NorthJersey.com

Landlords Blast Proposal For Prudential Tax Break

The Record (NorthJersey.com) — Thursday, May 31, 2012

BY JEFF PILLETS
STAFF WRITER
The Record

Corporate tax breaks have been one of Governor Christie's favorite tools as he cobbles together his "Jersey comeback." Since 2010, his administration has approved hundreds of millions in credits to companies that have promised to hire new workers in exchange.

But Christie's strategy, long panned as corporate welfare by some political observers, faces mounting criticism from a segment of the business community itself.

An influential group of Newark landlords who own the landmark Gateway complex say a $200 million-plus tax break earmarked for Prudential Financial — up for approval Friday — might destroy their business and sink the city's depressed office market to new lows.

The Prudential tax break would be the largest ever granted by the Christie administration under a 2008 program designed to grow jobs in New Jersey's tepid economy. Opponents say it would cost taxpayers dearly — more than $626,000 in future tax revenue for each of the 400 permanent jobs that Prudential expects to create when it builds a new headquarters in downtown Newark.

That new headquarters would be just five blocks from Prudential's existing offices at the Gateway, a sprawling center once hailed as a redevelopment nucleus for New Jersey's biggest city. The Gateway owners say they're being squeezed by Prudential's "long tentacles of influence" that hold sway over state and local tax policy, influence they say even reaches the governor's official residence in Princeton.

"It makes absolutely no sense at all," said Paul Josephson, an attorney who represents Gateway's landlords, who have filed a lawsuit and an official objection to stop the Prudential tax credit. "Why should the state subsidize a Fortune 500 company to move a couple of blocks? Prudential isn't threatening to leave the city, they're just shuffling people around."

A final decision on the Prudential tax break is expected Friday when the state Economic Development Authority meets to vote on the company's application under the Urban Transit Hub program, a 4-year-old program designed to attract investment in Newark and eight other distressed New Jersey cities.

Under the program, the Christie administration has thus far committed close to $1 billion in tax credits to 17 companies that have pledged to create more than 2,300 jobs. New Jersey lost 260,000 in the recent recession.

Backers say the program promises to bring hundreds of millions in new investment to urban centers that haven't seen such corporate spending in generations. They say Panasonic's decision to erect a new headquarters in Newark, for example, would not have happened without a $102 million tax sweetener from the state.

"The Panasonic deal is transformational," said Timothy Lizura, an EDA executive, in an interview Tuesday. "In a digital world, a company can locate anywhere, in India as well as Indiana. Without the tax credit, they would not be coming to Newark."

Panasonic's move, just like Prudential's, won't be a big one. In fact, the company's Secaucus headquarters is only about nine miles away from the new site in Newark. Also like Prudential, news of the Panasonic move promoted a lawsuit from a jilted landlord, in this case, Hartz Mountain.

The state responded to Hartz's suit by creating a new tax-break program for residential developers. That program has already passed out more than $248 million in tax breaks to less than a dozen home developments, including one Camden venture that was awarded a $17.7 million tax credit for a project that would create just 16 new jobs, according to state data.

"It's a pattern we have seen over and over in Christie administration: obscene levels of welfare for corporations and cuts for everyone else," said Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, a non-profit lobbying group.

Michael Drewniak, a spokesman for Christie, said it was misleading to judge the success of the tax-credit program solely on a ratio of jobs created per dollar of tax break. He said Christie's policies have spurred hundreds of millions in new investment in cities that have flagged for years. Those investments will pay dividends for decades, he said.

"The naysayers never see the forest for the trees," Drewniak said.

Lizura, the EDA official, stressed that the Urban Transit Hub program places strict requirements on employers. He said they are required to provide written certifications that they will make hires, as well as proof of competing offers from other states trying to lure a company away.

The state also does a comprehensive analysis with intrastate moves to make sure that new economic activity spurred by the tax credits is not wiped out by the losses caused by a company's departure from its prior location in New Jersey. "In the end, we don't make any deal that isn't a net winner for the state," Lizura said.

The Gateway group says the state had made key errors that inflated the Prudential tax break. They also claim the state failed to figure in the cost of up to $100 million in new infrastructure they say is needed for the project.

"Gateway is already home to a unique and thriving business community, but the state is using a subsidy to destroy it," said Josephson, the Gateway attorney. "This is crony capitalism."

Josephson pointed out that Prudential Chairman John Strangfeld and his wife, Mary Kay, are both members of the executive committee at the Drumthwacket Foundation, a non-profit that raises money for the official New Jersey governor's mansion. They serve on the board's executive committee along with New Jersey first lady Mary Pat Christie.

The Christies don't live at the mansion.

Strangfeld's chairmanship of the Drumthwacket Foundation, which began in 2010, has coincided with a sharp rise in donations. For 2010, the foundation listed $468,914 in private donations and grants, up from $183,276 the previous years, tax documents show.

Prudential, as the foundation's leading contributor, has committed to giving $150,000 over three years, more than other major Drumthwacket donors such as Goldman Sachs and Morgan Stanley. Prudential, through its foundation, also recently made a $20,000 donation to a Newark development agency headed by Deputy Mayor Adam Zipkin, who has dismissed the objections of the Gateway landlords and spoken in favor of the Prudential tax-credit plan.

Bob DeFillippo, a Prudential spokesman, said it was "absurd" to suggest that the company was seeking any unfair advantage through its charitable giving and community work, which he said have been company hallmarks since the firm opened in 1875.

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