City officials are on a crusade to explain the benefits of tax abatements and PILOTs (payments in lieu of taxes) and their relationship to encouraging city development, hoping to educate business leaders and residents about how Bayonne benefits from these types of tax breaks.
At meetings before Bayonne Chamber of Commerce members in the fall and winter, and at the December City Council meeting, Tax Assessor Joseph Nichols, Chief Financial Officer Terrence Malloy, Business Administrator Joseph DeMarco, and Law Director Jay Coffey sang the praises of PILOTS.
An abatement, often called a PILOT, is an agreement with the city to exempt a developer from paying regular, fluctuating property taxes. Developers often negotiate a deal to pay a stable, separate fee to the city in lieu of taxes, a payment which may sometimes be equal to or nearly equal to current taxes. Those payments benefit the city because they go straight to municipal coffers, don’t include paying school taxes, and pay only a miniscule amount to the county.
“We’re actually paying for other towns’ ‘pizza.’ So why don’t we make other towns pay for our pizza?” – Jay Coffey
Nichols, Malloy, DeMarco, and Coffey have all said that in order to entice developers to Bayonne in a very competitive real estate market the city has to use these agreements allowed by the state.
“A key rationale for PILOTs is to attract high-quality construction and development for which nearby cities are competing and which would not be built in Bayonne without the incentive of a PILOT agreement,” Nichols said.
While PILOTs benefit developers, they also benefit the city because it gets a much greater portion of the tax proceeds.
The 2015 Bayonne tax distribution percentage breakdown was 41 for schools, 42 for the municipality, and 17 for the county. With a PILOT, the percentage for the municipality increases greatly.
“The financial benefit of a PILOT agreement to the municipal budget is that it allows for 95 percent of the money paid under the PILOT to go to the municipal budget, rather than the 42 percent that would otherwise do so,” Nichols said. The other five percent goes to the county.
Because of this, over the term of the PILOT, the municipal budget would receive more money than it would under conventional taxation.
“In short, the developer pays less, but the municipal budget receives more,” Nichols said.
While many residents are against PILOTs, many projects would never get started without them, city officials said.
Nichols gave as an example the Baker Residential development at the old Hi-Hat Caterers property on West 54th Street. Originally a condominium project, it died once the market turned in 2007 and ’08 and the demand for condos flattened. It lay dormant for several years. The property has been producing only $149,000 a year in taxes, with only $62,000 of that going to Bayonne. With a PILOT, the developed property has the potential of producing $4.4 million to $5.7 million more for the municipal budget than normal taxation over the term of the PILOT.
Some deals would not get done
Another example was cited at the December City Council Meeting, when a 30-year PILOT was approved for Ingerman Development Company LLC to develop an underused property.
“The PILOT was necessary for Ingerman to go through with the project,” said DeMarco. “The company indicated that financing was contingent upon that approval.”
Using the PILOT will turn a lot that has been empty for 25 years and bringing the city only $25,000 annually in tax income into one which may make the city about $400,000 yearly in taxes.
Coffey said that the competition is so fierce that most developers won’t do projects in a town not offering incentives.
He referred to the many years that Bayonne had virtually no development at the Peninsula at Bayonne Harbor and in town as proof that PILOTs are a tool that should be used.
“We had a decade or more of evidence that developers weren’t actually knocking down our doors because other towns have been using incentives to attract development,” Coffey said. “This is because they were using these PILOT programs.”
Paying for other towns’ ‘pizza’
He said Bayonne was actually losing out all these years by not participating in the PILOT program, because towns that don’t participate pay more of a share of county taxes than they should.
Using an analogy of a group of friends eating out, with one or more of them not paying their share, Coffey said that not using PILOTs doesn’t make fiscal sense.
“We’re actually paying for other towns’ ‘pizza.’ So why don’t we make other towns pay for our pizza? If one guy’s not kicking in for his soda, everyone else has to pick up the costs,” he said. “Tax breaks cost the rest of the county. They’ve been doing it to Bayonne in spades. It’s going out of town to pay somebody else’s bills.”
Nichols and Coffey said that Bayonne would never set up any PILOT where the city would net any less money than it would get from regular tax assessment.
“In a perfect world we wouldn’t do PILOTS, but these are the rules of the game as they’re set up,” Coffey said. “We don’t like the rules, but we should take advantage of them and use them.”
Joseph Passantino may be reached at JoePass@hudsonreporter.com.