What Is a PILOT? and How Do They Affect our Schools And Tax Bills?

Aberdeen Forward continues to claim that our schools are “irresponsible” with their budget and solely to blame for rising property taxes. What they’re not telling you is that their own PILOT agreements are draining millions from our school funding, while simultaneously adding hundreds of new students and driving up costs. This article explains how PILOTs work, when they’re beneficial, and why Aberdeen’s current deals are leaving both taxpayers and students to shoulder the burden.

Payment in Lieu of Taxes:

A negotiated agreement between a municipality and a developer that entices development of a piece of property that would otherwise be financially impractical to develop. Payments go to the Municipal budget and provide no additional funding to the schools unless specifically negotiated to do so, or if the town council elects to share the PILOT payments with the school voluntarily.

When are they beneficial?

If you have an unbuildable piece of property in town that is incapable of collecting property taxes, you can offer a PILOT agreement in order to offset some of the cost of developing that land. This agreement entices a developer to take on the financial burden of remediating the land into a buildable lot. Ideally the PILOT would cover the cost of the remediation, plus reasonable overhead and profit for the same.

This leaves the builder with a profitable piece of property with the cost of remediation subsidized and benefits the town by adding a taxable lot that otherwise would have sat vacant and untaxable.

Some examples of beneficial PILOTs would be for:

• Commercial Space
• Retail Space
• Manufacturing/ Industrial Space
• Senior Housing

These are all valuable assets to have as tax “ratables” in town that don’t impose a burden on taxpayers or add students to the school system. So tax rates stay neutral while under PILOT. When the PILOT term ends, and the property pays conventional property taxes, residents may actually see a tax DECREASE.

They also typically offer local jobs and business opportunities to the community, recreation for our teens, and significant additional funding to our schools, without adding any additional students.

Hudson Ridge for example, was a contaminated piece of property that utilized a PILOT to incentivize the construction of a Senior Housing Development. This development creates no burden on our schools, minimal impact on traffic and infrastructure, and when the PILOT term is complete, it will provide additional tax revenues to help offset rising costs for the township and its schools. Hudson Ridge is an example of a beneficial PILOT.

When are they Problematic?

PILOTS are burdensome to the community when they are misused, abused, or poorly negotiated.

This would mean giving PILOTS to properties that aren’t deserving of PILOTS to begin with, or incentivizing building that burdens the community. This artificially attracts development that increases the tax burden without benefiting schools or residents.

Some examples of Improper Use of a PILOT:

• For property needing typical demolition of an existing structure to accommodate a new build
• Property without significantly prohibitive land remediation requirements
• To fulfill Mt. Laurel affordable housing obligations.
• A PILOT whose tax savings significantly surpass the costs of land remediation, offsetting the build costs, and inflating developer profits

Another way they are problematic is if they are used on projects that place significant burden on the community.

This would mainly be 100% residential property. Residential adds students to the schools. More students = need for more space, and more money to educate those students. So the municipality and school district now has increased its costs, without adding any additional funding to the schools. Who has to cover the additional education costs if the developer is not? The rest of the tax base. (YOU) And due to budget caps, you’ll often see schools end up underfunded and overcrowded. How costly this is depends on the size of the project and how long the PILOT program term is.

So how does this Affect Aberdeen?

From what I can find, every large new residential development that has been built, and is currently being built is operating under a 30 year PILOT. These PILOTS were negotiated to have a percentage of income the PILOT properties generate be made as a payment to the town to help balance its Municipal Budget. No money for the school was negotiated in, and Aberdeen Forward has not offered to share any of these payments with the schools voluntarily. The Board of Education also had no seat at the table when these negotiations took place as we’ve seen other townships do in order to act in good faith and the best interest of the students, residents, and taxpayers. There is no indication Aberdeen Forward is even considering working with the BOE in the future. This must change.

Glassworks is a great example of a costly PILOT.

You can see the scale of development simply by driving through the area, and we’re still only in Phase 1 of a multi-phase project. According to the April 7th BOE budget forum, Glassworks has already added 120 students to the Matawan-Aberdeen School District. With an estimated cost of $17,500 per student, that amounts to $2.1 million in direct educational expenses borne by local taxpayers. Additionally, the PILOT agreement approved by Aberdeen Forward projects a minimum revenue loss of $22,983,146 over 30 years, averaging $766,105 annually. When combined with the $2.1 million in education costs, that’s a total annual impact of $2,866,105 on the school system and this is just from The Forge at Glassworks, a 170-unit market-rate luxury apartment complex. It doesn’t yet account for the remaining 570 units planned at Glassworks or the six other PILOT projects already underway in town.

We then have the issue of the schools getting to be overcrowded due to the building as per the demographers report that was presented at this year’s BOE budget forum. This is leading to talks of redistricting schools, referendums that further burden taxpayers and is taxing our most vulnerable longtime residents out of their homes.

So when Aberdeen Forward claims that rising school costs are driving up your tax bills, that’s only part of the story. The full picture reveals that Aberdeen Forward’s mismanagement and weak negotiation of PILOT agreements are depriving our schools of millions in critical funding, while enrollment and expenses continue to climb. The result? Local taxpayers shoulder the burden, while billionaire developers walk away with even greater profits.