Early in November, Secaucus agreed to authorize five additional lawsuits to be filed against Jersey City for the year 2000, claiming that the way Jersey City awards its tax abatements violates state law. Jersey City has given tax abatements to numerous developers as an incentive to build there, allowing them to pay a fixed amount to the city each year rather than paying regular taxes to the city, state and county based on the tax rate.
The suits argue that Jersey City charged more than the state-allowed 2 percent of the project cost when collecting annual payments from the properties, and that the city also improperly certified financial agreements. Through the discovery process, it should be determined if the new batch of abatements was in violation of that law.
The abatements named in the new suits include properties at 10 Exchange Place, Portside Towers, Harborside, and the Doubletree Hotel on Washington Blvd. in Jersey City.
Jersey City is also weathering an abatement storm from Jersey City residents, who are seeking a referendum on an abatement for a high rise project near the Hoboken border. A judge had put a temporary stop to the referendum process, but will hear arguments Dec. 15.
Despite the Secaucus suit, Jersey City says it is in it for the long haul.
"If it's Bayonne or Hoboken or whoever they better get out their checkbooks," said Mayor Bret Schundler's chief of staff Tom Gallagher, "because this is going to be a long fight." The city has vowed to take the case to the state Supreme Court, if necessary. Jersey City has argued that Secaucus is trying to scrap the abatements on a technicality.
Secaucus claims that Jersey City took advantage of a 1992 change in state tax law to help lure developers to the dilapidated Jersey City waterfront. As a result, more than 30 buildings have been constructed or are in the process - something Secaucus claims the rest of Hudson County is helping to pay for.
According to an increasing number of lawsuits filed by Secaucus, Jersey City owes other communities nearly $4 million in back taxes as a result of the way it does its tax abatements.
Hoboken recently joined the suit as well. Hoboken Business Administrator George Crimmins said last week, "People are saying, 'Aren't we being hypocritical because there are PILOTs on Pier A and Pier B?' No, because those PILOTs have been laid out according to New Jersey statutes and to Port Authority [which leases the land to the city] statute."
This spring, Secaucus won the first round in what it claims is the model case for its other lawsuits.
Won first round
In May, the state Tax Court ruled that the Tropicana Juice plant, on Linden Street in the Greenville section of Jersey City, had an invalid PILOT (Payments in Lieu of Taxes). 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.
Jersey City currently has 89 properties receiving tax abatements for a total of about $48 million of revenue per year. If not abated, the properties would generate about $100 million in regular taxes, said Gallagher as quoted in an October New York Times article. A good portion of that $100 million would go to Jersey City schools and Hudson County if the property owners were paying regular taxes.
"The [Tropicana case] becomes a model for the rest of Secaucus' lawsuits," said Peter Zipp, the tax attorney representing Secaucus. "That case will allow the court to apply the same standards to the other projects along the Jersey City waterfront, all of which violate state law."
An attorneys' conference call on that case is expected in January, and a hearing could be held later in the winter. Zipp said Secaucus is challenging the abatements of 15 properties, though because of an earlier ruling, Secaucus must file a new suit for each property for each tax year.
"Secaucus isn't against tax abatements," Zipp said. "Tax abatements serve a purpose to encourage development in blighted areas. But Jersey City's waterfront doesn't need abatements to encourage development, and if Jersey City feels it must abate, the city should do it according to the law."
But in a June Reporter story, an attorney representing Jersey City had said that Secaucus and other towns joining in the suit were "living in a dream world" by asserting that abatements are no longer necessary.
"These towns would not have turned around without abatements," said Anne Babineau of Woodbridge-based Wilentz, Goldman and Spitzer, a private firm representing Jersey City and the developers in the case. Babineau could not be reached for comment for this story.
While PILOT incentives have existed in the state since the 1960s, in 1992, the state legislature passed The Long Term Tax Exemption Law in reaction to a significant loss of manufacturing jobs around the state since 1979. Under the earlier Fox-Lance Law, the state had a strict formula for these tax breaks, allowing for an increased percentage of taxes per year until the project was paying full taxes at the end of the PILOT. The 1992 legislation allowed municipalities to offer longer-term incentives that would provide tax breaks to business for them to stay or relocate into a community.
Some properties, like those 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 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.
Jersey City has argued that Secaucus should be using legislation, not litigation to change the way the county is funded. Gallagher suggested the towns now involved in the suit should lobby legislators to change the tax exemption law.
"This is a chance to try to get free money," he said of Secaucus and other Hudson County towns.
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, Secaucus contends, brought in payments over the legal limit.
But Babineau, who represents Jersey City, and the developers in the case, argued that under the state's revised 1992 law, a municipality can determine its own annual service charge.
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, but they say the properties should give some of the money to the schools and county.)
Others join in
In early October, Secaucus invited representatives from each of the municipalities in Hudson County to a forum on the suit.
"We were seeking to inform them of what our suit is all about," Zipp said, noting that only Jersey City and West New York failed to send representatives.
Secaucus was asking that the other towns join the suit and share in the cost of fighting the legal battle for the current year, each was asked to give $10,000 towards the suit.
While Bayonne and North Bergen had already agreed to be involved with the lawsuit before the meeting, Hoboken also joined and Guttenberg has promised to join as well. Mayor Dennis Elwell said recently that Hoboken has contributed money for the cost of the suit.
According to figures issued by Zipp, Bayonne would see a refund of $2.3 million if the suits covering tax years 1998, 1999, and 2000 are successful. Secaucus and North Bergen would receive about $2 million each, Hoboken about $1.9 million with Kearny, Union City, West New York, Weehawken as well other Hudson County communities receiving refunds as well.
It's unclear what type of ruling would come down. Secaucus is pinning their hope that if they win, the properties would be returned to the tax rolls, and the owners would need to pay the difference in taxes owed for 1998-99. That money would then be divvied up between the county and the schools.
But Jersey City had said that that even if Secaucus wins, the county would not see any additional money in the future. Jersey City would likely amend the current formulas for the tax exemptions.