PILOT Agreement Amended For Chatham's River Road Project

CHATHAM, NJ — On Monday, the Chatham Borough Council officially approved an ordinance exempting the owners of what is now known as The Ivy from paying land taxes.

The ordinance finalized a financial arrangement known as PILOTs—short for Payments In Lieu Of Taxes — between the borough and Chatham River Road Urban Renewal, the owners of the 245-unit luxury apartment complex in Chatham Borough.

Read More: Leasing Now Open For River Road Apartments In Chatham

PILOT agreements, also known as municipal tax abatements, are deals that enable a developer to switch their standard tax payments for a property to a fixed, yearly payment to the municipality.

Some municipal officials have called them useful tools to attract development to distressed or blighted areas of town. But their use has drawn criticism from opponents, some of whom caution that the deals can enable a big developer to skip out on paying their fair portion of property taxes.

A key aspect of PILOTs is that, unlike traditional property taxes, which are split between the town, school system and county, in a PILOT, the city or town keeps nearly all the money.

On Monday, the borough council finalized an amendment to the initial agreement, allowing for a tax exemption for the land valued at $14 million, removing it from the borough tax books.

Under the initial agreement, the PILOT predictions for the borough's revenue did not include the land tax credit against the PILOT payment.

A 30-year residential PILOT arrangement is typically tax-exempt from land and improvement values. According to the borough, they are unsure as to why this was not done for the original River Road deal, and the attorney who prepared this agreement is retired and no longer practices.

The omission of the land tax would have had a slight effect on the borough's financial projections if the revaluation had not drastically impacted the land value. At the time of the projections, the land value was $2.5 million ($50K in taxes). Since the re-valuation, the land value has increased significantly to $14 million ($217K in taxes).

As a result, instead of getting the anticipated $800,000 in PILOT funds, the borough would receive less than $600,000, borough officials said.

By revising the agreement, the borough's overall assessed value will be reduced by the River Road Development's land value, slightly increasing the tax rate.

According to Chatham Borough CFO Karen Fornaro, the proposed adjustment will essentially hike taxes for borough homeowners by $5 for every $100,000 of assessed land value.

"It's unfortunate that this has caused some consternation, but we're not happy with the advice we got on this matter initially, that has led us to this stage, but we are trying to rectify a situation that we certainly have a right to under state statute," Mayor Thaddeus Kobylarz said.

In the future, the use of the PILOT funds will be determined through the budgeting process, which involves multiple public hearings.

Under the amended agreement, the borough would have more funding available for various purposes:

• Borough obligation for the Post Office Plaza 15 all-affordable housing project
• Immediate capital needs: fire truck, road improvements, lead line service replacements
• Decrease debt service
• Fund future 2025 affordable housing obligations
• Tax rate stabilization