Local Law Blogs

New Jersey State Comptroller's Examination of Municipal Tax Abatements

By Vincent J. Mangini

On August 18, 2010, the Office of the State Comptroller issued a 25-page report evaluating the "broad issues underlying tax abatement policy and implementation" and providing a multitude of recommendations for improvement. Among the concerns raised by the State Comptroller in the report were (1) the exclusion of certain parties from the process of creating opportunities for and awarding tax abatements to developers and property owners, (2) the lack of guidance from and regulatory oversight by State government and (3) the failure of municipalities to conduct "comprehensive and detailed cost-benefit analyses [at least] for potential long-term abatement projects."

To address the first concern, the Comptroller suggests in the report, for example, that current law be amended to require the involvement of "other affected stakeholders," such as county governing bodies, local school districts and even the "tax-paying public," in deciding what areas of a municipality - and who - should be eligible for tax abatement, thereby eliminating the absolute control that municipal governing bodies now have over the process.

In the area of guidance and oversight, the Comptroller recommends, among other things, that "the state, through the Department of Community Affairs, should offer detailed and readily available guidance to municipalities on interpreting and implementing the state's tax abatement laws [and] . . . actively review municipal abatement practices and choices, particularly with regard to high-value abatement agreements."

The impetus behind the Comptroller's interest in having municipalities do thorough cost-benefit analyses prior to awarding tax abatement benefits is to increase the likelihood that such abatements will be in the public's interest. According to the Comptroller:

The analysis should include consideration of any losses in ratable property that would be suffered by the municipality, the county, and the local school district, as well as the resulting revenue implications. It should also consider the necessity of the abatement for attracting the project, justification concerning the length of the abatement period, the likelihood of community benefits in both the short and long terms, and how those potential benefits tie into community needs.

In addition, the Comptroller opines in the report any cost-benefit analysis should be accompanied by transparency. Specifically, "[t]he cost-benefit analysis for a particular abatement should be made publicly available and should be forwarded to a designated state agency, such as the Local Finance Board, to ensure that the analysis was complete and fair.

It remains to be seen just how responsive municipal officials will be to the Comptroller's report and whether the State Legislature will take up any of the Comptroller's suggestions for improving municipal tax abatement policy and practices.

Full post as published by New Jersey Law Blog on September 10, 2010 (boomark / email).