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for Taxpayers and School Kids
It starts with a business making known that it is thinking about locating in a particular community. Local officials’ eyes light up. After all, it’s their job to bring development to the community. Businesses employ people. They pay taxes. What could be bad?
But then the business makes it clear that it is also considering other municipalities. What, the representative the business asks the local officials, can you offer us?
Well, how about a break on your taxes?
How big a break, the business asks. We don’t want to waste our time.
Okay, says the town, how about a really big one?
This all too familiar tale is unfolding in Hamilton Township now, but it has been happening all over New Jersey—with implications that cost taxpayers money and hold school children hostage to economic forces far beyond their control.
The Hamilton situation involves a Pennsylvania firm called Preferred Real Estate Investments negotiating a deal no homeowner would ever have a chance to receive: a 30-year property tax abatement in return for developing the now vacant American Standard factory site.
The business wouldn’t get off totally free. Firms haven’t quite acquired the bravado needed to demand that. According to published reports PREI will pay the township something in the order of $34 million over the 30 years, a small portion of which would go to Mercer County. But had the firm actually had to pay taxes, the total over that period would have been more like $75 million. How would you like to save over $40 million just by asking?
The problem isn’t only that the township gets less than it would otherwise get. It’s that the school district gets absolutely nothing. School districts aren’t party to these deals. So while on average, half of what’s collected in New Jersey in property taxes goes toward schools, when municipalities negotiate with a business for money instead of taxes, schools are shut out.
Hamilton Township’s response is pretty much what tax abaters say from Newark to Cape May: without this deal they wouldn’t come; we’d get nothing. Is that really true, or just what businesses want us to believe?
These arrangements are entered into by business with thought and planning. For example, a company called Stafford Tax Briefings offers firms a session on "Negotiating Property Tax Abatements: Maximizing Tax Incentives, Minimizing Corporate Tax Bills." The promotional literature warns that businesses need to attend because otherwise, "it’s difficult to verify whether you’re receiving as generous an incentive as other companies have."
That’s the landscape today—and it has to change. There is nothing wrong with towns competing against each other to attract good development. But it’s competition that should be based on educational and environmental quality, how good the roads are, high standards of police and fire protection. And, of course, these are all things that tax dollars help to assure. Competing on the basis of how much you can give away in cash is self-defeating, a downward spiral that in all likelihood leads to a lower quality of municipal life and businesses once itching to come in deciding later on to leave for even greener pastures.
One reason we let this happen is New Jersey’s over-reliance on property taxes. Municipalities are so eager to get any money at all that they get bullied by business into making deals counter to taxpayers’ long range interests. If New Jersey were more in line with other states in terms of what the state—instead of local government—funds, towns wouldn’t be so desperate.
Another reason is that we have let businesses paint a picture of the economy that isn’t true. In reality, we’re all in this together: business, workers, consumers and government. But business likes to point a gun at our heads by insisting that workers, consumers and government are all slurping at the trough of an economy created by business. The sooner we disabuse ourselves of that, the sooner we’ll stand up for our rights.
Meanwhile, there is nothing to stop municipalities from being their own worst enemies. "Just say no" is simply not seen as an option. We need a state law forbidding municipalities from granting property tax abatements to businesses. Businesses would fight hard against that. But over the years they’ve also fought against such "radical" notions as minimum wage, unemployment insurance, child labor laws and Social Security. Somehow when business fails to get what it wants we wind up with a stronger economy and a more stable society. There just might be a lesson in that.
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