Posts Tagged ‘Trenton’
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.
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?
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.
Trenton needs an ad campaign now like we need another hole in our head.
City activist Pat Stewart has been beating this horse for years. For the love of God, let’s have a product plan first.
Marketing VPs get fired for launching ad campaigns at the wrong time. The right time is around the launch of a new product or product update. Trenton hasn’t updated its product. In fact, we’re not even sure what our product is.
Yet, a marketing campaign is exactly what Mayor Tony Mack has recently suggested.
I’ve written about this before, but basically we need to sort out what we’re trying to sell first. Are we selling abandoned warehouses as Mack suggests in his recent “Ask the Mayor” session. If so, are they saleable? Are titles cleared? What are the brownfield issues remaining? What’s the market for abandoned warehouses? Perhaps we’re selling city-owned houses or infill projects in our nice neighborhoods. Or, perhaps we should promote downtown living.
Mack doesn’t know what we should be selling. Sam Hutchinson doesn’t know. If councilmembers knew, they certainly wouldn’t agree with each other or the Mayor.
A marketing campaign can’t market everything. If we’re going to make a pitch we’d better make it for a product that’s ready to be sold. For instance, promoting infill opportunities before we know how we’d take a developer or homeowner through the development process is wasteful and potentially damaging to our reputation as an easy place to develop (of course we don’t actually have that reputation). Another consideration is what are our development priorities? What kind of development gives us the most “bang” for the buck? That analysis has never been done in Trenton and marketing consultants won’t be able to do it for us.
Before launching an expensive marketing campaign, we need to have sorted out the residential market for Trenton. Who’s going to move here? Where do they live now? We have challenges like our crime rate and schools. Are there population segments that don’t care so much about those things? Where would they live in our city?
Before we think about promoting Trenton we need a marketing strategy. Read more about that in the following: Managing the Trenton brand
The first step in a plan to sell Trenton is to figure out what we’re selling and why. This doesn’t have to be a difficult process but when we’re talking about spending precious tax dollars and time we shouldn’t just guess.
Second, just as in business, our pricing needs to be right before we market. Trenton is currently priced too high. Many of our abandoned buildings have negative value and yet the City attempts to sell them for positive prices. It’s no wonder they haven’t sold. Also, our tax rate is the highest in NJ making new development in Trenton a bad idea when compared to neighboring towns with half our tax rate. We need to work out how to make our product’s pricing attractive. Land Value taxes are one answer. Subsidies and abatements are another.
More on how land has negative value in the following: The case for dumping city-owned property
Third, we need to spruce up the product. We can do this by reducing crime in the area of focus. We could clean up a bit. If we’re marketing to population segments likely to appreciate the arts, we could invest in some targeted cultural things. We could also wait until we have a Mayor that’s a little less radioactive.
When you visit Trenton and pick up a paper, all you’ll see are dirty streets, stories about shootings and murders, a recreation department in disarray and a corruption scandal that sought to extort a developer. No amount of marketing is going to overcome these issues. And while we don’t have to eliminate crime or have pristine streets to attract new development, we do have to have made progress and at least have a credible plan on how we’ll improve. The product improvement plan for Trenton doesn’t exist.
Fourth, we need to make sure our operations work. As a customer you hate it when you try to buy something but the store is out of stock, it gets shipped incorrectly, or it’s broken when you receive it. Trenton is like that.
Our Economic Development department isn’t prepared to deal with an influx of developer interest. Our residential and commercial realtors don’t have the city’s marketing plan in mind so they can be part of the solution. There’s not even a promotional web site in place. Our inspections process has never been a positive aspect of developing in Trenton. Would it be useful to have turned that department into a positive instead of a negative before we start attracting new investment? Can the City even transfer property? Properties sold in last year’s auction still haven’t closed.
The bottom line is that before we start attracting interest we need to improve the operations of our city so that our new customers have a positive experience. If you currently live in Trenton and have dealings with the city, you know we’re a long way from operational excellence. Companies that run marketing campaigns when their operations are broken make matters worse and pretty soon go out of business.
Advertising is the last step.
To recap, first we must
- Decide what we’re selling and to whom
- Competitively price our city
- Fix the issues that are causing our poor image
- Improve operational proficiency
These aren’t new ideas; and its’ pretty much Management 101.
For more reading on planning for Trenton’s revitalization see of the below articles:
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.
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.
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.
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.
Perhaps no other government initiative better illustrates why Trenton has economic problems than the Miller Homes HOPE VI project (aka Rush Crossing).
Early on in the project I suggested privately to City Council members and publically at City Council meetings and on reinventtrenton.com that the Miller Homes HOPE VI project would be economically disadvantageous to Trenton.
One would think that if an activist who is known to analyze Trenton’s economic issues and whose paying job is to do similar analysis for his corporate clients, someone in city government would have at least attempted to calculate the economic impact of Miller Homes. No one ever has.
The city has been flying blind on Miller Homes pushed along by developers, financiers, lawyers and contractors eager to feed at the public trough. The scene has been unseemly. Last year at a presentation to City Council 15 non-residents in “suits” showed up to watch the developer, Penrose, with their enablers, Trenton Housing Authority, pitch the project to City Council. They talked about how they would help the “poor people” but not once did they mention the project’s impact on Trenton’s City budget. These were carpetbaggers feeding on $61M in Federal, State and City tax funds. Their lawyer was there earning $300/hr to sit at City Council, their bond guy was there looking forward to his commission on the publically back financing and the developer was there to get paid to build the most overpriced housing in Trenton.
So what’s so wrong about Miller Homes?
1) The cost is wildly out of line with housing prices in Trenton
2) The cost of supporting the residents will be higher than the tax revenue and Trentonians are left holding the bag
Our tax dollars are funding housing of $300,000 per unit at Miller Homes in a city where the average home price is $61,000.
Only an insane person would think this project is sane. The total price for Miller Homes is $61,000,000 and it will yield 204 units. Simple division works out $299,000 per housing unit. These aren’t specially equipped apartments for the disabled; these are normal 1, 2 and 3 bedroom apartments. Most similar apartments in Trenton rent from $600 to $800 a month.
The $61,000 average sales price for Trenton comes from Zillow and reflects current prices. However even at our economic peak, average home prices were around $100,000.
An analysis of investment property in Trenton shows that property values range between 70 and 90 times rents. Therefore using the most optimistic valuation, an $800 2 BR rental unit would be worth $72,000. At Miller Homes our tax dollars are paying $299,000.
Trenton’s City Council, the administration, Trenton Housing Authority, the State of New Jersey and HUD are behind this. No one has publically admitted why they support this kind of waste. It can only be that with so much waste involved, the developer can afford to throw money at government officials in ways too indirect for the public to easily discover.
The fact remains that new construction for 2 BR apartments simply does not cost $299,000. The 2 BR units in Miller Homes will be approximately 999 SF. Even at fairly expensive construction costs of $120/SF (expensive for affordable housing) the costs should come closer to $120,000. Why then are costs $299,000 per unit.
Defenders of the project will say that they are adding amenities like community rooms and lighted paths. However, in normal privately funded projects these things are always built.
Taxpayers have grossly overpaid.
The cost to serve the residents will be $3M but we’ll collect only $750K in revenue.
Wasting taxpayer money on development isn’t really Trenton’s biggest problem, though the land we donated and $3.5M in funding we provided could have been put to more productive use.
Trenton’s biggest problem is that we’ll feel the negative economic impact of the Miller Homes for the rest of our lives.
If we assume that the owners of the building are taxed like other commercial landlords then their valuation will be based on income. Projected rents, based on THA’s own published comments should be around $140,000 per month for 63 – 1 BR, 73 – 2 BR, 62- 3 BR and 6 – BR apartments. Using the valuation of 90 times monthly rent, the value of Miller Homes will be $13,255,000 (a far cry from the $61,000,000 development cost). At Trenton’s tax rate of 5.63% this will yield $747,000 a year in taxes.
If we assume that Trentonians pay for half of their city government and half of their school costs (an assumption that we have to make should Trenton ever revitalize an no longer be an Abbot district), then taxes generated from Miller Homes need to cover proportionate costs of the residents.
For a 1 BR apartment with no kids, this equates to $4114 per year (to support police, fire, public works etc.) . A 2 BR apartment would include one child and 3 BR apartments would include 2 children (for sake of argument). Each child should cost Trenton about $10,357 to send to school (the city’s portion). Therefore a 3 BR (on average) would require $25,000 a year in public spending.
Given the mix of 1, 2 , 3 and 4 BR apartments in Miller Homes, the project will require $3M in public spending on the city’s portion of its municipal and school government. However, because the rents, and therefore the valuations are so low, we will collect (at most) only $750K in tax revenue.
Even if Trenton were to fully revitalize, other Trentonians will continue to subsidize Miller Homes in the amount of $2.25M a year, forever.
This analysis is meant to show how public officials in Trenton need to start thinking about publically funding redevelopment. We have allowed federal and state funds to be squandered on a project that does not gives us bang for the buck. We could have found better projects. Also, because our City housing and economic development officials and city council members could not be bothered to listen to an economic impact analysis we have burdened ourselves with a financial albatross even bigger than the city’s last major self-inflicted disaster, the much maligned downtown hotel.
Now that Mayor Mack’s future has become uncertain, to say the least, contenders are being bandied about. I plan to be even tougher with this new crop of candidates than I was in 2010. I’m tired of empty suits with empty ideas and empty promises fulfilling their ego at the people of Trenton’s expense. I can’t afford it anymore.
This article is meant to establish a starting point for the candidates. It represents our state as a city. The candidates will do well to express their plans in terms of goals for each of these areas.
Reasonable people agree that the only way to achieve a goal is to set one. Thus the conventional wisdom of “If you don’t know where you’re going, you’ll never get there”.
With this wisdom in mind, Fix Trenton’s Budget and Majority for a Better Trenton have identified five areas in which the City of Trenton should manage to measurable goals.
- Crime Index reduction
- Population growth
- School success
- Average Income increase, and
- Economic success (as measured by ratable)
Most Trentonians would agree that if we did better in these five areas our lives would be better. However, try getting a politician to commit to a real goal for school success or average income. It’s never happened, at least not in Trenton and definitely not in Mayor Mack’s biennial report on the state of the city.
Imagine if instead of listing the number of grants we applied for, the Mayor reported on his plan to increase ratables by 10% to $2.1B or decrease our Crime Index from 3400 to 2000. You didn’t hear that because setting goals commits a politician to producing results and quite frankly, producing results is difficult.
That doesn’t mean the rest of us can’t have goals for our city and that we can’t force political action both at the ballot box and otherwise that will help us achieve them.
This report is meant to provide a status report on these five important measures thus setting the stage for efforts planned later in the year to set citizen goals for ourselves.
The current statistics are presented in order of importance. Notice that our most important goals are those that improve the economic health of the city. We can’t fix anything in Trenton unless we have a healthy economy.
Economic Success: D
In 2011 Trenton’s tax base, that is, the value of property on which we can charge a property tax, was $2,009,731,470. In 2012 it has declined to $1,961,049,170. This represents a 2.4% loss in ratable for the city.
The implications of this statistic are large. Our property tax rate will have to go up, again, in order to make up the difference. It means our economy is getting worse instead of better and most importantly, it means that our policies meant to stimulate economic growth are not working.
We can never have a lower tax rate or afford to spend more money on parks, police and streets unless our ratables go up.
Average Income: F
Trenton’s Median Household Income is $36,601; which stands in stark contrast to NJ’s Median household income which is almost double that of Trenton’s, $69,811.
Income levels are very important to the health of a city as they determine how much money residents will spend, which in turn, determines the attractiveness of our city to retailers and to entertainment producers. While NJ’s household income is double that of Trenton’s, per capita retail spending is three times our rate. This means that retail spending falls off disproportionately to income.
Making Trenton attractive to retail and entertainment business is important as the presence of those amenities make the city attractive to new residents.
School Success: F
The Trenton school district’s 2011 graduation rate was 47.7%. This means that over half of the students who entered 9th grade in 2007 graduated in 2011.
There is no world in which this is healthy. While it can be argued that fixing the schools isn’t a pre-requisite for revitalizing the city, after all the easiest target market for new residents are the millions of people without kids, failing schools don’t help.
With 50% of our young adult population grossly undereducated, they immediately become a drain on the economic future of our city. Furthermore, a significant portion of these kids will turn to crime and create both a public health threat to the rest of us and an expense in the form of police, courts and jails.
Moving this graduation rate up to 75% could theoretically halve our crime problem in the long run.
Population Growth : C
Trenton’s 2010 census numbers report a population of 84,913. Since 2000 our population has declined .6% while New Jersey’s has grown 4.5%. Relative to our neighbors, Trenton has become a less desirable place to live.
It will take an influx of new residents to begin the process of rebuilding our tax base. We have room to grow. At its peak in the 1920s, Trenton housed 140,000 residents.
Trenton’s crime problems have tracked the national trend downwards over the last decade. Uniform Crime Reports for 2011 show an increase in Index Crimes from to 3802 from 3744. That’s a 1.5% increase which shows we’re moving in the wrong direction by a bit.
Our city leaders have abdicated their responsibility to set positive goals for the city. Therefore it’s up to citizens to work together to set their own goals and to exert political force to make those goals stick and to construct a plan to meet them.
Trenton has more than its fair share of volunteers, arts organizations and civic groups. Many of these active people and groups put on festivals and events either as part of their mission (The Trenton Film Festival, St. Patrick’s Day Parade), to raise money (Trenton Half-Marathon) or both (Art All Night).
Every event put on in Trenton needs city cooperation even if they have to pay for it (groups have to pay for police and park rangers). But generally, no private group needs or really wants the city to do its planning, promotion or operations. They rely on the goodness of their sponsors and volunteers.
But we have to ask ourselves, with such a vibrant roster of volunteer groups in Trenton, why do we need to publicly fund and operate government events?
Tony Mack has announced his “unwavering support” for government festivals such as Heritage Days.
Is it the proper role of government to organize festivals? Especially when the government is nearly bankrupt?
Trenton could support festivals in the city by making it easier for non-profits to work with the city. For instance, the process for engaging the police and public works could be streamlined; city assets available for use by groups could be listed on the web site and rented out (including tents and stages). The administration could eliminate the requirement that groups hire park rangers. The city could be generally more responsive and helpful.
But, organizing and running an event such as Heritage Days or the Thanksgiving Day Parade is simply inappropriate. These events have become thinly veiled mechanisms for a Mayor to self-promote to an unsophisticated public. We certainly don’t want our precious tax dollars going towards that. Politicians love spending your money to make themselves look good and Trenton is rife with examples (the former Trenton Jazz Festival, the hotel, Waterfront Park). I’m asking that Trentonians see this for what it is and help City Council put a stop to it.
Heritage Days cost taxpayers at least $70,000. There were less than 1,000 attendees at the event meaning we spent more than $70 a person. That’s an obscene waste.
The Mayor has committed himself to government festivals. However city council is at least rethinking it. They are having some difficulty however, in getting a proper accounting of what we’ve spent. Requests for a full accounting of the Thanksgiving Day parade and last year’s Heritage Days have gone unanswered leading some of your council people to question every line item in the budget trying to find out where the expenses have been hidden. Some of our more responsible city council members are even considering eliminating the recreation because it’s become a rogue department. It’s come to this.
Trenton is facing a $7M deficit in 2013 and it recently laid off 30% of its police force, in other words, we’re burning. Meanwhile our Mayor insists on playing his fiddle. It’s his top priority.