Monday, November 23, 2015

League of Municipalities Report - payments in lieu of taxes

I was at a well attended session on PILOTs, redevelopment and related recent court rulings.  Here are some of the highlights:
  • PILOTs (payments in lieu of taxes) are a financial arrangement that encourage development in distressed areas for projects that otherwise would not happen
  • they give negotiating leverage to cities for jobs, minority contracts and affordable housing
  • there are long term PILOTs (up to 30 years) and 5 year PILOTS.  Parameters are set by state law (40A:20-1 and 40A: 21for those who want to go to the source)
  • Every PILOT is effectuated by a financial agreement that must be approved by the governing body of the municipality.  It must give reasons for the PILOT and method of payment.
  • Payment is calculated by one of two methods
    • a percentage of the project cost
    • a percentage of the annual gross revenues  (Sleepy Hollow/South Ave Gateway agreement proposes this method)
  • Project construction can only begin when the agreement is signed by all parties
  • each member of the panel of experts stated that public schools are not shortchanged under a PILOT.  School board members should know this - every penny of the school district approved annual budget is collected by the city and paid to the Board of Education.  If the city doesn't collect enough taxes to cover all expenses, state law requires that the BOE gets paid first.  Any shortfall is the city's problem. 
PILOTs are commonly used by cities in New Jersey.  Examples were given for the following towns:
  • Carteret
  • Asbury Park
  • Elizabeth
  • Jersey City (now that the waterfront is built up, PILOTs are being targeted for other sections of the city)
  • Newton
  • this is not meant to be an all inclusive list, just examples
Why does Plainfield need to use PILOT agreements?  If you drive along the Raritan Valley rail line, you will see development in places like Fanwood, Garwood, Cranford, Dunellen and Somerville.  In Cranford, for example, the rents are high enough to cover the developers costs such as construction and financing.  In Plainfield the rental market is lower priced, leaving a financing gap.  The PILOT fills the gap, allowing a project to happen.  As distressed areas of Plainfield develop and rents increase, the need for PILOTs and other tax breaks decreases and goes away - as is happening in Jersey City.


Anonymous said...

Did any other municipality share the length (5 years, 20, 30 years) of their current PILOT programs? It would be good to have a reference point based on surrounding towns. Thank you for the info you share, much appreciated.
W Gipp

Cory Storch said...

Most of these PILOTS are 30 year ones. I know Elizabeth also has a 5 year PILOT program.