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Lawmakers taking fresh look at one of NJ’s oldest tax incentives

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The Gateway Project on Somerset Street in New Brunswick is one that benefited from the PILOT program.
The Gateway Project on Somerset Street in New Brunswick is one that benefited from the PILOT program. - ()

Municipal long-term tax abatements have been used for a long time. Also called payments in lieu of taxes (PILOTS), these agreements, often spanning 10 to 30 years, allow businesses and developers to issue annual payments to their host municipality instead of property taxes.

But given efforts to try and untangle some of New Jersey’s knotty fiscal issues, PILOTS are among the programs now under intense scrutiny.

“When the PILOTs started in the late 1960s and early 1970s and we started permitting a payment in lieu of taxes for an area in need of redevelopment projects, that was the only incentive that a developer could use,” said Marc Pfeiffer, assistant director of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University. “That was it, there was no [Economic Development Authority].”

Pfeiffer’s Committee on State and Local Tax Policy is one of five that make up the 25-member Economic & Fiscal Policy Workgroup convened earlier this year by Senate President Stephen Sweeney, D-3rd District (see related story on Page 8).

On Aug. 9, the group unveiled a long-anticipated list of proposals aimed at fixing the myriad financial and operational problems New Jersey faces, with recommendations that could potentially change many of the state’s key fiscal and governmental policies.

Pfeiffer’s recommendations on revising the PILOT program, which are among his committee’s other proposals aimed at overhauling local government, are twofold.

First, he wants to review how payments are distributed among recipients and mandate a certain percentage go toward the host school district, municipality and county, rather than the current system of 95 percent being earmarked toward the host municipality and 5 percent to the county.

Second, Pfeiffer wants to revise the formulas that municipalities would utilize to figure out how much businesses and developers would pay.

“As we are looking at our current incentives, the Grow NJ, the [Economic Redevelopment & Growth Program], we’re thinking ‘well why aren’t we looking at the PILOTs as well?’” Pfeiffer said.

In the decades since, the state has unveiled the EDA, and many businesses and much of the money that left New Jersey’s urban centers years ago have gravitated back into the cities.

And New Jersey has since offered many of its own economic incentives, the largest being $5 billion aimed at attracting the second North America headquarters of retail giant Amazon to Newark.

“If we’re going to decide as a public that effective developer subsidies are warranted, and those subsidies can be tax credits, they can be property tax discounts which is what you’re getting through a PILOT program,” Pfeiffer said. “We really ought to look at these programs as a whole to see where they make sense.”

He added: “Is the formula the right formula, is it too generous, what does it really mean for different developers to get projects penciled out? … It’s always been the same formula [for decades].”

But the PILOT program has certainly been helpful to cities like New Brunswick, according to Chris Paladino, president of the New Brunswick Development Corp., a private nonprofit that has been heavily involved in the city’s redevelopment.

“Construction in New Brunswick is no cheaper than Jersey City,” Paladino said. “The long-range tax abatement program has been a useful tool in trying to make projects affordable, make them work.”

The city has over two-dozen PILOT agreements, where it collects $7.2 million in long-term payments against the $404.2 million in property values, according to public records.

Paladino cited two of Devco’s projects that utilized PILOTs as ongoing success stories: The Vue luxury apartments and The Heldrich Hotel & Conference Center.

“The city gets over a million [dollars],” Paladino said, compared to the “under $100,000 paid” on property taxes prior to the PILOT agreements.

The Vue, a red-brick structure towering the Northeast Corridor rail line, is part of the Gateway Project, and also include a Barnes & Noble, retail officers and a footbridge connecting the train station to the nearby Rutgers-New Brunswick campus.

“From a real estate development standpoint, the current program where we calculate taxes is efficient and effective,” Paladino said. “How it’s distributed is a different story.”

And indeed, Pfeiffer said, the breakdown of funds between the schools, county and mucipality “is a separate issue entirely.”

“It’s something that the developer doesn’t really care about,” he added.

A variety of bills have been moving through the statehouse, all aimed at reworking some component of the long-term tax abatements.

One measure, Senate Bill 1701, the only one to pass out of committee, would require a town and developers to each produce their own cost-benefit analysis on how the PILOT agreement would impact local tax revenue.

“These tax abatements are intended to provide incentives for new projects that will create jobs and generate economic opportunities in our communities,” said Sen. Troy Singleton, D-7th District, a sponsor of S1701. “There should be an immediate or long-term financial gain for the municipality and its residents. Otherwise, the favorable treatment of reduced payments will help the developer at the expense of taxpayers.”

Sweeney, following the release of his working group’s recommendations, indicated there might be more stringent PILOT rules proposed in the future.

“There’s discussion how, going forward, you don’t affect the PILOTs that are in place,” he said. “Jersey City’s a classic example. They got so out of whack funding-wise with their schools because PILOTs went to the municipal government and not the school district.”

And over the past several months, Assemblyman Edward Thomson, R-30th District, unveiled a series of bills aimed at revising the PILOT program.

One measure, Assembly Bill 4287, would require the value of tax-exempt properties to be included in the state’s calculations for how much funding should go toward a particular school district and municipality.

“They’re not paying a thing, it’s the homeowner or the property owner. It’s on their dime,” Thomson said.

Pfeiffer said it’s a proposal his committee is considering.

Another measure by Thomson, Assembly Bill 4289, calls for the Department of Community Affairs, which administers the laws governing towns and cities, to maintain an online database on every municipality’s tax-exempt properties.  

“So that makes it available for people to realize where these particular exemptions lie, and what towns are handing out the tax breaks,” Thomson said. “It’s virtually impossible to figure that out now.”

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Daniel J. Munoz

Daniel J. Munoz

Daniel Munoz covers politics and state government for NJBIZ. You can contact him at dmunoz@njbiz.com.

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