‘Tax gentrification, not jobs’: Say NO to Jersey City Payroll Tax, YES to Income Tax
The city council is rushing to pass a Jersey City Payroll Tax that not only fails to address the school funding crisis, but might actually accelerate hyper-gentrification and hurt business development.
Before I begin, because it will inevitably be alleged, I’m not a shill for LeFrak or Mack-Cali – the major opponents of the Jersey City Payroll Tax. Quite frankly, I’m still waiting to find out what Mack-Cali charges Jersey City’s First Lady in rent for prime real estate in Weehawken, NJ.
What I do care about is the negative impact the payroll tax will have on Jersey City’s economy, especially for entrepreneurs and workers. A payroll tax that not only endangers a weak corporate environment, but completely fails to address the city’s public school funding crisis.
Furthermore, the whack-a-mole policymaking of Jersey City’s political leaders will only exacerbate the biggest socioeconomic concern of many residents – hyper-gentrification that’s displacing the middle-class.
As simply as possible, this piece aims to do two things:
1) Explain why the Jersey City Payroll Tax is a terrible idea that will only accelerate hyper-gentrification.
2) Provide an alternative solution that simultaneously curbs hyper-gentrification while addressing the Jersey City Board of Education’s (JCBOE) funding crisis.
But Newark has a payroll tax!
Mayor Steven Fulop wrote on Facebook that “Newark and NYC both already have this Employer Payroll so the argument it will make us less competitive is FALSE.”
First off, to even compare Jersey City and New York City is beyond disingenuous. Businesses pay a cost for the prestige of a NYC address. When corporations recruit top talent, saying their offices are in NYC is a selling point because they’re often competing against firms in Chicago, San Francisco, and Boston.
Who remembers the Goldman Sachs tower debacle?
Adding to that point, Jersey City competes for less prominent back-office operations – where big corporations are always looking for savings (like outsourcing IT jobs). Raising the cost of those operations isn’t exactly the wisest move.
There’s countless other examples I could point to, but I’m not going to waste anymore space debunking that part of Fulop’s false narrative.
Second, Jersey City Payroll Tax proponents love to point to Newark’s payroll tax like it’s a success story or claim that, at the very least, it hasn’t hurt business development.
Unfortunately, that’s the furthest thing from the truth.
According to a frequently cited 2017 report by the New Jersey Institute of Social Justice (NJISJ), Newark residents hold only 18 percent of all jobs in the city. Though various factors – especially the skills/education gap – must be taken into consideration when discussing that statistic, it’s hard to argue that the added cost of doing business isn’t part of the problem.
If Newark’s 1 percent payroll tax wasn’t hurting Newark residents, then why did Mayor Ras Baraka – as part of his agenda to get 2,020 residents into local jobs by 2020 – push a plan that will waive the tax as long as a company hires at least 50 percent local?
More on that 2,020 by 2020 plan further down, but I do wonder how much it will actually help low-income Newark residents paying the hidden tax of having to commute outside the city for work. Just because the Baraka Administration is waiving the tax doesn’t mean the benefit is enough for businesses to move their operations to Newark.
Also, I could be wrong, but it isn’t hard to imagine that some big corporations that’ve been in Newark for years – especially the airlines – may see a windfall from the recently updated policy without creating many new jobs for long-time residents.
Moreover, if the payroll tax wasn’t an issue for attracting high-paying corporate jobs, why offer $1 billion in exemptions to lure Amazon to Brick City? HQ2 might be an extreme example, but New Jersey’s onerous taxes and regulations practically force public officials to offer lavish incentives to not only attract, but keep, major corporations in the state.
To be clear, Jersey City is dealing with a lot of competition to attract corporate jobs beyond the borders of New Jersey. A 1% payroll tax could very well be a deal breaker for businesses considering moving to Newport or Exchange Place.
The Waterfront is better than Downtown Newark!
Jersey City’s Waterfront and Newark’s Downtown are essentially the corporate centers of their respective cities. I’m not going to argue the pros and cons much, but the most important fact speaks for itself – it’s significantly cheaper to be in Newark.
For example, Broadridge (formerly ADP Brokerage) was Journal Square’s anchor corporation for years. After receiving $23 million in Grow New Jersey tax credits over 10 years from the New Jersey Economic Development Authority (EDA), they moved to Newark’s 2 Gateway Center – with about 1,000 jobs.
Of significance, Broadridge leased 160,000 square feet (SF) of commercial space and asking rents are on average 25% less expensive in Newark than the Hudson Waterfront.
Those two factors make Newark’s payroll tax negligible. Plus, I’m going to keep it real – Downtown Newark/Ironbound has a far better atmosphere than Journal Square and Newport. (I’d add Exchange Place/Harborside, but Mike DeMarco might put a hit on me if I keep talking s***.)
Speaking of Newport, the biggest news LeFrak recently made was bringing fashion designer Tory Burch to Jersey City. Similar to Broadridge, Tory Burch received $10.8 million in EDA tax credits to relocate part of its corporate offices from Manhattan.
Highlighting how lame Newport is, Tory Burch said it would locate its customer call center there – 93,000 SF over two floors at 499 Washington Blvd. I’m sure Jersey City’s price per SF beats Manhattan, but with a new payroll tax, maybe Kearny Point looks more attractive in retrospect?
Besides Kearny Point, a plethora of other options exist that are probably better than Jersey City’s waterfront for Manhattan firms – including Hoboken (with potentially exciting projects), Weehawken, and refurbished suburban corporate campuses that don’t come with a payroll tax.
Jersey City’s biggest selling point is the PATH train, which is becoming a bigger disaster every year, because Hoboken and Weehawken have ferries, too. Newark offers both the PATH and NJ Transit to New York’s Penn Station as rail options into Manhattan, and is easier to get to by car, bus, or train from most of the state.
Besides, if Jersey City has such a bustling, growing corporate environment, how many new office buildings have been developed in the past 10 years? Even better, what’s the net growth of corporate office space SF in the past 10 years?
The corporate market in Jersey City is a lot more fragile than politicians would like people to believe, that’s why executives at LeFrak and Mack-Cali – two landlords with a lot of office space – have plenty of anxiety over the proposed payroll tax.
It’s only 1 penny on the dollar!
Fair enough, Mayor Fulop, I’ll be sure to use similar logic further down.
Nevertheless, just to be clear – 100 non-Jersey City employees making $100,000 will generate $100,000 in employer-only payroll tax. In Mack-Cali’s own marketing brochure for the yet-to-break-ground Harborside Tower, they claim companies will save $2.8 million per year over 10 years by moving 360 employees into 60,000 SF of their office space priced at $50/SF – mainly from EDA tax credits.
Assuming those 360 employees are, on average, making $100,000 and don’t live in Jersey City – the payroll tax bill will be $360,000. In simpler terms, that’s a 12% reduction in estimated savings for a company pondering a move to Exchange Place.
Ironically, the Jersey City Payroll Tax is being proposed to offset the school funding crisis which is the result of state officials not wanting to subsidize the JCBOE’s budget anymore. It will only be a matter of time until the EDA hands out more lucrative deals to politically-connected businesses thinking about moving to Jersey City.
Remember Fulop’s infamous Super PAC – the Coalition for Progress. The president of the PAC is Bari Mattes, a “longtime confidant” to Sen. Cory Booker and political fundraiser, who once worked as president of the Tory Burch Foundation.
The Mattes situation might be coincidental, but the dizzying cycle of crony capitalism and faux socialism that does nothing but benefit the politically connected is all too real.
This won’t hurt Jersey City workers because there’s an exemption!
According to Mayor Fulop, the payroll tax will be “largely paid by Goldman Sachs and JP Morgan” – which isn’t entirely accurate.
It will tax every business with non-Jersey City employees. That includes supermarkets, barber shops, car mechanics, big box stores, restaurants, medical practices… YOU NAME IT!!!
More on that reality further down, I’ll stick to corporate for now.
By the way, what’s the biggest local benefit of having corporations in Newport and Exchange Place? The lavish spending of high-income workers that support the service industry, especially bars and restaurants that employ Jersey City residents.
Relocating 5% of those high-income workers, due to businesses avoiding the tax, could have a severe impact on service industry employees.
Even worse, corporations may encourage their employees to live in Jersey City. What will those hundreds – if not thousands – of new high-income residents do for Jersey City? Accelerate the hyper-gentrification that’s already sent real estate prices soaring.
Unfortunately, that won’t help any of the low-income workers politicians are pretending they’re protecting with the local exemption.
Stop lying, the Payroll Tax is anti-Gentrification!
No, probably the complete opposite in Jersey City. Like I asked previously, how many new office buildings have been developed in the past 10 years? Even better, what’s the ratio of new residential units to new corporate spaces in the past 10 years?
Local residents concerned about hyper-gentrification should want corporate employees that work and play, but not reside, in Jersey City. Those people contribute significantly to the local economy without using any of the resources (especially the schools).
A payroll tax that exempts local residents will encourage companies to move high-income workers to Jersey City. Don’t believe me? Let’s go back to Newark’s 2,020 by 2020 plan.
Reported in the governing.com article previously cited, in March 2017, Audible, an international company with hundreds of employees in its Newark office, announced that it would subsidize a year of rent for any employees who move to, or live in, Newark.
How are Newark residents benefiting from that Audible policy? Better yet, how would current Jersey City residents benefit from such a corporate policy? Maybe the service industry jobs won’t be killed from a corporate exodus, but the local workers will ultimately pay the silent tax of gentrification via increased demand in the housing market.
Speaking of the housing market, I’m also worried this tax may slow the growth of housing units in Jersey City. When it comes to baseball fields in Iowa, the saying is build it and they will come. When it comes to residential development in Jersey City, the saying should be build something because they’re coming no matter what.
According to Tim Evans, a research director at non-profit organization New Jersey Future, Jersey City’s population grew by over 9% since 2010. I’m not saying that’s inherently a bad thing, but the housing supply isn’t growing fast enough to keep pace with demand – which is causing hyper-gentrification that’s displacing the middle-class.
Population growth for Jersey City can be great, the Grove Street/Newark Avenue section of Downtown is thriving because of it. That said, the focus should be on keeping gentrification contained to Downtown and Journal Square while rebuilding existing communities throughout the rest of the city.
The payroll tax will increase the cost of construction in Jersey City, and any slow down of high-density development in Downtown and Journal Square will put further pressure on the existing housing stock in neighborhoods throughout Jersey City.
At the rate things are going – especially with Ward E Councilman James Solomon leading the way – Chilltown will be almost entirely white-collar workers, trust-fund babies and poor people lucky enough to win affordable housing lotteries in the next 10-15 years.
Jersey City is “a tale of two cities” when it can be a “best of both worlds,” the payroll tax is an ill-thought-out idea that will only perpetuate the tale.
You’re a corporate shill!
No, far from it, but I’m definitely pro-free markets and not ashamed to say it. As evidenced by the EDA’s tax credits and Jersey City’s tax abatements, big corporations and the politically-connected will always have exclusive access to subsidies that offset the cost of taxes and regulation.
I have no reason to believe Mayor Fulop when he states that “small businesses hire local anyway so they would largely be exempt from this tax and it will also act as a motivator to hire more local residents.”
In fact, it’s the small-and-mid-size businesses that don’t catch a break from burdensome taxes and regulations that will be disproportionately affected. Is it fair that the auto body shop owner in The Heights has to pay a tax on his North Bergen & Union City employees that don’t send kids to Jersey City Public Schools (JCPS)?
It’s the low-and-middle-income workers that can’t afford to live in Jersey City, or at least outside of the most dangerous parts (and even that’s getting expensive), whose jobs are threatened by this payroll tax. Is that fair?
Is it fair to put a target on the person living in Bayonne – that doesn’t send kids to JCPS – working at a big box store on Route 440 In Jersey City?
Unfortunately, those small-and-mid-size businesses and low-and-middle-income workers don’t really have anyone representing their interests.
It’s the young entrepreneurs with a dream and a Jersey City LLC that might be put at risk because of the way the ordinance is currently written. Though I’m not a tax law expert, the way “employee” is defined in the ordinance seems to be irrespective of W-2 or 1099.
I’m assuming the reason that’s being done is to make sure big firms thinking of skirting the payroll tax aren’t incentivized to hire independent contractors (1099) instead of employees (W-2). Anyone that’s worked in back-office operations understands it’s very common that independent contractors are used for a variety of business reasons, so it makes sense Jersey City is avoiding that potential loophole.
The flipside to that is young entrepreneurs working on shoestring budgets are going to have to pay that tax on any non-Jersey City 1099 they contract with. It’s easy to say “well they can avoid that problem by hiring Jersey City,” until you realize that might be cost-prohibitive or impossible because the specialization of service is difficult to find.
For example, let’s say a homeowner in a “historic district” hires a Jersey City general contractor to renovate their property. Due to the onerous nature of a historic district, the general contractor will likely be forced to hire a sub-contractor outside the city to appease overzealous regulators.
Either the homeowner pays that additional cost, making the West Bergen-East Lincoln Park Historic District that much more exclusive, or maybe they completely avoid hiring Jersey City contractors in the first place.
After reading the law, I’m not sure how all that will work. How would a Bayonne-based contractor working in Jersey City be forced to pay the tax? Does the homeowner, as the “employer,” pay a tax on the labor portion of the contract?
I think it’s important that Mayor Fulop and every member of the Jersey City Council are able to answer these rather basic questions, the tip of the iceberg for lack of a better term, before passing the payroll tax.
Before I forget, let’s not underestimate how quickly a payroll tax could be weaponized against political enemies. If 5 city inspectors from 3 city agencies showed up to find code violations at Boris and Natalia Ioffe’s property, opponents of an eminent domain plan supported by Fulop that would seize their property, imagine how intrusive/malicious a payroll audit of a small business could be?
So what’s your point about the Jersey City Payroll Tax?
It could slow, possibly even reverse, corporate job growth in Newport and Exchange Place – which will negatively impact businesses and workers supported by those jobs. Or it could lead to corporations incentivizing their high-income employees to move to Jersey City, which will accelerate the hyper-gentrification already taking place.
It will disproportionately affect small-and-mid-size businesses that don’t operate on the biggest margins by making them pay a tax on their non-Jersey City employees.
Depending on the business, some may move out of Jersey City altogether – resulting in unemployment for local residents that might not be able to commute to a new location (or will lose disposable income to the hidden tax of commuting). Some may lay off their non-essential, non-Jersey City employees living in Bayonne, North Bergen, and Union City to save money.
Either way, I doubt those small-and-mid-size businesses would generate enough revenue to provide any substantial relief to the JCBOE’s funding crisis.
Ultimately, the Jersey City Payroll Tax is a major policy initiative that lacks any sort of impact study or data-supported revenue predictions. Even worse, based on the rosiest predictions I’ve seen ($70 million annually), the payroll tax will fail to solve the school funding crisis while creating another obstacle to job growth.
Also, it’s funny to see education reform leader Shelley Skinner endorsing the Jersey City Payroll Tax. I’m not going to entertain any Jersey City Education Association (JCEA) propaganda, but if memory serves me correct – her friend David Tepper’s unexpected departure to Florida meant a “one percent forecasting error in the income-tax estimate or a $140 million gap” for New Jersey’s state budget.
If one or two big corporations leave Jersey City, like Tepper left New Jersey, the impact on the budget will be draconian. Not only does the payroll tax fail to provide substantial relief, it’s volatile and unsustainable.
You don’t care about JCPS students and employees!
Though Real Jersey City has predominately focused on corruption and injustice related to the Jersey City Police Department (JCPD) and Hudson County Prosecutor’s Office (HCPO), mostly because this website is unsustainable, there was once a time the JCBOE received a significant amount of coverage.
My biggest regret is not reporting on JCBOE matters. Maybe if I focused on breaking down JCBOE meetings, with the same tenacity I investigated JCPD corruption, millions of taxpayer dollars could’ve been saved.
Luckily for the concerned citizens of Jersey City, Brigid D’Souza, a CPA and parent of students enrolled in JCPS, has been holding it down regarding the school funding crisis.
Though she’s overstated the tax abatement problem, I can’t blame her. Until I stepped back and reanalyzed the entire situation, I used to feel the same way. Regardless, at this point what’s done is done.
What’s not up for debate is the basic numbers you can find on her website, CivicParent.org:
Based on the NJ education funding formula, Jersey City Public Schools are $100 million under-funded, technically termed “below adequacy”. This is primarily a local problem…we don’t raise enough school taxes to fully fund our local schools. For years, the state of NJ has given Jersey City “extra” aid, termed “Adjustment Aid”, to make up for this local shortfall. However, starting in Spring 2019, NJ will start to withdraw Adjustment Aid at the rate of $25 million per year for 7 years, or $150+ million in total. This means our $100 million funding deficit will grow deeper each year, absent local action to fund our local schools.
Essentially Jersey City has to make up at least $150+ million to cover the Adjustment Aid gap.
The fiscal conservative in me recognizes that there’s a lot of waste to cut, and I’m sure an audit could identify millions in savings, but no honest person could possibly believe massive spending cuts will solve any problems.
As noted on Civic Parent – increasing class sizes, inconsistent access to clean water, loss of critical staff, and loss of after-school programs is the true impact of underfunding.
Admittedly, there’s something particularly callous, aside from being uninformed, about opposing the Jersey City Payroll Tax without addressing why the tax has been proposed in the first place. The Republicans of Hudson County have done an excellent job illustrating that point.
So what’s the alternative plan to save JCPS?
A progressive Jersey City Income Tax.
If our elected officials in Trenton can authorize a local payroll tax for big cities, they sure as hell can authorize a local income tax. As well, a 1% payroll tax was a 1990’s solution to Newark’s 1990’s problems. It’s not a 2020’s solution to Jersey City’s 2020’s problems.
To be clear, as far as I’m concerned, decades of Drug War/Mass Incarceration policies fueling street violence is the biggest issue facing Jersey City. Given that Mayor Fulop’s longest-serving police chief, Philip Zacche, was an ex-Narcotics boss and now a federally convicted criminal for stealing from the Jersey City Housing Authority (JCHA), I have reason to lack confidence in his ability to address difficult issues.
Beyond that, Jersey City’s major 2020 problems are:
1) School funding crisis.
2) Hyper-gentrification that’s displacing the middle-class and hurting the people who are the soul of the city. I’m not trying to provoke a class war, but artists and the born-and-raised add a little more character to Jersey City than equity traders. There can be a very healthy balance between the two groups, a “best of both worlds,” but right now there’s a “tale of two cities.”
2A) Breaking the cycle of poverty by making home ownership affordable, growing the number of minority-owned businesses, and closing the skills to uplift many low-income workers.
3) Citywide infrastructure and resiliency along the waterfronts (including Hackensack River).
The Jersey City Payroll Tax fails to address any of those issues. That’s why I propose a progressive Jersey City Income Tax that’s administered and collected by the New Jersey Department of the Treasury (Treasury).
PUBLISHER’S NOTE: All of the following numbers are based off of city-data.com.
One that begins taxing income at the median household income ($63,227) at a rate of 0.5%; progressively increasing at 150% of median household income ($94,841) to 0.75%; with the rate capping at 1% for all income greater than 200% of the median household income ($126,454). In simpler terms, please look at the basic table below:
Income (Tax Rate)
Given what’s at stake, I feel like $59 is a reasonable contribution to JCPS from a household making $75,000. Ditto that for $154 on $94,000; $388 on $126,000; and $1,123 on $200,000. Now I can’t really say how much that tax will generate, but I can give an idea of the minimums:
– $590,000 from approximately 10,000 households making between $75,000 to $100,000.
– $1,540,000 from approximately 10,000 households making between $100,000 to $125,000.
– $5,432,000 from approximately 14,000 households making between $125,000 and $200,000.
– $12,914,500 from approximately 11,500 households making more than $200,000.
That’s a minimum of $20,476,500 annually based on household income. Although I can’t guarantee the methodology and numbers I’m using will lead to an accurate projection, I do believe the revenues generated from a Jersey City Income Tax will exceed the $25,000,000 in aid reduction next year. Here’s some other things to think about:
1) Sustainability – Unlike a payroll tax that’s paid by employers of non-Jersey City residents (subject to volatility), a progressive income tax is paid by all Jersey City residents (a more stable population). Once the first year of revenues come in, the Treasury and Jersey City officials will have a much better understanding of how best to set the income tax brackets and rates to solve the JCBOE’s funding woes.
2) Progressive Politics – Ward E, which has the highest concentration of $100,000+ salaries, would certainly be hit hardest. Yet, it’s the ward that gave Gov. Phil Murphy the most votes in Jersey City – a progressive governor not afraid to raise taxes to pay for social programs. Would this payroll tax be a difficult sell? Especially with resistance leader Solomon at the helm?
3) Slowing Down Hyper-Gentrification – I doubt the income tax at the rate I propose will be enough to convince anyone to move out of Jersey City. I doubt it will be enough to remove Downtown from consideration for those thinking of moving to Jersey City. Yet, I wouldn’t be surprised if a few people think twice about moving to existing housing stock in Bergen-Lafayette, West Side, or The Heights (especially west of Palisade Ave).
4) Utilizing Corporate Partners for Resiliency – Though neither the payroll or income tax addresses the resiliency issue, it might be the one thing major financial institutions care about that could really benefit Jersey City. I’m guessing they want to keep their investments protected against environmental disasters or find out what’s a smart investment. Instead of taxing Jersey City’s corporate tenants, the city should be looking to partner with them to protect the Waterfront and develop sustainable infrastructure projects. For example, JP Morgan recently invested $900,000 into Detroit for that purpose.
Your plan doesn’t fill the entire funding gap!
That’s probably true, but neither does the payroll tax – which shows how dire the situation truly is. There’s other plausible revenue streams beyond the income or payroll tax, too, but the JCBOE desperately needs a major revenue stream now. Also, the proposal made in this piece is rather modest – a few extra basis points could probably close the entire funding gap.
While it might sound nice to pass the buck onto businesses via their non-Jersey City employees, the consequences could very well compound Jersey City’s socioeconomic problems without satisfying the JCBOE’s needs. As well, Jersey City residents should pay for JCPS because the more skin people have in the game is the more they’ll demand accountability from the JCBOE.
And if I haven’t made it clear enough already, the burden of proving the benefit and addressing concerns is on Mayor Fulop and other public officials. I have yet to see an impact study, which surprises me because I would hope a policy wonk like Solomon would have demanded one before voting on such a major item.
Likewise, just because state Sen. Sandra Cunningham says it’s a good thing for Jersey City doesn’t make it true. Hurting the city’s economy might actually be in the interests of her Trenton buddies, like NJ Senate Pres. Stephen Sweeney, who don’t like that the teachers union is in full control of the JCBOE and have a score to settle with Fulop… you never know.
What about the property taxpayers?
Well, they’re definitely getting hammered if the payroll tax passes. The Jersey City Payroll Tax proponents actually admit it, including D’Souza – who’s very open about the reality as Fulop dances around it.
As well, even though most homeowners would pay the Jersey City Income Tax, the burden of school funding would be spread more equitably among Jersey City residents than a property tax increase. Like I previously wrote, a few extra basis points – maybe start the tax at 85% of median household income – and you could probably get a lot closer to filling the entire funding gap.
Unfortunately, it’s just the start of what needs to be done. I’m not envious of those that will have to vote for any of these tax increases. There’s more that needs to be done, too, including cost controls.
Yet, I hope Jersey City council members think long and hard before voting on the payroll tax. There’s plenty of harm in rushing through bad public policy with unintended consequences that haven’t been thought out and can’t be undone.
In summary, I truly believe an income tax is less damaging to the local economy than a payroll tax. I believe it begins to address serious socioeconomic issues like hyper-gentrification. Most importantly, I believe public officials – both in Jersey City and Trenton – can go back to the drawing board and make sure they get this thing right before passing a payroll tax.
They must get this right, if not for the sake of the city and state, for the sake of children already getting the short end of the stick.