Camden has a ‘severe’ revenue problem, and N.J. tax-break projects aren’t helping, internal report says

In Camden, state tax breaks worth hundreds of millions of dollars have given rise to new buildings for major companies, transforming the skyline of the postindustrial landscape.

But when it comes to Camden’s budget, the immediate future looks bleak and several of those tax-break projects won’t help the city’s bottom line anytime soon, according to an internal state analysis obtained by The Inquirer.

That’s because the businesses won’t have to pay property taxes on their new buildings for a decade. And for now, Camden is facing the “most severe” challenge of raising money of any municipality in New Jersey, the analysis says. It was prepared by the state’s Division of Local Government Services.

Once those properties return to the tax rolls, they “may dramatically alter Camden’s future revenue generation prospects,” the analysis notes. "In the short-to-mid-term, however, the ratable base remains severely constrained.”

Camden depends more on state aid than any other “seriously distressed” city in New Jersey. For its $208.7 million 2019 budget, the city received $123 million in state aid. Compared with that figure, the report projects that Camden will need a nearly 50 percent increase in state aid by 2024.

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The report highlights several main factors affecting the city’s financial picture. One problem is that tax-exempt property goes way beyond the new development. About 60 percent of Camden real estate, valued at $2.517 billion, is exempt from paying taxes. And the city’s power to tax will be reduced in early 2020, when the Municipal Rehabilitation and Economic Recovery Act expires, lowering the city’s maximum levy cap from 3 percent to 2 percent. (Under the recovery act, the state took control of Camden’s affairs from 2002 until 2010.)

Meanwhile, spending on Metro Police is nearly one-third (32.8 percent) of the city’s total budget, and has a “profound impact" on the city’s poor fiscal health, according to the analysis. The report notes that violent crime in Camden has fallen “markedly” since 2013, when the city’s old police force was disbanded and Metro Police, a division of the Camden County Police Department, was formed.

But as Camden’s police budget continues to increase 2 percent per year – and adds $2.4 million per year in “indirect costs" – its growth “compels the contraction of other vital city departments and services,” the report said.

Camden budgeted $68.45 million this year for police, compared with the $44.72 million police budget in Paterson, which has nearly double the population.

The report also cites problems with “weak” financial controls, finding that the city is “incapable of reconciling its books” and can’t, therefore, “ascertain how much money is available to pay its bills.”

Camden also experienced a “substantial cybersecurity breach and theft” in 2018, the report says, though the city was able to recover the money stolen, a state official confirmed.

The overall projection for the city’s budget is “discouraging,” the report says. It estimates that in the next five years, Camden will rack up a $139 million cumulative deficit – growing from an $8.2 million deficit in fiscal 2020, to a $52.2 million deficit in 2024.

Melanie Walter, director of New Jersey’s Division of Local Government Services (DLGS), confirmed that she authored the report. Walter said that she wrote the report for internal government review, and was concerned that its contents were being made public. But she said that such reports are routine for towns and cities like Camden that receive transitional aid from the state.

Walter emphasized that Camden’s financial problems are the result of severe revenue constraints, not spending.

And the city was not alone in experiencing a cybersecurity breach: Walter said dozens of New Jersey municipalities had been affected by cyber-theft issues in the last year, losing about $500,000 each on average.

Camden spokesperson Vince Basara said the city “works very closely with DLGS." All expenditures are “ultimately approved through DLGS.”

In response to a summary of the division’s analysis from The Inquirer, Basara declined to comment, saying the city had not received correspondence from DLGS about it. “The city is unable to comment on the matters you referenced without a copy of the findings or without receiving proper notice by DLGS,” Basara said.

Under the DLGS projections, by 2024, “Camden would be receiving $1 out of every $7 of state municipal aid available in New Jersey.”

The analysis also looks at how the 2013 tax credit law for new development could affect Camden’s budget prospects.

The Economic Opportunity Act (EOA) created new incentives for businesses to invest in impoverished cities like Camden. The law’s supporters said it helped even the playing field between South and North Jersey for state resources involving economic development.

Since the 2013 state legislation was passed, companies moving to Camden have won approval for about $1.6 billion worth of tax credits, in exchange for promising new jobs. But in January, a scathing comptroller’s audit found significant problems with oversight of the program, and a special task force, appointed by Gov. Phil Murphy, is investigating. A report by investigators last month found that “special interests” shaped the tax credit bill behind the scenes.

The EOA also permitted cities to enact their own ordinances, to allow companies to claim property tax abatements as “Garden State Growth Zone Development Entities.” Camden officials adopted such an ordinance in December 2013, saying they wanted to encourage business investment in the city.

When the 10-year abatement ends, companies’ tax payments are phased in gradually over the next decade, until they reach the full assessment amount in year 20.

For companies with existing or coming abatements, their property’s tax-exempt value is $155,414,300, the DLGS report noted.

The report gave these examples of the value of tax-exempt properties: the 76ers practice facility ($28,751,900), Subaru training center ($13,800,000), Subaru office building ($47,700,000), and American Water office building ($49,316,600). Those figures match the buildings’ assessed values in publicly available records.

“American Water is extremely proud to be part of the revival of the wonderfully strong and historic city of Camden,” company spokesperson Ruben Rodriguez said in response to a request for comment about its tax-exempt status. “Our move to the Camden Waterfront represents a milestone in our long-term investment in the city’s future – complementing the time, resources, and knowledge we’ve shared as a proud member of this community for more than 125 years.”

Rodriguez said the publicly traded company holds itself to the “highest ethical standards.” American Water has spent more than $13 million with Camden businesses, he said, and has “volunteered thousands of employee hours” to nonprofits.

The 76ers and Subaru did not respond to requests for comment.

A building constructed by the energy services firm Holtec International is also tax-exempt, because it is on property that belongs to a quasi-government agency, the South Jersey Port Corporation. Improvements on that land are valued at $150,521,600, public assessment records show.

Holtec recently agreed “to make payments as if taxable,” the report says, and that agreement is under review. The company, which has been embroiled in other questions about its $260 million tax credit application, did not reply to a request for comment.

Camden’s own recent audits show that, for properties connected to the Economic Opportunity Act, the amount of taxes abated almost doubled in a year: from $1,067,639.96 in June 2017 to $2,044,435.04 in June 2018.

The DLGS report notes other effects on the city. Even though the 2013 legislation “has ostensibly increased land values,” the city hasn’t reassessed values since it was passed, which “harms the city’s annual revenue potential.”

Another issue, the report says, is that the Economic Opportunity Act doesn’t prevent companies from filing tax appeals on their properties, leaving the city “vulnerable to tax revenue losses via tax appeal.”