Secaucus has taken the first round in a virtual prize fight with Jersey City, the long-established business capital of Hudson County. Secaucus, the up-and-coming challenger, is claiming that Jersey City has been improperly skipping out on paying county taxes, which meant other county towns became unintentional supporters of the city's economic success. A New Jersey Tax Court decision released last month could put a stop to many of the most controversial Jersey City PILOTs, or Payments in Lieu of Taxes. Jersey City intends to fight the ruling. "We're willing to take this all the way to the New Jersey Supreme Court," said Mayor Bret Schundler's chief of staff, Tom Gallagher, last week. Jersey City has filed a motion for the judge to reconsider his ruling. A July 7 hearing date has been tentatively scheduled. The May ruling by the Tax Court was the first in a series of lawsuits Secaucus may bring against Jersey City and firms to whom the city has granted tax abatements over the last two years. The abatements have allowed the firms to make Payments in Lieu of Taxes (PILOTs). Payments in Lieu of Taxes are made by a property directly to a city rather than into an overall tax fund that pays for city taxes, school taxes and county taxes. PILOTs provide an incentive both for developers and for cities. They allow developers to pay a set amount rather than worrying about potentially-fluctuating tax rates, and they allow the cities to collect money that would otherwise be divided among the city, the schools and the county. Secaucus has complained that because Jersey City has many tax-abated sites, that city is paying an inadequate share of county taxes and forcing other municipalities to pay more. Secaucus won a related case involving the county tax funding formula in 1998, but a judge said that the town would have to sue individual tax-abated properties to get further relief. The recent case is the beginning of those suits. In May, the state Tax Court ruled that the Tropicana Juice plant, on Linden Street in Greenville, had a PILOT that was invalid. Jersey City had apparently charged more than the state-allowed 2 percent of the plant's project cost when collecting annual payments and did not properly register this information with the Hudson County tax office for the years 1998 and 1999. Even though the abatements were originally granted prior to the Schundler administration, Secaucus filed suit for 1998 and 1999 due to time restrictions. Time has become an issue in the case. State Tax Court Judge Harold A. Kuskin ruled on May 19 that TPI Urban Renewal's abatement was invalid, but ordered an additional hearing on whether or not Secaucus had acted in a timely manner. The judge ruled the way he did because the amount of payment was above the state limit and that Jersey City failed to prove the certifications required by statute. "Each of these reasons is an independent basis for denying the exemption," Kuskin said. But Jersey City says it acted properly. "I think the city still contends it is in compliance with the law," said Gallagher in regards to whether Jersey City went over the limit. What does Secaucus want? Three years ago, when Secaucus first led a legal attack on Jersey City's tax abatement program, town officials claimed it came out of pure frustration. These officials claimed Secaucus taxpayers - as well as other taxpayers throughout the county - had become the unintentional supporters of Jersey City's economic success. While PILOT incentives have existed in the state since the 1960s, in 1992, the state legislature passed "The Business Retention Act," in reaction to a significant loss of manufacturing jobs around the state since 1979. The 1992 legislation allowed municipalities to offer incentives that would provide tax breaks to business for them to stay or relocate into a community. The state has a strict formula for these tax breaks based on a five-year program in which a company pays only 20 percent of taxes based on its assessment the first year and adds 20 percent per year until it is once more paying full taxes. Some properties, such as properties owned by the state, the county, a church or school, are not figured into the formula because they are tax-exempt. Jersey City has a great many of these tax-exempt buildings. "This is a long-term strategy by Jersey City to take old railroad property and build ratables," said Gallagher of the waterfront construction. The PILOT can fix taxes from 20 to 30 years, the last five years at 80 percent of the assessment. After the 20 or 30 years ends, it goes to 100 percent. The Tropicana building is on a 30-year abatement, according to Gallagher, while most commercial property is in the 15- to 20-year range. Another abated property, the Newport Office Center IV, will pay the city $1,531,000 per year, as compared with $3.1 million it would pay under conventional taxes. Under conventional taxes, the $3.1 million would have had to be divided among the city, school district and the county. Jersey City would only have received $1.3 million. Under Mayor Schundler, Jersey City has made agreements with companies that included "inflators" - these inflators brought in payments over the legal limit, according to Zipp. But Anne Babineau, of Wilentz, Goldman and Spitzer, a private firm representing Jersey City and the developers in the case, said that under the state's revised 1992 law, a municipality can determine its own annual service charge. Even if Secaucus wins based on Jersey City charging more than two percent of the project cost, Secaucus would not see any additional money. Jersey City also claims that all the land on abated projects is subject to normal taxes, while the actual development receives abatements, so the developers have been paying some regular taxes. Secaucus disputes this claim. Idea under attack The tax exempt status of PILOT incentives, especially those designed to bring businesses to a particular community, has come under attack in various parts of the state as communities like Secaucus claim they are being forced to pay for benefits other municipalities receive. (Secaucus could give its own tax abatements if it wanted to, but feels the properties should give some of the money to the schools and county.) According to a report issued by the magazine New Jersey Business, Jersey City's financial condition has improved significantly since the 1992 recession, when the state allowed PILOT programs to begin. As of 1999, 85 percent of the nation's over-the-counter stock market was traded through back offices in Jersey City. Millions of square feet of new office space have been built or are under construction along the waterfront area from the Colgate site to the Newport Complex. Land in that area has been selling for as high as $10 million an acre. The city has 7.6 million square feet of commercial space with two million under constriction and another 4.5 million planned, according to the report. Jersey City and Secaucus are often rated at the two highest tax paying communities in Hudson County, and Secaucus officials claim that Jersey City uses county services much more often than Secaucus does and that its residents procure a much greater number of county jobs. Jersey City disputes this assertion vehemently. Gallagher said that Jersey City hosts the county court and a correction facility, and that county services only include things like the county roads, parks, and a psychiatric ward. But do they have empathy for Secaucus's plight? "No," said Gallagher. "Look at the HMDC [the Hackensack Meadowlands Development Commission, a state agency]," he said. "They took ecologically sensitive wetlands [in Secaucus] and they developed on them to increase ratables." Further back In the initial suit filed in 1997, Secaucus claimed that the Hudson County Board of Taxation overlooked large tracts of real estate in Jersey City and other towns when calculating county taxes for Jersey City and other municipalities, since the tax rate is based partially on how much taxable land is in each city. By not reporting taxable property achieved though PILOT incentives, Secaucus tax attorney Peter Zipp claimed, Jersey City not only receives the cash payment, but pays a reduced percentage of taxes to the county. Thus, other towns like Secaucus find themselves paying a higher percentage of the overall county taxes. Secaucus said the omission unfairly raised taxes for Secaucus residents. The town sought to have the county amend its tax tables to include the money Jersey City got as PILOTs. Secaucus asked that the court review and revise the final equalization table for Hudson County for 1997 and include those PILOT payments to Jersey City in the total taxable property amount. But Babineau, the attorney fighting the case on behalf of Jersey City, sees it differently. "[Secaucus] never contested there was anything wrong with the reporting," he said. "They're objecting to the certification by the tax assessor rather than the city government. There's no question of the truthfulness or accuracy [of the assessor]. They're looking for some alleged technical violation." Although Secaucus won the initial case against the county in 1998 to have the county's tables reflect PILOTs, the judge ruled that Secaucus would have to sue each project separately to have that done. Zipp said this was the first of a series of suits to force Tropicana and other property owners with similar payments to pay county taxes. While waiting the six months for the preliminary hearing, Zipp said the town will be seeking to file suits against other PILOTs Bayonne, North Bergen join the party Secaucus has asked other communities to join in the suit. North Bergen and Bayonne have agreed to join in a suit involving taxes paid in the year 2000. Zipp said just about the entire waterfront was under abatement and most of these were being challenged in a series of suits. "Some are smaller than Tropicana's, some are larger," Zipp said. "But basically the others are along the Jersey City waterfront." TPI applied for the pilot in March 1989 for a 42-acre plot of land location in the Greenville Industrial Redevelopment area that Jersey City had previously designated as blighted. The 245,000 square foot facility agreed to pay $878,680 a year as opposed to the taxes that would have been $1,330,865. Secaucus Mayor Dennis Elwell said he could not comment of the specifics because it was an ongoing case, but said he believed the concept of Jersey City PILOTs violated the spirit of the law by not sharing the wealth with schools and county. "I was a councilman when this suit was filed, but I supported it and still support it," Elwell said. "I believe the practice unfairly affects the amount of money Secaucus taxpayers have to pay to county government." Said Babineau, "[Secaucus] is living in a dream world. These towns would have not turned around without abatements." Gallagher suggested that if Secaucus wants to see a greater portion of money coming to them from Jersey City, they should appeal to the state legislature. And even if Secaucus wins, Gallagher doesn't see them getting any money. The way he views it, if a ruling does come down, Jersey City will amend the necessary formulas, but it will not result in Secaucus getting a greater share from Jersey City. Unless a settlement is reached, which does not appear likely, the fight may become time-consuming and costly for both municipalities