The New Jersey Senate is currently considering legislation that would impose new obligations on municipalities that grant long-term tax exemptions. Under the proposed bill, municipalities would be required to share funds collected under payment-in-lieu-of-taxes (PILOT) agreements with school districts.
As we have previously discussed on the Scarinci Hollenbeck Government & Law Blog, many New Jersey municipalities use long-term tax abatements to attract local development projects. Municipalities must enter into a written Payment in Lieu of Taxes (PILOT) agreement with applicant developers that calls for the payment of an annual service charge in place of traditional real estate taxes on improvements for a specified period of time, typically at a much lower overall rate.
Senate Bill 59
Under Senate Bill 59,municipalities must notify counties and school districts when they are considering granting long term tax exemptions, and must also share amounts received by urban renewal entities in lieu of property taxes with school districts, including regional school districts.
The legislation specifically would require urban renewal entities to provide counties and school districts with copies of applications for long term tax exemptions. The bill defines “urban renewal entity” as including a limited-dividend entity, the New Jersey Economic Development Authority or a nonprofit entity that enters into a financial agreement with a municipality to undertake a project that is a part of its redevelopment plan.
Mayors would be required to provide counties and school districts with copies of their recommendations regarding the PILOT applications. Counties and school districts would then have a 10-day period to review the mayoral recommendations and submit their own recommendations. When determining whether to approve an application, a municipal governing body must give “due consideration” to the concerns of counties and school districts.The proposed bill would also require municipalities to provide a portion of the PILOT payments to the school district or districts that serves the municipality, including a regional school district.
The Senate Community and Urban Affairs Committee amended and advanced the bill on May 13, 2019. The committee amended the bill to require municipalities to provide school districts with different portions of PILOT revenue for nonresidential and mixed-use projects.
For a residential project, this portion would equal the amount derived by multiplying the number of school-age children, who are attending public school in the municipality or at a school in a regional school district that serves the municipality and who are residing in the project, by the school district’s budgetary cost per pupil. For a nonresidential project and for a mixed-use project with residential and nonresidential components, the amount would be five percent of the annual service charge collected by the municipality or an in-kind contribution equal in value to five percent of the annual service charge. The committee amendments also require a school district to reduce its property tax levy by the amount of any payment received from a municipality out of a payment in lieu of property taxation made by an urban renewal entity.
Senate Bill 59 is now pending before the Senate Budget and Appropriations Committee. We will continue to track its status and post updates as they become available.
For more information about the proposed tax abatement bill or the legal issues involved, we encourage you to contact a member of Scarinci Hollenbeck’s Government Law Group.