The Problems with PILOTs – Part II

May 27, 2020

Last week, we began to expose the many problems with PILOTs and the tax abatement programs that the Brindle Administration recently set in motion in Westfield, without any meaningful public debate or input, and during a pandemic.

The harms that can be caused by such programs are detailed in a report published by the NJ State Comptroller,  The following excerpts are quoted directly from the Comptroller’s report, with emphasis added.  They should cause all Westfield residents serious concern.

“Tax abatements result in significant foregone revenue and introduce [property] tax inequities….  PILOTs do little to help other local entities reliant on tax revenue, such as … school districts.”

“Despite these high stakes, … little is done to monitor the use of such abatements, to ensure that they are appropriately awarded, or to determine whether they achieve their purposes.  Our review of tax abatement practices … found numerous weaknesses in the regulation, implementation, and oversight of these programs….”  [As a result,] “[t]ax abatements should be used carefully and sparingly given the multitude of pitfalls, their far-reaching impact, and the reality that exemption from taxation is a departure from the normal allocation of tax obligations.”

“While abatement of taxes otherwise owed is uniformly positive from the perspective of the developer, it results … in lost revenue for government entities.  In addition, these financial arrangements can create tax inequity and present opportunities for unfair favoritism or cronyism.”

“In the broadest sense, abatement programs are meant to encourage rehabilitation and redevelopment of distressed areas.…  However, abatement programs can also create inequities and the potential for waste and abuse.  The inequities stem from shifting tax burdens, while the potential for waste and abuse lies in the process of choosing developers and projects.”

“For example, … under long-term abatement arrangements, property tax collections on the development – which normally are split among several entities – are eliminated, and 95% of the negotiated PILOT is kept by the municipality, with 5% for the county and nothing for the school district.”

Are you concerned yet Westfield?  You should be.  Not only is tax revenue for our schools lost, increased population from the property improvement or development may result in higher educational expenses.  The rest of us will have to pick up the tab on both ends.

As a reminder, in addition to declaring our entire downtown as an area in need of rehabilitation and eligible for five-year tax abatements, in March the Brindle Administration began the process to declare all Town parking lots, the Rialto building, and the Lord & Taylor site as areas in need of redevelopment, which allows for longer-term, 30-year tax abatements.  These extended hand-outs can bring additional trouble.

Cronyism may emerge in the approval process of long-term abatements, further compounding these inequities.  Cronyism provides unfair advantages to favored developers and, in the process, can lead to less beneficial terms for the municipality and other affected parties.  Historical evidence of corruption of the redevelopment process in New Jersey confirms that this threat is real in the long-term abatement context.”

“Importantly, the asserted benefits of granting tax abatements are far from guaranteed.  Developers may overpromise benefits that do not materialize….  [A] number of studies have cast doubt on whether tax abatements generally attain their desired goals, including whether they actually affect business expansion, development and relocation decisions.”

“Meanwhile, the cost and burden-shifting effects are real.  At least in the near term, … tax receipts are lost.  At the same time, new development may increase the amount and types of [local] government services being demanded….  In instances where the development at issue would have occurred without an abatement, the tax distortions are even more severe.”

Sobering observations, none of which you’ll find on the Town’s website.  Our illumination of the disturbing consequences that may come Westfield’s way thanks to Mayor Brindle’s bold tax abatement action plan will conclude next time.  Please stay tuned.

JoAnn Neylan, Chairwoman

Westfield Town Republican Committee