On Monday night, the South Orange-Maplewood Board of Education passed a resolution requesting greater transparency regarding PILOTs — or “payments in lieu of taxes” which are often used by municipalities to incentivize major developments.
Both Maplewood and South Orange have recently awarded or are considering awarding a number of PILOTs for housing developments. However, while the municipalities receive funds from these PILOTs, the school district does not. Municipal leaders have argued that the PILOTs are necessary to incentivize developments which, in turn, keep the towns vibrant and maintain and improve the value of taxable properties.
In January, Board of Education member and former president Beth Daugherty told The Village Green that the benefit of developments paying taxes instead of a PILOT would help the South Orange-Maplewood School District in “that now our 2% school tax levy would be less painful because it would be spread across a bigger tax base of more homeowners and more business owners.”
On Monday, Finance Facilities & Technology Committee Chair Stephanie Lawson-Muhammad explained to the Board that the resolution was crafted in order to be sent to the national Governmental Accounting Standards Board which is proposing new rules for state and local governments “to report on the costs of tax-based economic development subsidies.” Public comments on the proposed standards were invited through January 29, 2015. Although the Board of Education missed that deadline due to the cancellation of its last meeting, Lawson-Muhammad said she hoped the GASB would still consider the resolution.
“As board members we are all well aware that our communities — in order to encourage the development — often offer PILOTs or payments in lieu of taxes, which ultimately means that our district does not get tax funding.” Lawson-Muhammad further explained, “The general thought is that those buildings are not going to have large populations of students but it is something that we closely monitor and at least want the transparency of when these are being put in place.”
She continued, “We are asking that they just insure that if a PILOT is awarded during a contract period that it be transparent because at this point often times it is very difficult to go back and figure out when it has been when it hasn’t been — so as we do our budget analysis we are understanding the tax implications of these awards.”
Johanna Wright asked Lawson-Muhammad if the committee had reached out to either municipality regarding the resolution, noting that she felt that South Orange was very transparent.
Lawson-Muhammad said the committee had not.
“It is simply something that we are sharing that there should be transparency.” Lawson-Muhammad noted that the resolution was brought to the committee by the Maplewood CBAC (Citizens Budget Advisory Committee).
Board member Elizabeth Baker interjected, “I don’t think this is a criticism of our towns. Those packages have consequences for our schools as well as for the other tax payers who are burdened. When a new development isn’t paying taxes, the tax burden that is needed to fund the district is borne by you and me and everybody else paying taxes because the need is still there. It’s apportioned among fewer people.”
Baker added, “It’s not a position on whether or not a PILOT or abatement is good or bad.” Rather, she explained, it’s “so that everybody knows what the package is and what the burden is that is externalized to other taxpayers including people who are having a hard time continuing to living in these towns because of the tax burdens.”
During public comments, former Board of Education member and Chair of the Maplewood Citizens Budget Advisory Committee-Schools Subcommittee Stephen Latz applauded the Board’s action.
“Nationally, there are about $70 billion in such tax abatements every year,” said Latz. “In New Jersey, it’s hundreds of millions, and locally — between both towns — certainly in the millions. What that means is that, at current tax rates, the total tax levy for the schools would be a lot higher. Over time, it would mean that homeowner’s tax rates attributable to the school budgets would be lower because a lot of properties currently off the rolls — due to PILOTs and other forms of tax abatements — would be on the rolls.”
Daugherty raised concerns about the practice of awarding PILOTs in a budget meeting last spring and made additional comments to The Village Green last month. At that time, Daugherty offered a potential compromise: “[I]f the towns feel they need to offer PILOTs for economic development,” said Daugherty, she knew of no reason why PILOTs could not include contributions to school districts. “When future PILOTs are granted, I’d love to see us discuss contributions to the school district.”
The resolution passed by a vote of 7-1, with Wright voting against adoption.
The resolution reads:
WHEREAS, the school district’s tax levy represents over 57% of the total local tax levy; and
WHEREAS, the local tax burden, on an equalized basis, Is regularly among the top twenty in the state of New Jersey; and
WHEREAS, a number of large properties are off the tax rolls for purposes of the school tax levy due to tax abatements granted over the years by the South Orange Village Trustees or the Maplewood Township Committee to local developers in the form of “Payment in Lieu of Taxes” arrangements (known as “PILOT” agreements); and
WHEREAS, this places an additional marginal burden on other property owners; and
WHEREAS, the Governmental Accounting Standards Board is proposing new rules for state and local governments to report on the costs of tax-based economic development subsidies, with public comments on the proposed standards invited through January 29, 2015; and
WHEREAS, the current draft standard fails to require the inclusion of such PILOT agreements in the contemplated reporting;
NOW, THEREFORE, BE IT RESOLVED that the Board of Education urges the Governmental Accounting Standards Board to reconsider and require the reporting of all such PILOT agreements as part of the new standard, and that it further require the reporting of the specific private entities and the amounts of tax abatement they have received; and
BE IT FURTHER RESOLVED that the Board of Education directs the Board Secretary to submit a copy of this resolution through the appropriate channels to the Governmental Accounting Standards Board before the close of the comment period.
The Governmental Accounting Standards Board defines all of the financial reporting standards for state and local governments. Individual states enshrine GASB standards in subsequent statute and regulation. The contemplated GASB standard may take effect as early as 2017, but may take multiple years after that date for implementing state regulation. The impact of the resulting regulations will be to require municipal governments to reveal, in their annual financial reporting, the amounts of all tax abatements, and the amount by which other taxpayers’ rates might be reduced were those abatements not in force.