As part of the justification for the approval of the recent PILOT for the former Tennent-Roberts campus and the Whiteley Gymnasium sites (TRW), Princeton Council has published a FAQ on the municipal website. This is essentially a copy of an FAQ published by Parsippany in 2023 in response to their taxpayer concerns about the approval of PILOTs and the impact on their schools.
The FAQ has been used to make statements to the public by council members and so we feel it is important to point out where statements are misleading or fail to fully provide the facts.
When and why are (PILOTs) used?
The original (Parsippany) document states:
PILOTs are used to provide an incentive to a redeveloper to undertake and complete specific projects, sometimes to fulfill a municipality’s affordable housing requirement, to minimize or change the scope of the project from what could be approved, or on a property with environmental problems. They are used in conjunction with areas designated for redevelopment that are underutilized, dilapidated or otherwise meet the standard for an Area in Need of Redevelopment.
Princeton has revised this to essentially describe the developer’s project. It completely ignores the foundational reasons “areas in need of redevelopment” (ANR) and PILOTs are used, which is to remedy blighted areas.
Princeton states:
PILOTs are used to enable a redeveloper to undertake and complete specific projects. For residential projects, they are often utilized to enable a municipality to meet its affordable housing obligation. In this context, a PILOT is used to facilitate not only the production of the units, but to make possible expensive enhancements such as underground parking, quality materials, sustainability features and stormwater mitigation that exceed state standards, and to cover the cost of amenity fees for residents in the affordable units. (emphasis added)
What is not said:
Given the density of this project, the need for underground parking is a fundamental part of the design as is the need for stormwater enhancement due to the approval of over 70%+ impervious surface coverage. The underground parking was the developer’s vision. These are not expensive enhancements; they are original design elements. The developer is essentially saying this project is not and never was viable without a $40M tax break. The amenity fee for the affordable units that are part of this project represent less than 5% of the tax break and do not justify such an extravagant burden on Princeton taxpayers.
What are some common misconceptions about PILOTs?
This is a section Princeton has added that is a series of misleading statements.
Princeton states:
● The municipality receives less money than it would under conventional taxes.
● PILOTs cause an increase in property taxes for existing residents.
● The schools won’t receive their full budget.
.
What is not said:
By suggesting these are misconceptions is misleading given that these are self-serving statements.
The municipality does receive more money than it would under conventional taxes. That is the design of the PILOT. BUT the tax paid by the property receiving the tax break is 40 percent lower than it would be if property taxes were paid. That is why developers love them. Those funds are lost to the community.
That PILOTS will not directly increase a residents property taxes is misleading. If no one’s taxes go up, how do the schools accommodate the extra 200 children that are likely to be added to the school system by the new households that make no contribution to the schools?
What are the Benefits of a PILOT?
Princeton states:
● Allows for projects not otherwise financially feasible
● Typically provides greater revenue to the municipality than conventional taxes
● Ongoing transparency – audited financial statements – not provided under traditional taxation
● Ability to negotiate valuable public improvements and enhancements to the project that benefit the surrounding neighborhood.
● More stability and certainty than conventional taxes
● Market based taxation: If the market is stronger than expected, the municipality shares in the market upside because PILOTs are collected based on annual gross revenue.
What is not said:
Developers, who are the ultimate owners of these projects, design their buildings to create the maximum value for themselves. As a result, they create designs that fall under the threshold of being financially feasible without the tax break. They expect PILOT tax breaks as a matter of right. The TRW project simply complies with the law, and there are no quantified benefits for the public that are meaningful that justify the PILOT tax break.Using “provides greater revenue to the municipality than conventional taxes” as a claim is meaningless since that is by design. In essence, the town is taking money that should flow to the schools and is claiming it as increased revenue.There are no public improvements as a result of this project. In fact 96 percent of the mature trees on the site will be removed and the impact of 240 additional cars will negatively impact the surrounding areas, including the Mercer Hill Historic District.This project provides LESS stability than conventional taxes as it is based on the financial performance of the development over 30 years.
Is the school district negatively impacted by a PILOT revenue structure?
Princeton states:
The Board of Education is guaranteed to receive 100% of its budget each year with annual increases capped at 2%. Changes in municipal receipts to the positive or negative do not affect that budget.
What is not said:
Again, this is technically correct, but it ignores how property taxes are calculated and paid and their impact on the taxpayers.
In terms of the actual cost. (Here we are using the ratios provided in the PILOT formula since the town will not reveal figures that allow an actual comparison to be made. The annual projections used by the town and the projects return have not been shared, but the 30-year estimate of revenue to Princeton provided by the town is $48.2M which, although impacted by inflation, is on average $1.6M a year)
If the property tax was levied on the proposed TRW development today, it would likely be in the region of $2M a year, rising over time. (Based on Avalon Witherspoon today)
Based on the distributions today, we estimate that the approximate distribution would be as follows:
Town $400K
County $600K
Schools $1M
Under the PILOT, the distribution will be:
Town (55% of amount) $1.1M
County (5% of total) $100K
Schools $0
To understand the deception embedded in this argument, you need to understand that the schools, the town, and the county don’t manage their budget in the same way as a household would. A household budget begins by anticipating income and then adjusts spending to live within their means. School, town and county budgets start with the appropriation (or expense) side. Most of the costs are fixed. They are related to essential personnel (police, teachers), healthcare costs, insurance, etc. If the total of the appropriation exceeds the allowable cap, officials may go back to trim the budget where they can, often by delaying maintenance. Then, this amount is levied against all taxpayers. In the case of the schools, they submit this amount to be levied and collected by the town.
So, the argument that the schools will be funded whatever happens is true, but the $1M that would have accrued to the schools from this development, as part of that funding, must now be picked up by the taxpayers.
Including this project, we estimate that around $140M has been given out by Princeton in PILOT tax breaks over the past few years. Using crude simple math this equates to a total property tax revenue of $350M over 30 years. If half goes towards the schools, that is $175M or an average of $5.8M a year that has been diverted – to the municipality and the developers – and will need to be picked up by taxpayers.
This is substantial and it is being obscured by the slow ramp up of the impact of these projects, but in a few years, it will be noticeable when the impact of more students is realized.
Do we know how many school children will be added to our school system from new redevelopment projects?
Princeton states:
The anticipated number of school children from new residential units is dependent on numerous factors, including the rental costs, number of bedrooms available, construction quality, level of amenities and more. Studies conducted by the Center for Urban Policy Research at Rutgers University, the Joint Center for Housing Studies at Harvard University, and current demographic information from existing projects here and in other New Jersey municipalities have shown that the number of school-age children in multi-family housing is dramatically lower than that which comes from detached single-family dwellings.
What is not said:
This statement is correct but crucial information is missing. For example, 198 units of the total 241 units will be on the Tennent-Roberts site, which is 3.51 acres, or 56 units/acre – the second highest density for town in developments over 20 units. To make a comparison with a single-family home is ludicrous. The study quoted above suggests conservatively that there will be over 40 additional children added to the school system and over 200 if the additional 1,000 new units recently added by multi-family housing are considered.
There is a cost to the taxpayers by allowing an individual property owner a tax break.The town and developers consistently make an argument that on the margin there is negligible impact by allowing by allowing the developers to not contribute to the school system. They assert that the extra number of children is not that large or that the school will get its money anyway. That is not how taxes are supposed to work. From what we can determine, fewer than 40 percent of the 10,000 households in Princeton have children in the school system. That means over 60 percent of households that do not have children in the school system contribute the majority of property tax funding towards the school system. Given that their impact on the school system is zero, should they be allowed to make a lower contribution? We would say, of course not! Contributing to the schools is a moral/ethical obligation that makes our community strong and desirable.
When all the approved Multi-Family projects go live, there will be a 10 percent increase in the total number of households in Princeton, none of which will contribute to the funding of the schools even though it is estimated that an additional 200+ children will be added to the school system.
Contributing to the schools an issue of fairness and equal treatment which is already somewhat distorted by the large number of educational institutions that make ‘contributions' that do not reflect their impact.
How else will the Municipality benefit from PILOT agreements?
The 30-year term of PILOTs provides a new, substantial, and reliable source of revenue which directly supports the municipal budget, helping to keep resident taxes down.
What is not said:
There have been public assurances that municipality taxes will be lower and that the schools will be helped. No estimates have been provided for the expected total PILOT payments that will be made to the town. Without this information these assurances are meaningless. The town’s share of overall taxes is roughly one quarter of the taxes of each resident’s bill, so a small reduction of that percentage will be insignificant to each taxpayer’s obligation if the school and county portions increase as a result of this agreement, which they surely will. The “reliability” benefit flows to the developer. For the town, PILOTs are no more reliable than taxes.
Are PILOTS a windfall for the developer over time?
PILOTs are based upon a percentage of revenue, and redeveloper agreements have a provision prohibiting excess profits. The developers must submit audited financial statements every year to confirm compliance, in contrast to traditional taxation that does not require documentation. In the event that the Project produced profits in excess of the maximum allowed under the law, the Redeveloper would be forced to remit those profits to the municipality.
What is not said:
There is no clarity as to what those profit levels are other than to suggest that 5.9% return is unacceptably low. Meanwhile, for other developers, the takeaway could be “pay any amount for land, meet your affordable housing obligations required by law, and we will have the taxpayers subsidize any extravagance that your heart desires.”
What happens at the end of 30 years?
Upon expiration of the tax abatement the project returns to conventional taxation. There are also mandated step-ups to full taxation through Year 30.
What is not said:
The 48 affordable units are lost and revert to the developer and will no longer be part of the town’s inventory.
Those units will need to be replaced. How?
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