The Problems with PILOTs – Part I

May 20, 2020

Earlier this month, after introducing a budget that imposed the maximum allowable property tax levy increase on Westfield’s residents, the Brindle Administration took a major step toward handing out tax breaks to downtown property owners and commercial developers.

On May 12, the Mayor and Council declared the entire downtown Westfield business district to be an area in need of rehabilitation.  The vote came without any meaningful debate or public input and, of course, it was scheduled during a global pandemic with residents in mandatory lockdown.  Why was one of the most impactful decisions about the future of our downtown made in the dark?  Where was the transparency?  Read on for some troubling answers.

The primary purpose of property tax abatement programs, often referred to as Payments in Lieu of Taxes (“PILOTs”), is to encourage development in blighted or distressed areas.  Given the high values in and overall favorable physical condition of downtown Westfield, it is unclear why the Mayor would characterize our entire downtown as physically blighted and eligible for a tax abatement or PILOT.

Adding to that mystery, a State study (referenced in more detail below) shows that the New Jersey towns that most use tax abatement programs are typically the more urban and older municipalities with higher poverty rates and below average median household incomes, including Camden, Newark, Paterson, Union City, and Trenton.  Unlike Westfield, such towns find it difficult to attract investment, and use PILOTs to help develop properties that otherwise would remain in disrepair or abandoned.

Unfortunately, in all towns, the beneficial intent of PILOTs is often unrealized.  Property taxes that otherwise would have been paid by the benefitted commercial property owners are lost, and limited building improvements can simply act to increase the value of the affected private properties for the sole benefit of their commercial owners, and to the detriment of non-developer, residential taxpayers.  Ironically, when residential homeowners improve their properties, they do not get a tax break; instead, their taxes go up.

It should be no surprise that the tax abatement process is often subverted to favor politically connected developers.  The abuse of PILOT programs in New Jersey became so rampant that in 2010 the NJ State Comptroller published an exposé on them and municipal tax abatements generally, which you can read for yourself here:

The Comptroller’s study noted that the criteria required to establish a “need” for rehabilitation is open-ended and subject to interpretation.  As one observer of the process stated, “local governing bodies can – and often do – grant abatements to almost any developer building anything, anywhere.”  Furthermore, there are no clear laws concerning when a designation of “need” should be removed, or how often designations should be revisited to ensure that improvement over time has not obviated the need for continued abatements.

The Comptroller also noted that “[t]he processes being used also tend to limit meaningful public involvement….  [M]eaningful up-front analyses concerning the costs and benefits of awarding a particular abatement is often lacking.”  Sound familiar?

Most alarming, PILOTs by design reduce the property tax revenue available to local schools because, unlike regular property taxes, the agreed payment from the developer is used almost exclusively to fund the municipal budget, with 5% typically paid to the county; the town is under no obligation to share a penny with local schools.  As a result, schools suffer, as is evident in the communities named above, or non-developer residents like us need to make up the school funding difference through higher residential property taxes.

Next week, we will explore in detail the State Comptroller’s findings of cronyism, corruption, lost revenues, waste and abuse endemic to the tax breaks that Mayor Brindle has set in motion.

JoAnn Neylan, Chairwoman 

Westfield Town Republican Committee