The Secret Subsidy

You might remember my previous post about tax-abatements. Well, the shit might hit the fan sooner than I thought. The Jersey Journal is reporting that Hoboken, Jersey City and Harrison are on the Abbott hit list... as in getting hit off the list. Apparently, the unthinkable might soon happen... enough improvement in our public schools to loose state support.

I've never had a problem with tax abatements and PILOTS, per se. I like to see the redevelopment of our cities. Dense growth in established urban areas where we already have investments in infrastructure is a good thing, with big benefits to society - it should be encouraged and tax abatements are a good way to do that.

As I've said before - there's a unique problem when using abatements to encourage development in areas (like Jersey City and Hoboken) where the state pays a good portion of the public education tab. The temptation is there to short change the school district's share of property taxes because the courts require the state to make up the difference. Right now, it looks to me like that's exactly what Jersey City is doing. In exchange for an abatement, the City requires developers to make PILOT payments to the City and the County. The City gets a little more up front... the county a less than it normally would, the developer gets an incentive to build and the schools get next to nothing. And who's left holding the bag for the schools? The state - which means state income tax payers.

This creates two major problems.

The first is a philosophical problem. There's a shell game being orchestrated by the city. Normally, the policy choice would be property tax money for development, or property tax money for education. Guns or butter. Normally, if a city wanted to give incentives for development in the form of tax breaks, it would be at the expense of education or other services. There's a finite amount of property tax revenue to go around. But not so in the Abbott cities - State-wide income tax revenue supports our school system to make up for the shortfall. Therein is the secret subsidy for development. People of all incomes across New Jersey are paying income tax - including some low income and a lot of middle income New Jersey citizens. And who is benefitting from it? In Hoboken and Jersey City, when you train your eyes upwards, you see gleaming glass towers: corporate office buildings and high ticket apartments/condos. While people might be OK with statewide income tax money from middle class families paying for educating students - the same people just might have a problem subsidizing the kind of abated construction that's going on and to an extent, that's where the money is really going.

The second problem is, what happens when our schools turn around? Sure, the City's balance sheet might add up with the state paying the bill for the public schools - but what will happen when they pull out? Who will pay for the schools between the time that Abbott skips town and the abatements expire? It looks to me that there sure are a lot of properties that have locked in long term deals that involve paying no money at all to the public schools. When the main source of public school funding becomes property taxes again, where will the money come from?

Trenton, we have a problem...