Pop quiz - What is a PILOT?  Is it:

A)     A person that flies a plane.

B)     A sailor who maneuvers ships through dangerous or congested waters, such as harbors or river mouths.

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C)     A critical tool in the municipal toolkit that enables a Township to reduce a project’s size and height, enhance architectural elements and decrease the number of units to be built.

D)     All of the above.

The answer is D, all of the above. 

My wife and I have lived in Town for 13 years and have 3 young children in the Berkeley Heights school system.  Like every issue that comes before me as a Councilman, I begin by asking one simple question:  What is in the best interest of all families and residents of Berkeley Heights, and then I vote accordingly.  The municipal government version of a “PILOT” stands for Payment In Lieu Of Taxes.  The decision on whether or not to use a PILOT on a project is no different and for the reasons described below, PILOTs were utilized on certain of the affordable housing development projects to among other things, limit over-development.

As election time rolls around, there have been a lot of questions and misinformation about what a PILOT is and why the Town Council approved one as part of the redevelopment of the former Kings property.  I would like to answer those questions and provide the facts on why this tool was used.

I can state with unqualified certainty that no one on the Council is in favor of apartments or over-development in our Township.  However, State mandated affordable housing laws compelled us and most other towns to develop plans and defend litigation initiated by developers seeking to compel the construction of high density developments across the State. Last Fall, Berkeley Heights was fortunate to have concluded a favorable settlement which by any objective measure was the most successful in Union County, if not the State, by achieving a 75%+ reduction in the number of units to be built and eliminating untold legal fees. 

Indeed, much is currently being written about those unfortunate towns that either refused to address, or were unable to settle, their affordable housing issues.[1]  It is against this backdrop that we considered whether it was advisable to consider the use of PILOTs.

On July 18, 2017, following analysis by our planning, real estate appraisal and legal professionals, a presentation was made during the Town Council meeting about the PILOT that was being considered for the Kings Property at that meeting.  A link to that presentation can be found on the Township website: 

http://berkeleyheightstwpnj.gov/municipal-redevelopment.html

The actual meeting, presentation by redevelopment counsel, and discussion was live-streamed and can be found here (time period from 07:28 to 1:04:04):

https://livestream.com/bhtwp/events/7606685

At numerous council meetings in 2017, the Mayor and Council provided updates on our affordable housing negotiations, the various projects proposed to meet our requirements and how the utilization of PILOTs would be considered.  A link to the Council live-streamed meetings archives can be found at:

https://livestream.com/bhtwp

Residents had the opportunity and did ask questions of the Mayor, Council, Township Planner, Redevelopment Counsel and our COAH experts at these meetings and these questions were answered. 

The following are some highlights from that presentation and why the Council approved this PILOT:

  • An Annual Service Charge (ASC) is the statutory term for a PILOT.
  • “But For” the ASC or PILOT, the redevelopment project would not be built as designed by the developer and approved by the municipality.
  • An Urban Renewal Entity, or URE, is a limited dividend entity that has been designated by the municipality to build a redevelopment project.
  • The amount of profit a URE can make on a redevelopment project is restricted by law.
  • Any “excess profits” are paid to the municipality.
  • The URE cannot file a tax appeal on the property while paying the ASC or PILOT (30 years).
  • The URE pays the ASC or PILOT on a quarterly basis like traditional real estate tax payments.
  • There is a requirement that the URE submits annual financial audits to the municipality.
  • The ASC or PILOT is 10% of the Annual Gross Revenue of the Property (annual rental income from the units).
  • 95% of the ASC or PILOT goes to the Municipality.

What does all of this mean?

Let me be clear, the developers of the Kings Property filed a law suit against the town as part of the State mandated affordable housing obligation to build a 4 - story building with 180 units and only 1.5 parking spaces per unit that were not enclosed.  The developer did not provide amenities, or street scape improvements and the building materials were not up to our Part 19 design standards.  After extensive back and forth and negotiations, the project that was presented to the Planning Board on May 16, 2018, consisted of 150 rental units (of which 23 are affordable), 300 parking spaces in a fully enclosed parking deck, and off-site improvements on Sherman Avenue extending from Plainfield Avenue to Lone Pine Drive.   Following the changes extracted by the Township during negotiations, our experts examined the project financials and determined that the project would not have been economically viable under the standard real estate tax model.  For the Stratton House to become economically feasible, absent the use of a PILOT the Court and Special Master would have compelled significant changes to the project such as:

  • Increasing the number of market rate apartments – making the building much larger, taller and increase the density of the project
  • Decreasing the number of parking spaces for the project
  • Reducing or eliminating all of the Off-site Improvements[2]

Indeed, the developer initially demanded a 4-story building, a far greater number of units, and a monolithic open parking deck befitting of New York City, not Berkeley Heights.  The Mayor and Council said “no”.

What are the benefits of this PILOT for the Township?

  • For the next 30 years, that property cannot file any tax appeals.
  • If the Gross Revenue of the project exceeds the pro forma revenue stated in the application (apartment rent increases), the ASC or PILOT will increase accordingly (additional revenue for the town!).
  • The minimum ASC or PILOT that the Township will receive is $293,706 annually.  The Township is currently receiving only $51,721 in taxes.
  • The Township will receive an additional 1.5% Administrative Fee on the annual ASC or PILOT paid.
  • The ASC or PILOT kept the project at a lower density than initially proposed and helped the town meet its affordable housing requirements.

A lot has been said regarding the impacts on our schools from meeting our State-mandated affordable housing obligations.  As to potential increases in enrollment, our experts forecast somewhere between 13 and 35 students spread across our education facilities.  Throughout this process we coordinated with our school board which has similarly studied this issue and sees no measurable impact on the District’s enrollment capacity or the delivery of our outstanding educational services.  This was reaffirmed by the School Board President at the May 22, 2018 Town Council Meeting.  Regarding the financial impact to the school district, our schools will continue to be funded as requested by the Board of Education within State-mandated spending limits—There is also nothing that prevents PILOT monies from being used for extra school costs generated by the project.  In addition, the PILOT payments will increase our municipal revenues available, mitigating future tax increases and/or improving our ability to fund debt service associated with our municipal redevelopment project. 

Let’s be clear—if there were a way to avoid the construction of the project entirely or to eliminate the use of a PILOT I would have.  However, real problems require leadership, experience, and the development of credible solutions.  In the face of the affordable housing litigation, the use of the PILOT enabled the Township to reduce the project size and number of market rate units, eliminate an eyesore in the heart of our downtown, and generates increased revenue to the Township over the next 30 years.

Please support us at the polls by voting "Column A" for the team that has delivered and will continue to deliver fiscally responsible, sensible, and logical spending of our financial resources -  Mayor Robert Woodruff, Councilwoman Michelle Greco, and Councilman Michael D'Aquila, on Tuesday, June 5 from 6 a.m. to 8 p.m.  Please also visit our website at www.honestresultsBH.com.

[1] https://patch.com/new-jersey/princeton/judge-rules-princetons-affordable-housing-obligation

[2] The Fair Housing Act which governs affordable housing matters states that: “Whenever affordable housing units are proposed to be provided to an inclusionary development, a municipality shall provide, through its zoning powers, incentives to the developer, which shall include increased densities and reduced costs, in accordance with the regulations of the Council and of this subsection.”  See, N.J.S.A. 52:27D-311 (h).