PILOT 101: Morris Township decodes tax breaks ahead of Abbey vote

The Morris Township Committee explains PILOTS, Nov. 9, 2020. Screenshot by Marion Filler
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By Marion Filler

This Thursday, Nov. 12, 2020, Morris Township’s governing body will ponder whether to grant a tax break to Restoration Hardware, which has approvals to redevelop the historic Abbey as a high-end furniture showplace and restaurant.

The break is called a PILOT — short for Payments in Lieu of Taxes.  They are pitched as an incentive to developers to tackle projects that otherwise might be too formidable.

The Abbey in Morris Township.

Developers like PILOTs because they pay no school taxes and minimal county taxes. Towns like them because they pocket more revenue than they would if they were sharing payments with schools and the county.

The Township already has three PILOTs, all of them part of the Colgate redevelopment, a 49-acre Hanover Avenue parcel designed for commercial and residential use that includes affordable housing. Neighboring Morristown has awarded at least seven PILOTs, the M Station office project being the latest.

On Monday, the Township Committee held a virtual information session intended to demystify the process.

“This is PILOT 101,” said Mayor Cathy Wilson.

Jeffrey Lehrer, the Township’s redevelopment attorney, began by explaining the term PILOT actually is something of a misnomer.

Artist’s rendering of proposed Restoration Hardware plan for the Abbey in Morris Township.

It’s the common name for an Annual Service Charge (ASC) that is part of the New Jersey Long Term Tax Exceptions Law (LTTE). The ASC replaces regular property taxes.

If the PILOT for redevelopment of the Abbey goes through, Restoration Hardware will pay an annual service charge to Morris Township.

The PILOT is determined two ways, both via negotiation.

Although commercial projects are exempted from regular taxation, they must make payments based either on a percentage of total project costs, at a minimum of 2 percent, OR based on a percentage of annual gross revenue generated by the project.

Lehrer said that’s usually between 10- and 15 percent. Both methods require annual audits by the municipality to ensure the reporting is accurate.

According to law firm Sills Cummis & Gross of Newark, PILOTs can be very advantageous for towns, even when the face value of the PILOT appears to be substantially less than the amount of otherwise applicable taxes.

New Jersey’s LTTE laws allows municipalities to retain 95 percent of the Annual Service Charge. (The other 5 percent goes to the county in which the property is located.)

Typically, a municipality retains far less of each tax dollar it collects under regular taxation, because it must share those dollars the with the local school district and the county.

Officials also contended it’s a common misconception that schools are deprived of funds by PILOTs.

The school budget ultimately is determined by equalization of property values among all districts in a county.

Within the Morris School District, the Township pays 65 percent of the school budget, vs. 35 percent by Morristown, reflecting a difference in property values between the municipalities.

While the Morris School District does not receive any of the Annual Service Charge, it remains fully funded with no loss of revenue, it was emphasized at the session. Township Tax Assessor Kathryn Viarengo explained in detail the ratios that determine the percentages assessed to each municipality for school taxes.

Wilson and Deputy Mayor Jeff Grayzel left little doubt that they believe a PILOT to preserve the Abbey, also known as Alnwick Hall, is beneficial for the Township. They anticipate an influx of jobs, in addition to revenue from the PILOT

Specifics of that PILOT were not discussed. The ordinance is scheduled for a public hearing and final vote at Thursday’s virtual meeting, which starts at 7 pm and can be viewed here.

MORE ABOUT THE ABBEY

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