To the editor:
A PILOT - payment in lieu of taxes - is a voluntary payment made to compensate a local government for some or all of the tax revenue that it loses because of the nature of the ownership or use of a particular piece of real property. Usually it relates to foregone property tax revenue, as when a superior governmental entity owns land in a subservient governmental jurisdiction.
For example, land owned by the federal government is generally not subject to taxation by state or local governments. Under a 1976 law, the federal government began a program of making payments in lieu of taxation to local governments affected by this reduction in their tax bases.
As an incentive for investment in taxable infrastructure, or other facilities that create a public benefit, a PILOT may be negotiated to limit or defer the property taxes on a developer, striking a balance between public and private economic needs. In effect, the local taxpayers are subsidizing the development, which might otherwise have gone elsewhere.
About six years ago the county proposed to sell its 46-space parking lot just south of the Red Vanilla building on Main Street in Flemington. I suggested to borough representatives that they ask the county for a payment in lieu of taxes, an arrangement that we understood existed between the Somerville and its county freeholders. The county could have given the parking lot to the borough in place of the first year or two of county PILOT payments.
The subject of such payments has risen again in the course of the discussions of tearing down buildings in the middle of Flemington and replacing them with city-size structures. I have not been able to follow closely, nor do I fully understand the arrangements being proposed, because I hear so many conflicting possibilities.
The draft of a proposed agreement has been published. It does not have a tight timetable, it provides for no guarantee from the developer, and it offers a PILOT with no information about what the taxes would have been without a PILOT and what the borough gains, or the developer gains, at the expense of the other.
Flemington tax records show that there are at least 13 separate properties in the borough owned by the county that do not pay any property taxes. Each of these properties receives the same services by way of police protection, street maintenance, snow removal, and other municipal services as are received by the owners of private property that do pay taxes.
The total value of all of these properties, according to Flemington tax records that I reviewed last year, are almost $24 million. Approximately $600,000 worth of that property are the two pieces of property proposed for sale six years ago. With a tax rate of .0314, the total property would generate just less than $750,000 of tax income. Of that amount approximately 25 percent would go to the borough with the rest paying for schools and county services.
In the 10 years that have passed since the subject was raised, the borough share of taxes would have been enough to buy both the Choir School and the parking lot, and have roughly $1 million left over.
It seems to me that payment for services provided by the borough to the county should be part of the discussions relating to payments in lieu of taxes. It's time that borough leaders get together with county leaders and talk about compensating the borough for all of the services that the county enjoys. These are services provided by no other municipality. The discussion should be separate from any discussion of incentives being paid to a private developer above and beyond what the borough already offers.
The present arrangement, for those not in an area designated as a redevelopment zone, provides that the increased value of property, as a result of improvements to the property, are phased into the assessment process over a five or six year period.
I gather some substantially greater incentive is being offered by the borough to the Union Hotel’s designated redeveloper. It will be interesting to see what that amounts to in real dollars.
Lee B. Roth
Editor's note: Lee Roth is an attorney with an office on Main Street in Flemington.