PILOTs to Schools

A campaign to ensure all private properties in Montclair contribute to our public schools

What are PILOTs? When the Montclair Township Council declares a plot of land “in need of development,” they collaborate with a developer to write a redevelopment plan. If the developer builds according to the plan, they become eligible for a 30-year tax abatement. The new development will pay no taxes but “payments in lieu of taxes” (PILOTs) for 30 years.  

PILOTs incentivize development by ensuring more predictable costs than taxes, usually representing a sizeable “discount” relative to conventional taxes. How is that even legal? It’s perfectly legal because New Jersey’s legislature finds it appropriate to give tax breaks to wealthy developers (see the Long Term Tax Exemption Law, N.J.S.A. 40A:20-I et. seq.). 

PILOTs are distributed differently from taxes--under the traditional PILOT framework, 95% of PILOT revenues go to the municipality, 5% to the county, and nothing to the schools.  But other municipalities, including neighboring Cedar Grove, Jersey City, Princeton, and Woodbridge, steer a significant portion of their PILOT revenues to the schools, something Montclair should emulate. 

We demand that the Montclair Township Council sends the schools their fair share, the same share they receive from the property tax levy (57.04% last year). PILOT receipts vary a little from year to year, but these payments represent about 3 million dollars that our schools could use to stabilize their staffing. Here are the 2022 numbers for reference:

Will you join us in this campaign? Subscribe to this newsletter, sign our petition, send emails and postcards to Montclair’s council members, and come to the next council meeting to demand they send PILOTs to schools. 

Should Montclair offer these PILOT deals to wealthy developers? It depends on who you ask. PILOTs are popular because they allow local governments to let their budgets grow beyond the 2% cap on the tax levy because PILOTs are considered non-tax revenue. However, the New Jersey State Comptroller conducted a comprehensive study of tax abatements in 2010 and concluded that:

• “PILOT payments distort municipal incentives in using and structuring abatements at the expense of counties, school districts, and other taxpayers” and 

• “municipalities often fail to use abatements to bring in the type of redevelopment that would address community needs or bring appropriate improvement.” 

The comptroller recommended that “tax abatements be structured in a way that encompasses the interests of counties and school districts.” Yet, thirteen years after the Comptroller’s report, Montclair has yet to consider our schools’ needs. 

How is Montclair using these PILOTs? In no particular way because they go into the municipality’s operating budget. Therefore, one could say that some of it goes to all municipal expenses except capital improvements. However, because PILOTs are non-tax revenue and don’t count towards the 2% cap increase on the municipal levy, it’s fair to say that they pay for those budget lines that grow by more than 2% a year, like the police, fire department, and healthcare budgets. 

Do PILOTs reduce our taxes? Absolutely not! PILOTs merely allow the municipality to grow its budget by over 2%.  If the Township had required these PILOT developments to pay conventional taxes, it might have reduced our taxes because new rateables count towards the tax levy increase, which is capped at 2% yearly. Therefore, when you add new taxpayers, and the levy grows by only 2%, you reduce the tax burden on all taxpayers (see how this worked in the Caldwells recently). All PILOTs do is ensure that our taxes continue growing, even as new development comes into Montclair. 

Commercial properties must contribute to schools. Redevelopment advocates argue that commercial properties don’t need to support schools because they don’t send kids to schools. But commercial property owners without tax abatements support the schools. Why shouldn’t those with abatements do the same? 

Redevelopment “experts” claim that our PILOTs don’t hurt the schools.  They say apartment complexes with PILOTs don’t send kids to schools and thus don’t impose a burden on the schools. But this is blatantly untrue! We asked the Montclair Public Schools to count the number of enrolled students living in the PILOTs addresses. They told us the PILOT properties already sent 160 pupils to our schools, and we celebrate this! We want everyone to love our schools like we do. And we also expect everyone to support our schools as much as we do. 

Affordable housing PILOTs are different. Montclair has several PILOTs for developments that provide 100% affordable housing and help maintain our community’s socioeconomic diversity. We support those PILOTs and believe they could provide a stable source of revenue for senior services, which Montclair has failed to fund adequately.

PILOTs alone will not fix the MPS budget crisis in the long term, but they will make a significant difference today and in upcoming years. In addition, it’s fair and proper that PILOTs be shared with our schools because what makes our schools public is that we all must contribute to them. So why should wealthy landlords not pay school taxes like the rest of us?

Acknowledgment: nearly all the research for this post came from Eileen Birmingham.