, even in the abstract, should have a profound impact on how we think about policy in a city like Trenton.  Sadly, you’ve never heard a government official make the above distinction.

It might be good to focus on strong 1st order effects rather than weak 2nd order ones.

In the world of policy making and particularly in a cash-strapped city like Trenton, we need to make hard choices.  We don’t have either the money or the man-power to do everything we’d like.  So it’s important for citizens to lobby for the most important policies and for government officials and activists to help clarify 1st and 2nd effects and strong vs. weak linkages.

We can use crime reduction as an example of a good objective.  Criminologists know that high rates of incarceration have a beneficial effect on the crime rate (most people get this).  There is a strong 1st order cause and effect between building good cases against criminals that lead to long sentences.   On the other hand, we may spend the same money we would have spent on an extra detective on a mentoring program.  The mentoring might have a 2nd order effect on crime reduction and likely a weak one at best.

When we talk about programs and policies in Trenton politics, we need to keep these things straight and always keep our core goals in mind as well as cost-benefit.

Policies that have multiple 1st and 2nd order effects are generally more impactful than others

Finally we should remember that sometimes policies can have multiple effects.  You’d likely trade a $1,000,000 program to reduce crime that has single strong and effect on the crime goal, for a $1,000,000 program to stimulate development that might have a strong 1st order effects on the economic growth goal, a strong 2nd order effect on the crime goal and a weak 2nd order effect on the education goal.  Some policies give us broader “bang for the buck”.

Policies that positively affect multiple goals in Trenton (investment, crime, education, population growth and income growth) will not only strengthen the city and stretch our dollars, but will find broader political support.

Every minute of every day, Trentonians have policy discussion on Facebook, at barber shops, in civic association meetings, over drinks and at City Hall.  We discuss crime, trash pick-up, taxes, parades and any number of topics.  It’s important for Trentonians to move past sentimentality and misguided assumptions in our discourse.  We need to get on the same page.  To do that, not only do we need shared goals, but we need a common vernacular for discussing policy.  To the extent we can begin to discipline our thinking by keeping our goals clear and then breaking causes and effects down into 1st and 2nd order and then strong vs. weak, we’ll have a more constructive civic dialogue.

Note:  I wrote this article for my blog 2 weeks ago, before the TESC deal for Glen Cairn Arms came up and was having it edited.  I had no way of knowing we would be having a important policy debate about this very subject.  I held off publishing it in favor of reporting on and  providing thoughts about the proposed TESC deal.  However now is a good time to start talking about causes and effects in policy discussion.

Tony Mack’s Worst Deal Yet

Today, Tony F. Mack announced that he wanted to give the Glen Cairn Arms building to Thomas Edison State College (TESC).  They want to put a $16.7M nursing school of some sort on the property.   Right off the bat, unsophisticated Trentonians started messaging that this was progress.

It’s not progress; it’s more of the same.

Every single politician and activist in Trenton for the last 12 years has complained that the State of New Jersey doesn’t pay its fair share in Trenton.  And this deal is simply more untaxed State land.  Do we need another tax exempt property?

Let’s do the math

TESC wants to give Trenton a one-time payment in lieu of taxes (PILOT) of $300,000.  One time!  That’s essentially free.

That $300,000 is to cover taxes for all time on a $16.7M building? Spread over 10 years that’s a 0.2% tax rate. Spread over 20 years that’s 0.1%.  Trenton’s tax rate for the rest of us is 5.5%.   Put another way, the State would be paying 1/50 of what you and I and every other private property owner pays in taxes. That’s essentially nothing.    Many private homeowners in Trenton pay more in taxes than this deal will yield.   It comes nowhere near the cost of paying for the police, fire and public works costs to support the building.  The new building’s direct support costs for just those services would be around $700K per year.

Trenton’s City Council should NOT approve this.

Instead, City Council should do what Fix Trenton’s Budget recommended two years ago and approve a standard PILOT for all new development in Trenton.  That standard PILOT should be based on taxing land at 30% of assessed value and improvements at 1.5% of assessed value. This PILOT should be available to all developers.   A standard PILOT like this would be welcome by developers and go a long way to encouraging new taxable investment in Trenton.   It would also serve as a reasonable basis for PILOTs for non-profits and eventually for a Land Value Tax for the rest of us.   This is important in our effort to have our tax system work for us rather than against us.

“Isn’t something better than nothing?”

It’s true that Glen Cairn Arms has sat vacant for many years.  But, as the math above shows, we lose money on this deal.   So no, “Something is NOT better than nothing”

Why hasn’t the building sold?

The City of Trenton owns the building and has been unsuccessful in selling it for many reasons:

1)    The City has maintained a poor development environment for many years due to crime, ineptitude in city government and lack of a plan to improve.

2)    The city always tried to sell it rather than give it away.  It’s obvious the building is a mess and therefore has no value and maybe negative value.

3)    We don’t have a standard PILOT that makes sense for a developer. I’ve proposed one above.

4)    We may have to demolish it ourselves (i.e. because as the building stands it has negative value)

There are several options

  • We sell it to TESC using a standard PILOT. The current assessed value of the land is $500K. With a $16.7M improvement and using the suggested standard PILOT rate, we receive $400k/ year in revenue. This is what we should get.   It still doesn’t cover all of our direct costs, but it’s closer.
  • We sell it to a private developer with a new package. We would spend the ~$1.4M * it would take to demolish the building in anticipation of a private developer putting a $5M building on the land. With the standard PILOT in place that would yield $225K a year in tax revenue.  This is a 16% return on investment and a pay-back of 6 years.
  • However, we should NEVER approve another tax exempt property deal. Increasing ratables in Trenton should be our #1 priority. This deal with the State of NJ is the opposite of that.

But there’s more

Do we as citizens really want to let Tony Mack negotiate development deals for us?  Time and again, we’ve seen in New Jersey that government money is rife with corruption.  Tony Mack has provided us a case in point.  We have no reason to trust him and every reason not to.

Our Indicted Occupant of the Mayor’s office will do anything to make himself look good to unsophisticated voters.  In this case, it appears that he’s working to curry favor with TESC and let that organization’s patina rub off on him.   The leadership at TESC should know better.   Furthermore TESC and Mack are using State money as part of this scheme.

But I’m really confused about the choice of Glen Cairn Arms?
Trenton has a large unused medical facility with multiple buildings that could certainly be converted into a nursing center.  Why not encourage TESC to purchase all or part of the Capital Health Mercer campus.   Isn’t this exactly the use we’ve all talked about for that site?

Finally …

This deal has been presented to citizens without any economic impact assessment.   Certainly our City Council has come too far with this corrupt and incompetent Mayor to allow him to get by with this. But more importantly, if you support this deal, then you have no business complaining about the State not paying its fair share in Trenton. This is just making it worse.

* I originally estimated $300K based on numbers from a previous bid, but understand that TESC thinks the cost is $1.4M so I’ll use their number to be conservative.

Buying Out Tony Mack’s contract is a Win-Win

Our country’s economy and especially its real estate market has been in a slump for 4 years.  However, in the next 2 years we’re going to come out of it, no matter who wins the Presidential election.

When that happens, we don’t want Trenton to be left behind.

A normal economy will grow around 2-3% a year.  For Trenton with its $1.9B tax base and  ~ $70M in property tax revenue that means our revenues could increase $1.4M – $2.1M a year.  That’s if we were normal.

The problem is that our Mayor has become a national and regional publicity problem due to his various missteps and most notably his arrest by the FBI on corruption charges.  It should be obvious to us that no matter how good the national economy, a developer, potential homeowner or business owner would not want to invest in a city under such leadership.

Tony Mack is a drag on Trenton’s economic recovery.

In addition to the bad reputation he’s given the city, it’s also become apparent that Mack’s administration has no intention of addressing our economic growth.  In Mack’s 2 ½ years in office he has not made one proposal to increase our tax base.  In his 10/16/2012 budget address to City Council he did not mention ratables or growth in property taxes other than to pitch his proposed  $.19 tax hike, which would have a negative impact on economic growth.

Mack is not thinking about revitalization.  He’s never mentioned it.  There’s never been a plan presented.  This city’s budget discussions have never contemplated expenditures related to increasing our tax base and thereby our property taxes, our single largest source of revenue.

If by inaction and negative publicity, he “drags” our economic growth by even one quarter of one percent or $150K per year in growth, we would be better off paying the man to step down.  We’d be better off  paying Tony Mack his $126,000 a year salary, NOT to show up for work.

For a man facing a difficult legal battle and under severe personal financial distress, this seems a win-win for both Tony Mack and the City of Trenton.

Palmer’s Dream, Still a Nightmare

It’s been almost two years since I wrote my first article about the Trenton Marriott shortly after I joined the Lafayette Yard Development Corporation board (LYDC).   which oversees the hotel on behalf of the city.  At the time in 2010, I was encouraged that a new Board would take aggressive action to get us out from under the hotel’s debt burden and operational risk.   A new year and a new attitude at our hotel

After I joined the board and began to understand things better I started saying to anyone who cared to listen, and certainly the LYDC board that: Our hotel isn’t worth very much to us and we need to sell it now.

The LYDC board has a few sophisticated people on it and many others who simply have no business being on the board of a multimillion dollar operation.  This is one of the many follies in having a city owned business; it has to be run by citizens who simply aren’t equipped to make important business decisions.

Two years after I wrote the above, hopeful, article:

  • We still own the hotel,
  • It’s still struggling,
  • We’ve bailed it out to the tune of $500K,
  • And we’ve paid $2.8M in debt payments from our city budget,
  • And I’ve resigned from the board.

The fundamental problem is that the hotel is worth more to a third party than it is to Trenton and it’s not worth very much to us at all.  For instance a third party would be allowed to lease out the restaurant space (we’re not).  A third party could profit share with its manager.  We can’t do that.  A third party could make big decisions quickly.  As a public corporation the hotel has to go before a citizen board and sometimes City Council.  The operations of the hotel are severely limited in flexibility and business model structure.

As an asset, the hotel should be valued to the owner (the taxpayers of Trenton) at the present values of its future cash flows. In a good year we can expect around $100K in cash from operations before our debt cost of $1.4M a year. The value of those cash flows comes out to about $700K. This means that we should be happy to sell the hotel for that amount of money.

Of course there may be a buyer who would pay us more than that but every day we turn down offers for anything more than our own value is a day that we’re losing money (because we pay the debt).

For instance, if, when we had an offer for $22M and had wound up selling for $10M, we would be able reduce our $15M debt by 2/3.   That would save almost $1M a year in debt payment from the city. The board President didn’t even manage to bring that offer to the LYDC board.  He failed to do so at the advice of our bond financiers who felt considering a sale would have gotten in the way of their bond sale, and thus their fat commissions. The bond guys were effectively running the board and had a significant conflict of interest.  I quit the board soon afterwards.

The City of Trenton (taxpayers) pay $1.4M a year on that $15M in debt. Every year we don’t sell the hotel means another year we’re paying that full amount.

I hope to God the LYDC board has at least put the hotel up for sale, but as of the time I left the board, they couldn’t even get themselves organized to do that.

The City of Trenton needs to get itself out of the hotel business now, not next year or the year after. There is no reason to expect the LYDC to manage the operation to greater profitability, experience shows it won’t.  We need to put this bad experiment in mayoral arrogance and public gullibility behind us.

Instead, we continue business as usual.  The Marriott will take away its brand in the middle of 2013 because they are disgusted with us.  Waterford, the organization who has managed not to run the hotel at a profit and who caused the city to have to bail out the hotel, may get replaced.    It will likely be replaced with another outfit recommended by Acquest but without a serious national search for a new manager or owner

Erin Duffy at the times wrote a good summary this week in the Times: Trenton Marriott next to Statehouse could change branding to Holiday Inn.

Trenton is Missing Out on Big Business

If you’ve driven up the turnpike from Exit 7 to 8A then you’ve undoubtedly seen all of the giant distribution centers.

These are businesses that could have been located in Trenton if we’d gotten our act together.

One of the things you do as an aspiring civic leader in Trenton is go to workshops where you’re asked to list Trenton’s assets.  People always give the same answers:  its people, its buildings and its location.

Well our people are going to work on the turnpike corridor in places like East Windsor and Robbinsville, our buildings are empty and our location isn’t as good a one would have thought.

Instead Barnes and Noble, Green Mountain Coffee and likely Amazon along with many others have set up shop in modern warehouse space in the suburbs.

Before the apologist tell me that building new construction space is cheap and Trenton can’t compete, let me suggest that we didn’t even try.  Doug Palmer was asleep at the wheel and Tony Mack is, well he’s Tony Mack.

The explosion in industry just 10 miles from downtown Trenton happened without our city even lifting a finger to figure out how we might be competitive.

We had at least one competitive advantage over the suburbs. Those warehouse facilities are hiring Trenton people.  The Kenco facility that houses Green Mountain Coffee are actually bussing Trentonians to Robbinsville.

What went wrong?

My guess is that the views on business among the city leadership are simply too provincial to understand what was happening.  Additionally our culture of corporate extortion limits us to dealing with small time developers.  Serious logistics companies like Kenco wouldn’t give a trifling crook like Tony Mack the time of day.

Furthermore we just don’t have a good story to tell.  To attract a 500,000 SF logistics operation we’d need to show why Trenton is a less costly option than a “Greenfield” in Robbinsville.  We’d have needed all the creative business people we could muster to pull that story together.  A difficult task indeed, but we didn’t even make a serious effort.

Trenton misses out on opportunities like this because we are distracted from the job of revitalizing our city.  Instead of attracting world class development, we’re busy playing political games to attract housing projects like HOPE VI.   We spend our days begging for money through grant writing and we reshuffle the deck chairs in our city budget.

I don’t expect Trenton to develop a plan in the next two years.  Rather we’ll need to wait until a new administration is elected.  In the meantime, we need to listen for candidates who have a “can do“attitude about engaging the city in developing a real revitalization plan.

Kenco brings Green Mountain to Robbinsville

The Economics of “Good Corruption”

JoJo Giorgianni has given us his economic assessment of the value of corruption to a city.  His plan was to use Mayor Tony Mack like a puppet to enrich himself as developers bribed his version of Tammany Hall for the right to build in Trenton.  JoJo’ and Mack’s thinking was that they were facilitating investment and should get paid.  Why else would they have gone to the trouble of getting Mack elected?  In his conversation with an FBI informant, JoJo called this “Good Corruption”.

I guess that’s one idea.

But just to spell it out we, need to be clear about why corruption hurts a city.

Corruption distorts a market and creates uncertainty.

Investors HATE uncertainty!   When it becomes known that one developer has had to bribe city officials, all other developers become uncertain as to what level of corruption they will face as they consider investment in Trenton.  A developer would much rather play by a transparent and clear set of rules rather than the murky give and take of Trenton’s underworld.

Furthermore, in a climate of corruption, it is entirely likely that a developer could face a second round of shake-downs further into the project after there was no turning back.  This possibility opens the developer up to a high degree of risk.  What was to stop JoJo and Mack from ordering the building inspector to look again at a project, unless the developer had “Uncle Remus” visit again (their code for bribe money).

Our PILOT (Payment in Lieu of Taxes) negotiations are another source of risk and potential corruption.  Every developer negotiates separate deals with the administration on what taxes they will pay.  This kind of uncertainty makes evaluating a deal impossible.  Even when options for a “standard” PILOT have been presented to the Mack administration, they have ignored them.  Why give up the opportunity for graft.

Bribery and extortion create an unequal playing field that raises the cost of business in a place like Trenton. Developers have other options and we need them more than they need us.

Trenton politicians have a history of shaking down developers

Tony Mack isn’t the first politician to require that developers “check in” with the administration before doing business.  Other politicians have required contributions to campaigns as a pre-condition of cooperation.  We should all be suspicious of campaign war chests exceeding $200,000.  That kind of money doesn’t come from normal citizens hoping for better government.  It comes from people who want favors, at our expense.

We don’t want to make it expensive, risky or difficult for developers to build in Trenton.  We can see the results:  very little development happens in our city because of our corrupt climate and heavy handed administration.  I’ve talked to many Trenton developers over the years who’ve refused to work in our city again because of the bad taste it left in their mouths.

We need a completely different approach

In a new revitalization minded administration, we’ll:

  • Clean out our Housing and Economic Development and Inspections Departments and start over with a new attitude
  • Publish a process for development that does NOT include the Mayor’s office
  • Set prices for city owned land in a public Internet based auction system (For the time being, NO more deals).
  • Create a standard PILOT hopefully based on Land Value Tax system that rewards investment and discourages speculation

Trenton has been relatively closed to honest business development for many years.  Hopefully, with the Mack era behind us we can start fresh and turn our city into the easiest place in Central Jersey to develop instead of the hardest.  Given our other issues, we need to be better than everywhere else.