State officials overlooked millions of dollars in potential real estate and infrastructure costs when they offered Prudential Financial a tax credit to build a new office tower in Newark, according to the group of landlords that is protesting the award.
The incentive package is scheduled to go back before the Economic Development Authority June 1, as the agency's board considers an amendment to the $250.8 million Urban Transit Hub tax credit offered to Prudential last year. But the landlords for three buildings at Newark's Gateway Center, which stand to lose the insurance giant as a tenant, have stepped up their challenge of the incentive with a formal protest.
In documents filed May 15 with the EDA, attorneys for the landlords allege the agency missed badly when gauging the benefits of financing Prudential's plan. The so-called net benefits test, which EDA uses to calculate its awards, failed to consider the plan's fiscal impact on the Newark office market, tens of millions of dollars in public safety and infrastructure costs, and the sales tax drain on businesses at the Gateway buildings, the attorneys said.
The filing claims the infrastructure costs could be from $50 million to $100 million, basing the estimates on costs tied to the construction of the Prudential Center in the city.
"This might be good for Prudential's bottom line, but it is bad for Newark and New Jersey," the attorneys wrote. "These considerations get short shrift by the 'model' used to measure the alleged net benefit of Prudential's application."
EDA spokeswoman Erin Gold declined to comment on the protest filing, which is tied to pending litigation. In an e-mailed statement, Prudential spokesman Bob DeFillippo said it was "premature and inappropriate to discuss this matter before the EDA has an opportunity to review comments from all parties."
But a top Prudential executive also pointed to "a factual inaccuracy" in the Gateway landlords' protest, which questions Prudential's pledge create 400 new jobs in Newark in connection with the award. In a response letter dated May 22, Richard G. Hummers, vice president for financial management, told the EDA that it was inaccurate suggest otherwise.
The landlords' protest also cites a consultant's report that found "other significant flaws" in the EDA's calculations, allegedly dropping the net financial benefit to $80.7 million. The amounts of the current net benefit and of Prudential's amended tax credit were redacted in a copy of the landlords' submission made available to the press.
The challenge to the net benefits test focuses on the 400 jobs Prudential said it would bring to Newark, including 300 new hires and 100 relocations from out of state. The attorneys argue the new hires would happen "irrespective of any tax credit and its new building," because of natural business growth, which would drop the net benefit even further, to $43 million, the attorneys said.
The EDA awarded Prudential the $250 million tax credit in November in connection with the plan to move to firm to a new building near the New Jersey Performing Arts Center. But the insurance giant amended its application in March, proposing to instead move to a site near Military Park on Broad Street.
The challenge to the award also emerged early this year, when the three Gateway landlords filed an appeal to block the incentive package. In the most recent filing, the landlords allege Prudential's move would "decimate" Gateway, triple the amount of vacant Newark office space and lower rents across the state's largest city.