This installment of The Kernel may not be for everyone. Both my wife and daughter thought their heads were going to explode while reading this one.
There are many misconceptions on PILOTs and tax abatements. Most people think that both always provide a tax break for a developer at the expense of the taxpayer. This is not how the Board of Commissioners (BOC) will apply PILOTs in relation to the former Roche property and the vacant buildings on the site. Please find a detailed, technical explanation of these finance agreements as part of the latest installment of The Kernel.
What is a PILOT?
PILOT stands for Payment in Lieu of Taxes. PILOTs are used statewide to encourage new commercial and industrial development, thereby, increasing the commercial ratable base. The goal is to alleviate some of the tax burden from the residential property owners. Additionally, new commercial and industrial development will create job opportunities within the municipality.
Community growth and progress are reliant on economic development. Private-sector investments in a community can revitalize an area by bringing jobs and business activity, as well as potential increases in property values and, ultimately, tax revenue.
The NJ Long Term Tax Exemption Law allows for a long term abatement to carry out a larger development plan through declaring an area as being “in need of redevelopment.” These long-term abatements may last up to 30 years from completion of a project or 35 years from execution of the financial agreement.
The Hackensack Meridian Medical School at Seton Hall
Having the new Hackensack Meridian Medical School at Seton Hall as the anchor tenant for the former Roche site was critical in the re-purposing of the campus. The Board of Commissioners’ decision to initiate the process of declaring the campus an area in a need of redevelopment facilitated the purchase of the site by a quality developer, Prism Capital Partners, and afforded the Township the ability to offer a PILOT to the new Medical School. Without a PILOT type financing agreement the Medical School would not be in Nutley.
In addition, schools are traditionally tax exempt, especially those attached to a Catholic university and a hospital. It should be noted that was the original stance of the Medical School.
In 2017, the BOC was able to negotiate a PILOT with the Medical School that was very favorable to the Township, especially in light of the possibility of the school being tax exempt. It provides for Nutley to receive the same taxes paid in 2016. That figure bumps up 5% increase every 5 years for the duration of the agreement.
Additionally, there will be full taxation for the other non-academic floors of the Medical School building and that amount will escalate by 2% annually. Any future development on the Medical School property will also be at full taxation.
Why the PILOT in Nutley is Unique?
Traditionally, a residential or commercial taxpayer is required to pay property taxes to the municipality in which it is located. In New Jersey, the property tax bill is generated by the municipality, but the taxes are collected on behalf of various taxing entities, predominantly the municipality, school district, and county government. One of the criticisms of PILOT programs is that the municipality keeps the entire tax, minus 5% that is set aside for the County (by statute) at the expense of the school district, as school districts are not legally “entitled” to share in these payments.
This Board of Commissioners have insisted that the school district must be included in any negotiated PILOT. This is unique in the state. The PILOT for the Medical School shares the revenues in the same proportion as the regular property tax collections with our school district.
The present BOC have pledged that future PILOTs on the existing buildings will provide that Nutley receive revenue equal to the full taxation for both the municipal and school portion on the assessed value of a building. Our taxpayers will remain whole by ensuring the Nutley school district shares in their proportional fair share of the generated revenues.
The agreement will have annual escalators in the PILOT payments for the duration of the agreement.
The BOC will also evaluate the full impact of development on municipal services and our infrastructure.
The Medical School was essential to the redevelopment of the former Roche site to act as the center piece of the campus and attract other life science companies to the remaining vacant buildings and developable property.
The goal of all our PILOT agreements is to act as a win-win-win for the Township, the school district, and our taxpayers. At the same time, we provide the developer a predictable finance agreement with structured increases that allows them to offer leases that attract quality tenants to the campus.