July 20, 2009: New report is critical of long-term tax abatements

New Jersey’s long-term tax abatement law has flaws that prevent it from being used as intended, according to findings in the new NJPP report All That Glitters Isn’t Gold: Property Tax Abatements in Jersey City. The report shows the need for strict state oversight, enforcement and standards to ensure decisions granting tax abatements are necessary and benefit all taxpayers.

Originally intended to lure skeptical developers to invest in areas where they might otherwise not go, abatements are now used in some of the most desirable areas. Their use has serious financial consequences for the municipalities that grant them, as well as for the counties and school districts that receive little or no tax money from them as a result.

The report specifically focuses on Jersey City, which has awarded countless long-term tax abatements to developers building on its waterfront. Once home to rundown factories, abandoned rail yards and rotting piers, Jersey City’s Gold Coast is now lined with luxury condominiums and office buildings of some of the country’s largest financial firms. Although abatements may have helped spur development along the waterfront in the late 1970s and 1980s, they are likely no longer necessary.

Jersey City gives out more tax abatements than most other municipalities in the state, but it is far from the only municipality to use them. Tax abatements are given to developers and property owners throughout New Jersey, as well as throughout the country, who say that without them, their projects would be unsuccessful and that they would locate elsewhere. This ignores two significant factors. First, as is the case in Jersey City, compelling advantages often exist that have nothing to do with taxes. Second, taxes make up only a small portion of a company’s cost of doing business.

NJPP’s report identifies problems with the state’s long-term abatement law and Jersey City’s abatement policies, including the fact that New Jersey law does not limit the number of abatements a municipality can grant. Municipalities are also not required to audit abated properties for compliance with the abatement agreement.

In addition to identifying shortcomings with the law, the report makes 11 recommendations to turn a program benefiting developers into one that targets abatements to projects that would benefit the municipality and its residents. The recommendations include:

  • Amending the long-term abatement law so abatements can only be granted in “blighted areas” where development would otherwise not take place.
  • Barring elected officials from granting abatements to developers who have contributed to their campaigns.
  • Prohibiting developers from receiving both a tax credit and other incentives from the state on top of the abatement from the municipality.

New Jersey should not award abatements to developers simply because they ask. Instead, municipalities should carefully consider whether the abatement will benefit the city, the county and local schools. Click here to read the report. For more information contact NJPP policy analyst Naomi Mueller Bressler.