PATERSON, NJ – Three companies that say they invested almost $8.5 million on new buildings in Paterson are seeking five-year tax abatements under a 2007 municipal ordinance designed to encourage development.

But Paterson officials may reject the applications because of the city’s current fiscal crisis.

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The projects involved are the new Advance Auto Parts on West Broadway in the 1st Ward, which cost $1.9 million; the Walgreens on Preakness Avenue in the 2nd Ward, which cost $4 million; and 12 apartments and four medical offices built on 21st Avenue in the 6th Ward, which cost $2.5 million, according to the tax abatement applications.

The issue pits the city’s long-term financial need to attract new development against its short-term budget problems.

Under the 2007 ordinance, Councilman Kenneth Morris said developers that rehabilitate vacant buildings can get tax exemptions that allow them for five years to continue paying taxes on the value of the property before they made the improvements. The ordinance was designed to attract developers by providing them a way to recoup some of their initial investment, Morris said.

Major Jeffrey Jones’ administration has recommended that the three companies’ tax breaks applications be rejected because Paterson “is experiencing a period of serious fiscal crisis during which the granting of tax abatements would not be prudent policy,’’ according to a proposed resolution submitted for the city council approval.

The city council is not sure whether the administration is taking the right approach and has called for further review of the issue.

“I’d rather see somebody get incentives to continue to invest in the city instead of running away,’’ said Councilman Aslon Goow.

One of the builders, PMA 21, originally applied for the abatement back in October 2009 and in August threatened the city with a lawsuit over its lack of responsiveness.  

“The City of Paterson’s abject refusal to even facially attempt to fulfill its legal obligations subjects itself and the recipients of this letter to personal responsibility and damages,’’ wrote PMA 21’s lawyer, Jerome Vogel in the August letter.

In an interview last week, Vogel said his view of Paterson’s tax abatement ordinance is that the city’s doesn’t have the option of refusing the tax break just because it’s in a budget bind. He said his client made a substantial investment in Paterson and is entitled to getting the abatement. “They’re obliged to do it,’’ said Vogel.