Lawmakers are considering efforts to increase scrutiny over how municipalities utilize tax abatements to attract developers, a practice known as payments in lieu of taxes.
Towns have been using PILOT agreements for years in order to draw businesses, jobs and investments into otherwise overlooked neighborhoods. Proponents argue that it’s been an invaluable tool for revitalizing towns such as Atlantic City, Jersey City, Newark and New Brunswick.
But the PILOT program, by design, leaves no money for local school districts: 95 percent of the payments go to the town, and the other 5 percent to the county.
On Monday, lawmakers pushed through a measure, Senate Bill 1701, which would require the town and developers each to produce their own cost-benefit analysis on how the PILOT agreement would impact the local tax revenue, especially school funding.
“The cost-benefit analysis will show how abatements affect local and county entities,” said one sponsor, Senate President Stephen Sweeney, D-3rd District. “This includes effects to schools and its impact on the equalization aid component within New Jersey’s school funding formula.”
The measure passed unanimously in the Senate Budget and Appropriations Committee, to the opposition of the New Jersey League of Municipalities, who argued that the bill would add on more expenses for developers and the towns.
“Any time you propose changes that will drive up application costs, drive up administrative costs, we’re concerned because it affects the overall viability of the PILOT,” said NJLM Associate Executive Director Michael Cerra.
Sweeney’s proposal comes at a time when he’s looking to revamp the state’s school funding by “equalizing school aid,” that is, taking money from “overfunded districts” and spreading it out to districts more in need of those funds.
The Senate President has said he’d be willing to shut down the state government for the second year in a row if he doesn’t have his way on school funding.
With the potential for PILOT laws to be reworked to allow tax money to be redirected towards local schools, that could take the pressure off the state, at least according to Assemblyman Edward Thomson, R-30th District.
In May, Thomson unveiled Assembly Bill 3969, which would require tax-exempt developers to rework the funding distribution to include money earmarked for school taxes. Another bill Thomson sponsored would require the value of tax exempt properties to be included in the state’s calculations for how much school funding should go towards a particular town.
Thomson said that would “reduce the overfunding of school districts by the state.”
“The school funding formula is terribly flawed,” Thomson said. “A handful of school districts still receive the lion’s share of funding at the expense of other districts because they use tax exemptions to reduce school tax collection and overall property wealth.”
Both bills were referred to the Assembly State and Local Government Committee in May, but neither have received a vote.