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Nazareth, Pa., United States

Wednesday, February 04, 2015

J.B. Reilly Wants Lower Tax Bill So Poor Can Pay Their Fair Share

If you wanted the property taxes reduced at your bungalow in Allentown, you can be damn sure that the King, Spry firm would be there, seeking an increase. After all, they represent the school district in Aklentown. The City would send its lawyers, too, while King Edwin would no doubt sics his code enforcement officers to "inspect" you.  But things are different for the Wonderful Wizard of NIZ. J.B. Reilly wants an assessment reduction for two of his city center properties. He thinks it's unfair to make him pay so much in property taxes to educate poor people's kids. Don't these peasants understand this is all part of a rising tide? What the de facto ruler of the Lehigh Valley Urban Growth Regime wants, he gets. So I expect his assessment to be reduced.

I'm told his assessment appeal (you can read it here) has been filed by Judge Davison's firm. I've got news for you. It's former Judge Davison's firm. He now shits again, just like the rest of us. Neither he nor his firm is entitled to any deference. But this is the prevailing attitude these days.

By the way, those Allentown school district lawyers from King Spry were nowhere to be found when Reilly asked for a reduction. So far as I know, Allentown sent no legal opposition, either.

Maybe King, Spry was busy, advising some Superintendent NOT to report criminal activity by a teacher or administrator. City lawyers were probably busy denying RTK requests.

You'll never believe the main argument on appeal. Reilly claims he is being denied equal protection.

Say what? If the urban growth regime cared one bit about equal protection, there'd be no NIZ at all.

The NIZ ia s a special tax tool - only one of its kind in the state - that enables Reilly to use millions in state taxes to pay his mortgage. This includes cigarette taxes at a business that he and Joe Topper moved in there, along with the fitness center. You can buy a pack of smokes right after working out. If you're a nonsmoker, you can drop in at Shula's (poached from a fake promenade) for a steak that's guaranteed to clog your arteries.

Equal protection?

If Reilly cared about equal protection, he'd set up suites of affordable housing for the Latinos who are making minimum wage to serve the beautiful people, under the watchful eyes of a Reilly-financed security corps.

Equal protection?

Reilly is using state taxes to create artificially low rents and lure tenants into his mega-buildings.

If you want to know the biggest story in the Lehigh Valley right now, it is the NIZ. It exists because equal protection was denied to everyone else.

Dr. Stephen Thode, director of the Murray H. Goodman Center for Real Estate Studies at Lehigh University,knows a bit about assessments. He told me that income-producing properties are usually judged by the income approach.
Simple example, suppose Bernie and Steve (HOT Properties) owns a building projected to return $1 million a year in NOI in perpetuity (forever). Suppose HOT requires a 10% return given the risks of the property. The building would have an estimated fair market value (FMV) of $10 million ($1 million/10%) before adjusting for special circumstances [deferred maintenance].

On the other side, suppose HOT has a fairy godfather, JB O'Browne, who promises to pay $500,000 a year toward HOT's expenses on the building for a very long period of time (oh, say, 30 or more years). JB's gift to HOT makes the property worth almost $5 million more ($500,000/10%) than the building would be worth without JB's gift. It's actually a tad less than $5 million since 30 years isn't "forever."
Reilly contends in his appeal that this property is lower in fair market value than comparable properties, but Thode discounts that approach.
The Comparables approach (the method used to appraise owner-occupied residential properties) compares the subject property to nearby, recently-sold, similar properties. Adjustments are made to the sales prices of "comps" to produce an estimate of value for the subject. One of those adjustments is for below market financing (which obviously skews what someone is willing to pay for a property). It is often difficult to find good "comps" - especially in a "thin" market like the Allentown office market.
One person who has consistently cast a spotlight on the hypocrisy of the NIZ is Allentown blogger Michael Molovinsky. Here's an excerpt to his own story on Reilly's assessment appeal.
All our local politicians are complicit in Reilly's appeal to the assessment board. The NIZ was essentially designed with him in mind, and the entire NIZ Board has been carrying his water. I doubt that he would make this assessment appeal without their knowledge and approval. If the city and school district doesn't get the full anticipated taxes, WHAT IS THE COMMUNITY BENEFIT? Pat Browne, Ed Pawlowski, Michael Schlossberg, Sy Taub, ETC. should be ashamed."
Though I expect to see the assessments reduced, I do believe it will be difficult for JB to explain to a judge why he built a building for $56 million that was only worth $34 million when the doors opened. Sy Traub should explain why ANIZDA would be
a party to such a transaction.

One other thing...

Having poached tenants from so many other office landlords, I suspect a successful appeal by JB could open the floodgates to countless assessment appeals from those poached landlords. So, Lehigh County (and also, perhaps, Northampton County) could take it in the shorts from many landlord appeals. Guess what happens then? Yup, homeowners see their property tax bills rise to make up the difference. That will focus the pain of the NIZ a little more sharply.

Gordon Gecko is alive and well.


Anonymous said...

hard to follow, but i get it.


monkey momma said...

I'll bet this was part of the plan all along.

Anonymous said...

The blame here should be directed at Sen. Pat Browne and the LV delegation in Harrisburg. Millions to enrich your boyhood friends from the neighborhood while nursing homes for the poor like Cedarbrook and Gracedale go begging. Enjoy the hockey.

Anonymous said...

Bernie, I am pleased you have provided yet another description of the NIZ magic trick. It's a loser to most everyone in the state of Pennsylvania.

Most importantly, it's performing DEEP into negative return territory already as the amount of 'new' tax revenues is quite small. Most of the taxes generated were already coming to Pennsylvania from other parts of the state.

Again, it's a LOSING proposition for Pennsylvania residents. But, who knew? Our local traditional media insists on playing along. They challenge nothing.

My thinking is like yours. Mr. Reilly WILL get his tax reduction. He will also have set the stage for 'easier' assessments on the remaining structures.

Additionally, Mr. Reilly's appeal suggests to me, the original NIZ scheme is failing to produce enough operating capital for even the 'inside' players. Thus, I expect things to really slow down in Allentown.

"What the puck is really going on over there?"

Fred Windish

Anonymous said...

People were warned that the NIZ was bullshit.

But they chose not to listen. Once again they fell for the charms of Big Government. It was for the children, we were told.

Enjoy the hockey.

Anonymous said...

Browne does many tax returns for fellow pols, he knows all the loopholes and they all pay him to do their returns year after year.

Bernie O'Hare said...

"hard to follow, but i get it."

Most don't get it or care to get it.

Anonymous said...

Interesting choice of a law firm.

Who might be on the list of attorneys there?

Anonymous said...


Isn't the Brown Hole rest of allentown pa allready paying, Due to lack of services ie police firefighters ad than not to mention even the basics? This being street cleaning, snow removale, and than there is there incubation Blight Creation cognazant administrationally Realestate flopp now under the umbrella of yet another national known century 21 piniccle propaganda ie Bank Of America?

patent pending

Matt M. said...

The more I read, the less I want to raise a family here. The Lehigh Valley and Pennsylvania are going to the ruling class while the common folk are being taxed further and further. When health care and warehousing are the leading employers with the quality of higher-education we have here, that's a problem. What opportunities are our kids going to have here?

michael molovinsky said...

bernie, if i may clarify something for your readers. the reduced income reilly is using as the basis for his appeal, resulted intentionally from the NIZ permitting reilly to make mortgage payments from the workers tax payments, as opposed to their employer's rent. reilly in turn used this windfall system to induce and poach his tenants, with lower rents. by now being able to appeal the assessment on last year's construction cost by the rent formula, essentially burdens the taxpayers in double fashion.

Anonymous said...

Matt M.

You are rightly concerned. Our youth will pay for the lavish financial abuses of today.

The NIZ scheme is emblematic of the trouble made possible by an uncaring, or uneducated populace. I suspect most readers of this blog are not Allentown residents. But, what's happening there affects EVERYONE reading this story.

These are STATE taxes. We must all demand more accountability from our government officials.

Fred Windish

Anonymous said...

Thanks again for another wonderful article on our Allentown Niz. With king Edwin running the city deep into the red, and telling everyone that we are in great shape. Makes me wonder how long it's going to take for tax payers to wake up see what's happening. I guess by that time it will be to late, all the pol wiki,slog rugs ,Schwires will be long gone. And again the ones to suffer will remain footing the bill, oh ya and higher water and sewer rates to boot. Guess LCA is laughing at the city now, only company I know that made 10millon in first year of taking over city entity. But hay the city needs to borrow money to get through this year. No wonder there are so many homes for sale here.

Anonymous said...

Excellent article Bernie.

Anonymous said...

So you hate everyone who goes to a hockey game? That is screwed up.

Bernie O'Hare said...

Yeah, that's a rather intelligent observation on your part.

Dreaming of Justice said...

Those who dared to so much as question the plots and schemes of the NIZ were labeled and marginalized. The community at large was not part of the planning process. Community leaders who finally did eke out a presence were not allowed a seat at the table but were in essence made to stand outside the door to the banquet room begging for scraps. Again- no plans to enhance the quality of life for residents-no grocery stores, no improvements to green space, not even a token effort to replace boarded windows. To send a millionaire a gift of the magnitude of this funding was incredible..unconscionable. Ive never seen a city run like this.

Anonymous said...

Yet again, the wealthy have no problem robbing tax dollars to fund their projects. Then they find every way possible to no pay their fair share. What can we do to stop funding things that will only benefit the few?

Matt M. said...

I'll add a little more perspective. I was always taught that there's an unwritten code when it comes to property taxes. As a homeowner, you are fully aware of buying into the idea of better schools and community by making the investment in homeownership. Those with more lavish homes and businesses paid more, those with modest homes paid less, but in the end, by investing and upkeep on the homeowner's end, the unwritten expectation was for good schools, safe roads and bridges, and the proper administration of services.
In the past 5 years, I've see those with the means fight tooth and nail to pay as little of their share as possible, while running around as slum lords, redirecting those property taxes to pet projects and gentrification and own own lawmakers let corporations tear up my back yard for a gas pipeline to ship tax free gas out of state and increase a regressive gasoline tax and set their eyes on an even further widespread regressive sales tax.
The most disheartening part of it all is to see that the general populace just doesn't give a crap and doesn't vote. I was raised at the tail end of The Steel and Mack's heyday. In grade school, the teachers in their 50s would tell us that if we got good grades, went to Lehigh, Moravian, Lafayette, there were good jobs waiting for us. I bought in to that. I bought into home ownership. Now I look at my friends I had from those times and 2/3s have moved out of state and another handful are looking at leaving in the near future. The greed running rampant in this area is disgusting, and no one seems to care. It's gone far beyond a Republican or Democrat issue. It's a deep rift in our society.

Anonymous said...


Your description of earlier times is excellent. Much of the ills you describe are the result of politics and an ever-growing government. BOTH have an insatiable appetite for funds. Since neither produces anything, they must extract those funds from we 'little' people. The Allentown NIZ will NEVER become a good investment for Pennsylvania.

The most important observation you make is found in your final sentence. The 'raping' is done by BOTH sides. Until most people set aside their tendency to qualify government actions by whether they are Democrat or Republican, rather than simply good or bad, the abuse of taxes from productive people will continue.

I continue to live in Pennsylvania because this state does not tax pension plans. I'm realistic enough to know that 'break' will end, too. Then, I'll look to go elsewhere.

Fred Windish