Ten years ago, the City of Bayonne was locked in a legal battle with Jersey City, claiming that Jersey City’s awarding of tax abatements to developers was unfair because it forced Bayonne residents to pay a higher share of countywide taxes.
Now, the shoe is on the other foot and Bayonne is about to get even by passing its first PILOT program to expedite new development at the former Military Ocean Terminal.
PILOT deals, short for Payments in Lieu of Taxes, are an incentive that allow developers to pay a certain amount straight to a city and sometimes skip school or county taxes. While they are seen as a tool to spur development, critics believe they shortchange the schools and/or the county.
In Bayonne’s case, the developers will pay money to the city and schools. Although county taxes will be assessed on the property, the developer will only have to pay a portion of county taxes. The rest of the impact will be spread among all of the county’s taxpayers.
The Bayonne proposal will allow developer Trammel Crow Residential to pay PILOT payments to the city over the next 30 years, and will allow the company to begin construction within the next few months.
The payments to the city would be based on the total rents the developer gets on the proposed 535 residential units slated for the Bayonne Bay District of MOTBY.
Council President Vincent Lo Re said the city’s first PILOT would allow development to begin on MOTBY at a time when residential development elsewhere has been slowed by a downturn in the economy.
“This is a big advantage to the city,” Lo Re said. “It would allow for us to start collecting something we can put into the budget, and we would sweeten the deal for the developer by not charging them county taxes.”
The developer isn’t totally immune to county taxes, partly due to a lawsuit Secaucus and Bayonne launched against Jersey City in the mid-1990s. The state modified the law, forcing abated properties to pay a portion of the county taxes.
Rules eased in 1992
While PILOT incentives have existed in the state since the 1960s, in 1992 the state legislature passed “The Business Retention Act” in reaction to a significant loss of manufacturing jobs around the state since 1979. Even with several economic recoveries in the 1980s, the state did not seem able to retain or restore loss from manufacturing and business enterprises, or the jobs these meant to local municipalities.
But Bayonne and Secaucus claimed Jersey City was being unfair by asking the taxpayers of other communities to bear the burden of a project’s county taxes.
As a result of the suit against the PILOT, Jersey City eventually paid back some of the revenues to Bayonne, Secaucus, and other communities in Hudson County.
In an effort help close the loophole, the Hudson County Freeholders, along with the state legislature, enacted additional protections so that not all of the county taxes for a PILOT will be paid by residents around the county.
“The county tax payment that Bayonne would have paid for that project will be spread out over all the assessed properties in the county, including Bayonne,” said Freeholder Bill O’Dea. “That’s why Secaucus sued Jersey City a few years ago. However, as the result of a resolution myself and then Freeholder [Vincent] Ascolese sponsored, [State Sen.] Bernie Kenny had a bill passed requiring the developer to pay an additional 5 percent to the PILOT payment, which will go to the county. Generally, a town’s county levy is approximately 20 percent of the tax bill, so they’ll save 15 percent.”
Councilman Gary La Pelusa said Bayonne has paid out for PILOTs in other cities around the county for years, and this would at least partially make up for it by pushing part of the cost of the Bayonne PILOT back onto other community’s taxpayers.
“If only Bayonne taxpayers were going to have to pay the county taxes for this PILOT, I would be against it,” he said. “But because it is being spread out throughout the county, I think it is fair.”
Councilman Anthony Chiappone also said he favored the move only if it did not put an additional tax on existing taxpayers.
Chiappone said as long as the PILOT does not have a significant impact on local taxpayers, he will support the abatement.
“This development is going to take place before any other,” he said. “This is going to plant a seed so that other development will take place later.”
Trammel Crow may not be the last PILOT since the fiscal impact statements – which detail the cost of services as opposed to the amount of taxes received from a project – do not figure county taxes. Developers in five of MOTBY’s six development districts may seek PILOT payments as well.
Look again at old agreements
Chiappone – who also serves as a member of the Bayonne Local Redevelopment Authority overseeing MOTBY development – said tentative agreements with developers for other development districts are expiring this year, and he will seek to review each project previously approved.
He said he hoped to find a way to void an agreement with Fidelco Reality for development of Harbor Station District, partly because he felt the developer has waited too long to start work, and partly because he believes that the city should put out requests for proposals to see if the city can get a better deal on the sale of land.
“The developers are coming in for extensions,” he said. “My philosophy is that I want to see solid bids. We should put out RFPs to see what’s out there. I want everything the BRLA does done in the full view of the public.”
Making the city’s best pitch to the U.S. Army
The city also made its pitch to the United States Army in early February, hoping that the $90 million the BLRA received from the sale of the Maritime development district can be used to help off set gaps in the city’s municipal budget.
“Congressman [Albio] Sires helped set up the meeting with city officials and the army,” Chiappone said.
Mayor Terrence Malloy, who went to Washington D.C. two weeks ago, said he had presented the city’s case, making it clear to U.S. Army officials that the money was being used at MOTBY for redevelopment.
“Army audits show that all the money is accounted for,” Malloy said. “It is just a complicated matter.”
Under provisions set by the U.S. Army when giving the 432-acre site to the city, money received from the sale of land had to be used to build roads and other infrastructure improvements that would allow for future development. The restriction is scheduled to be reviewed in July, and could be lifted as early as July 20. The city, however, found a way to get around the restriction. The BLRA gave the city the money from the sale – which the city used to balance the municipal budget. In order to make the funds available to the BLRA for improvements to MOTBY, the city then borrowed the same amount by issuing municipal bonds.
But the Army has said that the city should not use that money for its budget.