The state Economic Development Authority has approved a reduced tax credit to Prudential Financial Inc. for its plan to build a new office tower in downtown Newark.
At a special board meeting today, the EDA approved a nearly $40 million reduction, to $210.8 million, of the Urban Transit Hub tax credit awarded in November. The insurance giant has proposed moving to a site near Military Park, on Broad Street, after amending its original plan to build a new tower near the New Jersey Performing Arts Center.
The reduction to the tax credit was mostly due to a change in a federal formula that the EDA uses to calculate its awards, EDA chief executive Caren Franzini told board members today. The change came about after Prudential submitted its original application, and is now being used in all reviews going forward, said.
The tax credit, which would still be the largest in the program's four-year history, is tied to Prudential's plan to bring 400 new jobs to Newark and make a capital investment of nearly $400 million for the 650,000-square-foot tower and parking structure.
The EDA today also addressed the legal challenge by three of Prudential's current landlords that continues to loom over the tax credit. The companies, which lease nearly 1 million square feet of office space to Prudential at Newark's Gateway Center, filed a formal protest of the award with the agency last month, four months after filing an appeal with a state appellate court.
At today's meeting, Franzini told the board the agency met with the landlords' representatives to hear their objections and "went above and beyond what we normally do" to review the Prudential award. The review focused on several areas of the net benefits test, including corporate spending, salary growth and tax benefits.
But the analysis, which resulted in a $40 million decrease, reaffirmed the rigorous nature of the EDA's review, Franzini said. She noted that a minor adjustment was made to a formula used to calculate the one-time tax benefit related to construction costs.
"When we reviewed the Gateway submission it allowed us to show that our methodology … in this project was very conservative," Franzini said.
The landlords argue the EDA failed to consider millions of dollars in potential real estate and infrastructure costs when they awarded Prudential the tax credit. They also claimed the net benefits test, which EDA uses to calculate its awards, failed to consider the plan's fiscal impact on the Newark office market and the sales tax drain on businesses at the Gateway buildings.
The owners have said a move by Prudential to just a few blocks away would devastate Newark's office market by flooding it with more than 900,000 square feet of space. Prudential's existing leases run through at least December 2014, and include several five-year renewal options.
But at today's meeting, Franzini said the EDA's staff "determined it's speculative in nature to determine what will happen" to Newark's office market.
The landlords' filing with the EDA 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. The appeal also challenges the insurance giant's promise to bring 400 jobs to Newark, including 300 new hires, claiming the jobs would be added even without the tax credit.
"This really can't be compared to the Prudential Center," Franzini said. "It's more comparable to the Panasonic project, for which the city is not putting in any public money."
She added that the Panasonic project is requiring no major infrastructure upgrades by the city.
Paul Josephson, a Hill Wallack attorney representing the Gateway landlords, appeared before the board today to restate their objections. He said the transit hub award would "create a cascading impact of collateral impacts in the city that, quite frankly, despite all of the best intentions of the folks around this table, have not been adequately considered."
"Pretty much every major office owner in the city of Newark has contacted me or contacted my clients and expressed support for the position that we have put forward," Josephson said.
EDA officials also noted today that Newark Mayor Cory Booker has thrown his "enthusiastic support" behind Prudential's amended plan. In a letter to Franzini, Booker called the project "transformative," and said attracting replacement tenants for the Gateway space would be a priority for his administration.
Prudential also drew support today from developer Miles Berger, chairman and CEO of the Newark-based Berger Organization. He appeared before the board and dismissed concerns about the city's future office market, saying renting is brisk and the Gateway buildings are the "first place" companies go to when looking for space.
"They should not be concerned that they will not re-rent the space," Berger said, adding that he has no connection to the project. "Their problems are not as real as they think."
Prudential's new application included several changes from the original plan, including the project location, an increased project size and higher project costs, Franzini said. That pushed up the firm's capital investment, but the resulting tax credit was still smaller because of the new federal formula, she said.