Ted Zangari was interviewed by Alyson Grala, associate editor of Real Estate New Jersey magazine, about the Smart Growth Economic Development Coalition and the economic recovery legislation that was signed by New Jersey Governor Jon S. Corzine on July 27, 2009. To watch the interview please click here.
NJ-NAIOP’s Special Legislative Update Breakfast regarding the NJ Economic Stimulus Act of 2009 took place on July 30, 2009. To view select materials from this morning’s breakfast program, please click on the links below:
Economic Stimulus Act of 2009 Statewide Non-residential Development Fee Provisions
PowerPoint Presentation by Kevin Moore, Member of Sills Cummis & Gross P.C.
Developer-Oriented Highlights of the New Jersey Economic Stimulus Act of 2009
Highlights of the New Urban Transit Hub Tax Credit (UTHTC) Program
Handouts by Ted Zangari, Member of Sills Cummis & Gross P.C.
(Blog editor-in-chief Ted Zangari, founder of the Smart Growth Economic Development Coalition, second from left, watches Gov. Jon Corzine enact the NJ Stimulus Act of 2009.)
Long term initiatives focus on continued rebuilding of economy
NEWARK – Governor Jon S. Corzine today signed economic recovery legislation to further reinvigorate the Garden State economy through a series of enhanced economic development measures.
“Without a doubt, the current global economic crisis has presented us with of one our greatest challenges, but it is also one of our greatest opportunities,” said Governor Corzine. “Last October, we introduced a far reaching and multi-faceted Economic Recovery and Assistance Plan. Today we are building upon those initiatives with this additional recovery legislation that will help our economy and citizens grow stronger and more prosperous.”
The bill, S-2299/A-4048, establishes an Economic Redevelopment and Growth (ERG)
Grant Program; revises the Urban Transit Hub Tax Credit Act and the Technology Business Tax Certificate Transfer Program; places a moratorium on COAH “Statewide Non-Residential Fee Act” and authorizes grants to municipalities for affordable housing and improves the financing of higher education facilities in New Jersey.
Continue Reading Governor Corzine Signs New Economic recovery Legislation
This is a summary of a complex law. You should consult an attorney for its particular application to your circumstances.
The New Jersey Economic Stimulus Act of 2009, which the Legislature passed last week and which is awaiting the Governor’s signature into law, provides four major economic stimuli to the development community – (1) a new tax increment grant/financing program to be known as “ERGG”, (2) an expanded and improved business attraction incentive program in urban transit hubs, (3) a new tax credit for developers of residential projects in urban transit hubs, and (4) a full moratorium on the affordable housing fee for certain non-residential projects, a total or partial refund of the affordable housing fee for certain non-residential projects and a corresponding reduction or elimination of the municipal actual growth share obligation generated by such exempted non-residential projects to the extent State or Federal funds are not available to partially or fully fund the fee such projects would otherwise have generated.
To read the full report please click here.
The following is a speech delivered this morning by Sen. Raymond J. Lesniak, sponsor of the Economic Stimulus Act of 2009, to the NJ Business & Industry Association:
"I've been calling my economic stimulus legislation, which now awaits Governor Corzine's signature, “The most powerful economic growth tool on the planet.” Some have asked, "On the planet?.” If its impact on the City of Elizabeth is typical, I might have to change my assessment from "On the Planet" to "In the Universe". Let's take a look at what it brings to Elizabeth.
To read the full remarks please click here.
In September 2007 – one month before the Dow hit its all-time high – over a dozen trade associations representing business, real estate and labor met to address “twin crises” affecting New Jersey. One, a short term “demand” crisis: the outmigration of jobs and residents to other states. The other, a longer term “supply” crisis: when businesses and people stop leaving the state and more start arriving, as demographers predict, where will this fully built-out state house them, if not on the remaining greenfields now off-limits to development?
The upshot of that meeting was the formation of the “Smart Growth Economic Development Coalition” and a year-long effort to draft a “stimulus package” for legislative consideration.
Many of the ideas promoted in the Coalition’s stimulus package are now embodied in the Economic Stimulus Act of 2009 (A-4048/S-2299) which the State Senate and Assembly are considering this week. The Coalition, whose member-organizations include groups that have thought long and hard about urban renewal, comprehensive land use planning, affordable housing, and business retention and attraction, strongly believe that A-4048/S-2299 will have dramatic positive consequences for the future of our state.
For example, consider the “Urban Transit Hub Tax Credit” (UTHTC) program within A-4048/S-2299. From an economic development perspective, this powerful new business incentive tool – unlike any business inducement program in the country – will attract large-scale employers to our state’s urban centers. Businesses otherwise headed to adjacent states or the sunbelt will be compelled to at least give serious consideration to locating their offices or factories to the cities included in the program. And because there’s a six-year window for eligibility, this program will spur projects in the next few years that will significantly contribute to the State’s economic recovery.
The nine eligible “urban aid” cities are not the only ones who will benefit if businesses relocate there. The state’s taxpayers will also win because the sooner these cities grow their property tax bases, the sooner they will be weaned-off of state aid. And the environment will benefit because under the program, office towers must locate within a half-mile of commuter rail stations to qualify for the tax credit, thus encouraging employees to take mass transit, and factories must locate along freight rail lines to qualify for the tax credit, thereby taking three or four tractor trailers off our roadways for every rail car loaded or unloaded.
Consider also the “Economic Redevelopment and Growth Grant” (ERGG) program within A-4048/S-2299. If anyone has ever wondered why large-scale mixed-use redevelopment projects have not risen in cities beyond our Hudson River waterfront, where rents and hourly parking rates enjoy the proximity to Manhattan, the answer is simple: the unique costs of redevelopment – land assemblage, environmental remediation, expensive structured parking – far outstrip the cost of developing in previously undeveloped greenfields, and yet there are no premium revenues to offset those added costs. Not even the developers of successful redevelopment projects on New Jersey’s “Gold Coast” have been able to “make the numbers work” for new redevelopment projects in those cities in recent years. Forty-eight other states have well-oiled tax increment financing programs to help close the financing gap on redevelopment projects, and yet, ironically, the state that needs redevelopment more than any other, New Jersey, has not had a workable tax increment financing program and will not unless A-4048/S-2299 becomes law.
Opponents of A-4048/S-2299 would have you believe that the legislation is nothing more than wasteful “pork-barrel” or “Christmas tree” subsidies to wealthy business-owners and developers. They could not be more wrong.
The Urban Transit Hub Tax Credit program is a fiscally responsible, smart growth response to the generous financial rewards other states are offering to businesses. In other states, incentives are granted regardless of where a business relocates, while the UTHTC is specially targeted to only nine urban, rail-connected cities. Competing states offer as-of-right incentives, but the UTHTC requires the NJEDA to confirm that an applicant’s project will have a net positive benefit to the state and host city after all public support to the project and municipal services have been taken into account.
The same applies to the Economic Redevelopment and Growth Grant program. Critics decry ERGG’s use of local property taxes to defray the cost of redevelopment projects. They claim that these dollars merely allow developers to earn the same profits that they used to earn developing greenfields before they were placed off-limits; the truth is that developers stand to actually lose money on most redevelopment projects, thus explaining the absence of construction cranes on the skylines of Newark, Elizabeth and Camden. Critics of A-4048/S-2299 also fail to mention that ERGG grants can only be funded using the incremental extra taxes generated as a result of a project; the existing taxes paid on a property can’t be touched. They also fail to note that once debt service on a project’s construction costs has been satisfied, 100% of the incremental extra taxes will go to the host municipality. And critics overlook the multiplier effect: these redevelopment projects will create near-term construction jobs, and longer-term permanent jobs, as well as new economic activity generating new income taxes and sales taxes. The smart growth economic development incentives contained in A-4048/S-2299 are not for “special interests.” They’re in everyone’s best interest.
Ted Zangari practices law in Newark and is the founder of the Smart Growth Economic Development Coalition.
The following are members of the Smart Growth Econimic Development Coalition:
The New Jersey Economic Stimulus Act of 2009, which cleared the Assembly Appropriations Committee on Thursday, will have dramatic implications for real estate and economic development in the state, said Ted Zangari, a real estate attorney at law firm Sills Cummis & Gross, P.C., in Newark. To read the complete story, please click here.
A discussion paper on potential changes to lease accounting was released in March by the U.S. Financial Accounting Standards Board and the International Accounting Standards Board. According to the discussion draft all operating leases for real estate and equipment will have to be capitalized on corporate balance sheets and rent expenses will be dramatically altered. This would effectively eliminate operating leases, significantly increase costs and reduce flexibility.
Under this common standard, the contractual rights of a lease will be considered an asset and the rental commitments will be considered a liability. The rental payments will be split between capital and interest (similar to a loan) making the cost of the profit and loss account higher in the early years of a lease. Currently, leases are considered a straight-line operating expense.
While the stated purpose of the proposed new system is to create more transparency for company financial statements, it will cause balance sheets to balloon and cause significant reporting adjustments for contingencies. According to Jones Lang LaSalle, “If these proposals are adopted, they will change the way that corporations view their property holdings. They will inflate both assets and liabilities, affect profit-and-loss run rates, key performance measures including debt-covenant ratios, and change the overall make-up of corporate financial statements.” According to the Equipment Leasing and Finance Association, of the top 30 companies with outstanding off-balance sheet rent obligations, 15 are retailers.
Comments on the proposed rules are being accepted until July 17, an exposure draft is anticipated in 2010 and final rule issuance could come as early as 2011.
The recent economic tsunami has already devastated the commercial real estate sector. But another wave of bad news is about to hit owners of commercial real estate. The economic downturn has drastically reduced state tax revenues, and state officials are responding by significantly cutting state aid to municipalities and school districts. Why is this bad for property owners? Because local governments will be unable to compensate for the cuts in state aid simply by making commensurate cuts in expenses (many of which are fixed costs such as debt service and binding labor agreements) – they will be forced to increase local property taxes to make up for budgetary shortfalls.
Real estate taxes are often overlooked by building owners in their search for budget items that can be reduced in order to soften the blow of vacancies or to lower operating costs as they attempt to attract new tenants and retain existing ones. Tenants, who typically reimburse their landlords for a share of real estate taxes, overlook this potential area for savings even more frequently – by failing to compel their landlords (through enforcement of lease provisions or simple persuasion) to consider a tax appeal. Yet, a review of the local tax assessment process may well reveal that an owner and, in turn, its tenants are paying more than their fair share of the municipal budget. This is especially true in the current depressed real estate market because many municipalities last conducted a revaluation or reassessment in the real estate boom of the last decade, and, as a result, the current assessment of many commercial properties is based on bloated values of yesteryear that no longer reflect market value.
Not only could a successful tax appeal mean tax savings for 2008, it could also mean a smaller tax obligation in future years.
Statutory deadlines for filing a 2008 tax appeal are approaching (in New Jersey, the deadline is April 1, 2009), and most tax assessors have already begun to determine the assessed value to be placed on every block and lot in their municipalities for the coming year. Therefore, building owners who are interested in filing an appeal (and tenants who have the contractual right or clout to force an appeal) should immediately review their current local property tax situations to determine if an appeal is warranted.
Background on Valuation
Real property is assessed at market value for local property tax purposes. The local tax assessor is familiar with market conditions in his or her municipality. Using this knowledge, the tax assessor utilizes three approaches, each of which will be discussed below to determine market value as of a particular date. (For example, in New Jersey, the assessment date is October 1 of the pre-tax year.) Although all three approaches to value are utilized to verify an assessor’s value conclusion, the approach that is ultimately relied upon will depend on the type of property involved, the use of the subject property and the availability of data in each situation:
Conclusion
Given the dramatic changes in the commercial real estate market over the past year and the ongoing trend of lower rents and higher vacancy rates, building owners should carefully evaluate whether these circumstances will result in a significant reduction in the value of individual properties in their portfolio. If such a reduction has occurred, a prudent owner should seriously consider filing a tax appeal.
Knowledge of the data a tax assessor reviews and how he or she arrives at the assessed value of a subject property would certainly assist the building owner in determining whether its property is over-assessed and whether an appeal is warranted. In reviewing a property for this purpose, the owner must recognize that a tax assessor — unlike an owner, who is inclined to estimate the value of its property in a subjective and personal way — will look at a property’s market value in an objective and impersonal fashion. Although the approaches to value mentioned above appear to be somewhat straightforward, numerous issues arise each tax year between assessors and owners regarding such approaches and their application to specific properties.
Challenging a municipality over local property tax assessments requires advance planning, careful attention to detail in gathering facts and data, and knowledgeable appraisal and legal assistance.
Noah Bronkesh is Chair of the Tax Appeal Practice Group and Ted Zangari is Co-Chair of the Redevelopment Law Practice Group at Sills Cummis & Gross in Newark and Princeton, New Jersey.
State Senator Raymond Lesniak's statement opening a State Senate hearing to be held later this month on reforming the policies of the Council On Affordable Housing (COAH).
I come here today not to praise COAH, but to bury it. In my 31 years of working with government's bureaucracy, I have never experienced an agency that has so totally failed its mission as COAH has. If the legislature fails to act, and act quickly, COAH's policies will continue to not produce necessary affordable housing and will stifle job production and the state's recovery from the worldwide recession. Governor Corzine and the Legislature have embarked on a bold plan to restore economic viability to our state and for our residents. Our efforts will fail, if we do not quickly stop COAH from dragging our state into an economic abyss from which we will not be able to recover.
Cutting our nose off to spite our face, which has been embraced by COAH, and to a certain extent our Courts, is not an option. Stopping economic development if affordable housing is not provided for is a zero sum game where the residents and taxpayers of New Jersey are the losers. Affordable housing is the responsibility of the State. We need to treat affordable housing as an infrastructure need to be provided for by the state. There are many ways we can fulfill our affordable housing needs. One of them is not trying to pound a square peg into a round hole as COAH, and again to an extent the Courts, have tried and not surprisingly failed to accomplish.
Affordable housing needs to be included in the federal infrastructure stimulus package. Congressman Rothman and our Congressional delegation are working on that need.
RAD financing, using a portion of future state income taxes, sales taxes, parking taxes, admission fees and local property taxes generated by a development can help finance the infrastructure needs of a development so that affordable housing can be built without killing the project. COAH needs to learn basic math: 2.5% or 10% or 20% of zero is zero. The Treasurer of New Jersey likewise has to understand that 80% or 60% or 40% of new state revenues is better than no state revenues.
New Jersey has an inventory of surplus property, as well as underutilized property, which should be dedicated, where appropriate, for affordable housing.
Our Courts need to understand that the welfare clause of the New Jersey Constitution does not exist in a vacuum. A policy that damages our state's economy hurts our most at risk residents: the poor, the uninsured, the elderly, the infirm, the uneducated, the undereducated, the jobless, the single parent struggling to raise a family, the two parent family struggling to keep a roof over their heads and provide for their children, and the children who have been abandoned or abused by their parents. Foremost, it hurts the state's ability to protect the safety of our residents. Governor Corzine has to make this clear to the Court, in litigation that will no doubt challenge our effort to reform COAH. We have to be able to produce affordable housing, protect our environment and promote economic growth. Yes we can do all three. In fact, leaving any one out hurts the others. This holistic approach is not everything, it's the only thing.
A policy that ignores smart growth and environmental protection principals, such as COAH has adopted, damages the quality of life of all our residents, the quality of the air we breath, the water we drink, the soil we walk, live and play on, and the beaches that are not only a source of recreation for our residents, but are also a key part of our economy.
COAH's policies also impair the ability to create or maintain open space so necessary in the most densely populated state in the nation.
There has been much sound and fury over COAH's deadline for municipalities to submit its compliance plans. To me, the deadline was meaningless since any plans submitted under current COAH policies are not worth the paper they're printed on or the type they're e-mailed on. COAH's methodology of determining the number of affordable units needed in the state and each municipality is not only flawed, it's outdated as a result of the economic downturn that has engulfed our state, our nation and the rest of the world. The cost of developing the plans submitted under these circumstances was a colossal waste of tax dollars.
For the sake of the future viability of our state as a prosperous and healthy entity that provides for the general welfare of all of our residents, we must reform COAH. Make no mistake about this effort. We will not tolerate any exclusionary zoning or any efforts to keep low income residents from living in a municipality. But attempts at social engineering that are contrary to the laws of economics, the laws of environmental protection and the laws of common sense are doomed to failure. And failure has been the signature of COAH throughout its existence. Low income residents of our state have been, and will continue to be, the most damaged by that failure.
Today we will be considering legislation sponsored by Democratic and Republican Senators which will bring much needed common sense and effectiveness into our government's obligation to provide for affordable housing and the general welfare of our residents. We must succeed. Failure is not an option.
Those who support the status quo remind me of a line referring to President Lyndon Johnson in a Vietnam War protest song, "We're knee deep in the big muddy and the big fool says to push on." Let's get out of the big muddy and then push.
To participate in the debate at Sen. Lesniak's Blog CLICK HERE.