More Accountability Is Needed In Jackson’s Push For PILOTs

Payment in lieu of taxes programs have created quite the headache throughout the state (and beyond). Back in 2010, former State Comptroller A. Matthew Boxer stated that New Jersey’s loses hundreds of millions in tax abatements each year due to these programs, while nationally, close to $70 billion is lost. This blog wanted to point out a few examples of unpaid PILOTs over the years, including some that have affected Montclair.

In late 2013, Jersey City announced they would sue the Port Authority of New York and New Jersey for unpaid property taxes stemming from a PILOT agreement:

Jersey City recently announced it would sue the Port Authority of New York and New Jersey for $400 million in unpaid property taxes stemming from long-standing payment-in-lieu-of-tax agreements — called PILOTs — on Port Authority properties. Mayor Steve Fulop said the unpaid taxes have caused a “severe and negative impact on Jersey City taxpayers.”

Our neighbors across the Passaic River have also encountered problems with PILOTs. In 2012, North Arlington struggled with completing their budget due to unpaid PILOTs dating back to 2009:

Anthony Bianchi, East Rutherford's chief financial officer, said the borough still is waiting for state approval for its introduced budget of $24.8 million.

In North Arlington, the borough is tied up in "protracted tax appeal litigation" with the New Jersey Meadowlands Commission over roughly $1.7 million in unpaid property taxes and payments in lieu of taxes dating to 2009.

"As a result of the uncertainty of the payment … the borough has been unable to finalize its 2012 budget and will not be able to do so until the issue of payment is resolved," Randy T. Pearce, the borough attorney, wrote in a letter to state officials requesting a three-week extension.

And here in town, the Siena at Montclair was the biggest violator of the unpaid PILOT bills, owing more than $280,000:

Township officials say the owners of The Siena at Montclair , the seven-story retail and condominium complex at the corner of Church and South Park streets, owe the municipality $282,451 in unmade payments in lieu of taxes on the property, a claim the developers are disputing.

According to Township Attorney Ira Karasick, that dollar amount represents unpaid bills for the retail portion of The Siena that date back to 2008.

The Siena, constructed on the site of the long-vacant Hahne & Co. department store, is part of a redevelopment area and the owners and developers - Herod Redevelopment, the Pinnacle Companies and Kohl Partners - have a payment- in - lieu - of - taxes (PILOT) deal with the township.

Under the terms of that agreement, the property owners were expected to pay roughly $94,000 per year on the ground-floor, commercial facet of the project once it was completed. 

The way the agreement was set up was somewhat confusing to the developers. Under the agreement, the developers- Herod Redevelopment, the Pinnacle Companies and Kohl Partners- assumed they didn’t need to make payments until the property had been completely developed. But at the time, part of the property’s space had been developed and was being leased to Starbucks. The Montclair Tax Collector's Office started to send out bills to the developers to which the developers responded by saying nothing was owed yet. According to the Montclair Times:

“The township did not follow up and pursue the outstanding payments until now. When Herod and Pinnacle received their notices of default and sent letters arguing that they didn't have to pay, the municipality did nothing further. The developers therefore "assumed that the Township accepted" their explanation and reasoning, according to one letter from Applebaum.”

Thankfully, this mess has been resolved under our Township attorney’s lead, Ira Karasick, who has recovered more than $400,000 in unpaid PILOT programs.

Karasick has saved Montclair a considerable amount of money during his tenure, including more than $150,000 in legal expenses as well as money due to the township as part of Payment In Lieu of Taxes (PILOT) programs, according to Lewis.

In an Oct. 4 memo to the council, Karasick wrote that under his watch the Township Law Department had collected more than $430,000 in unpaid PILOT payments.

We should be careful with the type of agreements Mayor Jackson is trying to push on our town. PILOTs allow developers huge tax breaks at the expense of our town, our schools, and ultimately, us as taxpayers

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Is Mayor Jackson’s PILOT Program the Right Approach For Montclair?

With Mayor Jackson’s payment in lieu of taxes (PILOT) push for some development projects in Montclair, one must ask, is it good for our town? PILOT agreements typically divert funding from schools and counties and instead place the burden on local taxpayers who would need to subsidize the payments. This blog decided to look at some research on this matter and also at other towns that have either implemented PILOT agreements, or at least tried to implement the program.

According to a report by former New Jersey State Comptroller A. Matthew Boxer, PILOT programs take funds from school districts and other taxpayers:

“Our review of tax abatement practices in New Jersey found numerous weaknesses in the regulation, implementation, and oversight of these programs, including: Payments to municipalities by businesses and developers in lieu of taxes, known as PILOT payments, distort municipal incentives in using and structuring abatements at the expense of counties, school districts, and other payments.”

Additionally, the report found that PILOTs “do little to help other local entities”:

“PILOTs also shift the tax burden among regional and local taxpayers. Governing bodies set tax rates to provide a certain level of revenue for operating expenses. If selected properties are exempt from taxes, then any necessary revenue must be obtained from the remaining tax base. Thus, tax abatements may raise the tax rates for those not receiving abatements by removing a previously paying ratable (i.e., a taxable property) from the tax rolls, or by exempting a new development that could have paid taxes or that imposes extra costs on local government entities. The imposition of a PILOT may offset this shift of tax burden within a municipality; however, PILOTs do little to help other local entities reliant on tax revenue, such as counties and school districts.”

The report recommended that PILOT agreements be restructured in a way that would benefit counties and school districts:

“The current legal structure allows municipalities to keep almost the entire PILOT amount in the case of long-term abatements. This creates a perverse incentive whereby the municipality may gain revenue through granting an abatement, while other government entities lose out. This imbalance should be eliminated.”

According to a comment on Baristanet from Martin Schwartz, Mayor Jackson has acknowledged that previous PILOT programs were not structured properly and under-taxed developers:

“The Mayor has advocated publicly that some projects provide sufficient economic benefit to Montclair and are therefore worth effectively giving a County tax reduction to developers. The purpose could be further encourage redevelopment, or to encourage a project’s expansion so as to further generate even more local tax rateables. His position, which he’s made both publicly and privately to many, is that while some Montclair PILOT agreements in the past were not well-structured and may have under-taxed developers, new agreements being signed today accurately reflect both the real estate value assessments, expected taxes over the 30 year life of the PILOT, and the expectations of school age children being generated.

Regardless, the decision to offer economic development tax inducements remains with the Mayor and Council/Manager, even though the Mayor is now officially off the Planning Board.”

The under-taxing issue was also a concern for zoning board member Susan Baggs. According to Baristanet:

“Zoning board member Susan Baggs gave several reasons for skepticism for redeveloping these areas, fearing that tax abatement schemes like PILOTs would take money from the schools, forcing the state to make up the difference, and that the agreements will shortchange the town.  She insisted that the developers of the Siena haven’t paid the full amount owed under the agreement on the grounds that it’s hard for the tax assessor to know whether all the payments have been made.”

Mayor Jackson’s push for PILOTs (without knowing the full ramifications of the program) is worrisome. A full analysis on the effects of PILOTs should be done. Schwartz has even acknowledged that no analysis on the program has been done in Montclair:

“There has been no analysis done on the PILOTS, the redirection of funds, loss of certain types of revenues, impacts etc. etc.”

Taking a look at other districts in New Jersey, a discussion of the PILOT programs came up at a Board of Education meeting in the South Orange-Maplewood district, resulting in a resolution being passed for greater transparency of the programs:

“On Monday night, the South Orange-Maplewood Board of Education passed a resolution requesting greater transparency regarding PILOTs — or “payments in lieu of taxes” which are often used by municipalities to incentivize major developments.

Both Maplewood and South Orange have recently awarded or are considering awarding a number of PILOTs for housing developments. However, while the municipalities receive funds from these PILOTs, the school district does not. Municipal leaders have argued that the PILOTs are necessary to incentivize developments which, in turn, keep the towns vibrant and maintain and improve the value of taxable properties.”

A South Orange-Maplewood Board of Education member Beth Daugherty said there should at least be a compromise with PILOT programs, with some contributions going toward schools:

Daugherty does see a compromise “if the towns feel they need to offer PILOTs for economic development,” saying that she knows of no reason why PILOTs cannot include contributions to school districts.

“When future PILOTs are granted, I’d love to see us discuss contributions to the school district.”

And in Washington Township, New Jersey, the Township Council Republicans supported a mixed-use development plan that called for a 20-year tax abatement through a PILOT agreement. According to the South Jersey Times:

“Council Republicans support the PILOT agreement for the development as a means to bring permanent jobs to the township while boosting its economy, said Council President Daniel Morley.”

But the PILOT agreement has been vehemently opposed by the township school district:

“The PILOT agreement has long been opposed by the township school district, since the PILOT would allow developers to pay an annual service charge instead of regular property taxes that are normally divided among the school district, municipality, the county, fire and library districts, with the bulk going toward the schools.”

Before any other PILOT programs are implemented in Montclair, they should be fully analyzed. In the analysis, Montclair residents ought to know about previous PILOT agreements, what happened with those agreements, the amount of taxes that were diverted from the county and schools, and the tax rates residents saw before and after PILOT programs were implemented. This blog is therefore demanding greater transparency in these matters. Additionally, for the sake of our school district, a percentage of the PILOT program should benefit our schools as was considered in the South Orange-Maplewood district.