Monarch Tax Abatement Questions - Some Answers

Dear Friends,

On August 17, 2009, I submitted a list of questions about the city’s controversial tax abatement plan to the administration. Below is a memo containing the official response provided by the City Administrator, Marc Dashield, dated September 3. The original questions (as submitted by me) are italicized and numbered for your convenience in reading this post, and the answers from the administration are in bold type. I have a bit of commentary of my own, which is at the end of the post.

1. What happens if the building goes into foreclosure?

Foreclosure will result in the property reverting to the bank which holds the construction loan. We are currently reviewing the possible outcomes with the legal Department and will forward their determination when available.

2. Shouldn't the deed restrictions outlined in the original agreement prevent the units from being turned into rentals without prior city council approval?

Anti-discrimination law prevents the restriction of specific type of the housing; therefore, no such clause exists in the agreement.

3. Can the senior citizens and veterans sections of the building open in September, as promised, even if all the units are not sold?

The opening of the Senior Center/Veterans Center space is not connected to all the units being sold. There are a number of code issues that must be addressed before full occupancy can occur. The expected move-in time is still September 2009.

4. I keep hearing that the project cannot be allowed to "fail." What is the definition of failure with regard to this project? Also, how do you define success?

The Monarch development is linked to important public policy objectives.

• First, the construction [of] a new senior center will provide increase[d] quality of service to our senior community.
• Second, the public/private partnership facilitated the financing of the senior facility without raising additional tax dollars. The land acquisition was financed through a federal grant and the developer is financing the construction of the center.
• Finally, this project represents the future of condominium development in [the] City. If this project does not succeed, financing institutions and developers will find it difficult to invest in condominiums in the city. Without developer and finance institutions willing to invest in condominium development the City’s efforts to attract transit oriented development will be damaged.

As illustrated above, the failure of this project would affect service delivery to the senior community and future economic development. Failures (sic) for this project means the development is unable [to] sell its units. Success would be a fully sold complex.

5. How many of the units have contracts and when are they supposed to close?

There are approximately 13-15 units with contract for sale. No closing dates have been scheduled because of the pending request for tax abatement.

6. How many of the units have closed as of today (Thursday, August 13, 2009)?

This question was not answered—the answer to the prior question, of course, means that no units have closed. –AM

7. Is the word "abatement" really just a substitution of the word "bailout," meaning the developer is seeking help from the city?

No, this is not a bail out. This request for tax abatement is a reasonable response to the changing market conditions that significantly impact the City’s public private partnership with the developer. During the boom market, the additional cost to build the Senior Center could easily be absorbed by the sales price of the units. However, the current market conditions have slowed sales and decreased sales prices, which makes it difficult for the developer to recover the cost construction of the Senior Center. Therefore, it is reasonable for the City to offer tax abatement to potential property owners in an effort to expand the potential buyer base thereby increasing the likelihood of sales.

8. When the seniors move into the new center, how much of the rent we pay for the old senior center will be put back into the city budget?

The operating cost of the new senior center will be utilities and condominium fees, which cover for the general maintenance of the building. The new facility will save the city an estimated $30,000 annually.

9. Given the stalled projects that this developer has in Rahway and elsewhere, what assurances do we have that he won't abandon the project?

The developer has financed the entire project therefore the issue is not financing of the project. The developer is now attempting to sell the unit to recoup cost and pay off financing.

10. Can the administration and the city council give an update on the financial "health" of this particular developer, given his other projects and in light of the Connolly bankruptcy?

The developer has financed the entire project therefore the issue is not financing of the project. The Connelly (sic) bankruptcy is a completely different set of circumstances.

11. Will the city order an independent appraisal of the units to determine their true worth in the current market?

An appraisal of the property does not deal with the real issue concerning the need for the tax abatement. The need for the abatement is directly related to the cost of construction of the senior center as stated above.

12. What can the city do to make the surrounding area more attractive, i.e., controlling the loitering near the Ben Franklin Liquor Store?

The City has already engaged the tenants/property owners in the surrounding area to entice them to participate in the City’s façade improvement program. In addition, the community policing unit is making special efforts to monitor the area.

Thank you for your attention to this matter. If you have any further questions, please feel free to contact me.

END

My Commentary

The memo was copied to Mayor Sharon Robinson-Briggs, as well as to my city council colleagues. This proposal will be brought up again at the next city council meeting. There are still several unresolved questions, and the administration's responses in this memo are incomplete. No specific data has been provided to the city council--it's simply conjecture.

For example, regarding Q. 3, the administration answers that the senior center opening is "...not connected to all the units being sold..." which implies that it may be connected to some portion of units being sold. We need to clarify what "all" means.

In Q. 4, several parts of the administration's answer are simply conjecture. In addition, the terms they use are vague and apparently interchangeable. There is no single profile of what the administration terms as "financing institutions" and "developers." There are many different financing institutions and many different types of developers. Nor does the administration provide any actual data on how the prospects of future development will be affected by this particular project (for better or worse). No administration would put all its eggs in one basket, and no one would proceed without a true cost/benefit analysis fitted for a variety of possible scenarios, given the vagaries of the market.

The response to Q. 9 does not answer the question asked--yes, the developer has financed the project. The question, however, had to do with the possibility of abandoning the project and letting it fall into foreclosure, given the concern over the status of other projects by this developer, one in Rahway in particular. The developer goes into a project knowing that there is a certain amount of risk, and knowing that the return on his investment (if there is indeed a return) may take years. Why should he be expecting to "recoup" his investment so quickly? A new comparative analysis of the prices in the area may lead to a lowering of the price of the condos so that it reflects the true value.

In Q. 10, the request for the administration to provide an update on the "financial health" of the developer is not answered. Instead, the answer simply repeats the previous answer. The questioner has not suggested that the issue is the "financing of the project." The questioner wants to know how much money the developer has in investments in a variety of projects.

Again, in Q. 11, the resident wanted to know if the city would order an independent appraisal of the condo units to determine their true worth, but the administration has avoided this question. They state that the "real issue" is the "need for the tax abatement," which they say is directly related to the cost of the senior center. Now, the senior center is only one part of the cost of construction, so how is it that the abatement is only to offset this cost? How could the cost of just the senior center be so great that the developer needs the abatement to cover just those costs? It doesn't make sense.

And of course, underlying all of this is the same issue: the fairness of a tax abatement, and who will pay.

• Who will pay the cost of a residential tax abatement for a select group of prospective new home buyers?
  
• How will it affect the tax burden of the rest of Plainfielders?
  
• How is it fair that ALL Plainfield residents are not able to benefit from a residential tax abatement?
• Why doesn't the developer simply lower the cost of the condos? If he has to take a loss, so be it. It happens all the time, and developers take this into account.
  

I thank you again for submitting your questions. As I read through the administration's responses again, I am sure that I will have some additional comments and questions. I am sure that you have many as well. I have not been swayed by any of the administration's arguments, and I am greatly concerned about the way the administration has gone about this process. I look forward to seeing you at the city council meeting.

Regards,

Adrian