PILOT for Dummies

I had a lot of nerve getting up in front of the mayor and town council of a town I no longer live in and ask them a lot of questions about taxes on a proposed development that were actually for my mother’s benefit (who’s still a resident).  True, I’m a former resident, but I was still concerned.  Big Brother was supposed to be at the meeting to deal with the hard questions, but he let me down.

What IS the deal with AvalonBay (besides its ridiculous name)?  What’s it all about?
Fortunately, someone came up with straight answers, the real numbers - and the other side of the story - regarding the Union Avenue development.

The Mayor, with the support of the Democrats on the council, has proposed that Bloomingdale participate in a program that would allow the Developer of Avalon Bay to avoid paying all of the School, and part of the County taxes, thus saving at least 18% on their tax bill for the next 30 years. Plus the program guarantees that the developer’s taxes will rise by no more than 2% per year during that 30 year period no matter how high taxes rise.

The Developer will build 174 units of mixed 1, 2 and 3-bedroom rental apartments. It costs the Board of Education about $14,000  per year per student.  If 1 in 10 of these units has a child, school enrolment will increase 2.8 percent at a cost of about $243,000. If it’s 1 in 3, school enrolment will increase 9.3 percent at a cost of about $812,000 (These cost estimates are based on data provided by the New Jersey Department of Education Comparative Spending Guide and a per pupil cost of approximately $14,000; another source puts the Cost Per Pupil at $17,951.)

Bloomingdale’s school budget is capped at a 2 percent increase per year. The probable effect of such a large, unfunded increase will be larger classes and fewer teachers. It’s a lose, lose and then lose some more proposal. When class size increases, teachers are cut and then class size increases some more. The only recourse the School Board has in the case of such a shortfall is either to cut or to ask for a tax increase by way of voter referendum or, quite possibly, to do both. Mayor Dunleavy has probably given the school board assurances that if they need extra money that the borough would give it to them, but 30 years is a very long time and even if he is sincere, governments find ways to spend every cent they get on themselves.  The more cynical view is that the Mayor wants to create more income for the municipal budget so that short term taxes can be held down below the permitted cap amount.  The mayor would look like a hero and the county and school board budgets make his look even better.

Bloomingdale’s Schools and Passaic County deserve their fair share of taxes from developers. In the last few years there have been enough huge government giveaways to banks, insurance companies and private business.

There is also the issue of the open space fund, which is currently being used to pay some DPW salaries and will shortly double in the amount collected because of the recent revaluation (from 90K to 180K per annum).  Mayor Dunleavy wants the increase; Republicans want it kept at 90k.

Q & A about the Democrats “Pilot Project”

Q: What is this Pilot Project?
A: This is supposed to be an aid to help distressed cities entice developers to redevelop in slum and other undesirable areas. Its application to Bloomingdale is based on the false premise that Bloomingdale is a blighted area where developers have to be given huge tax breaks to build. The truth is that the developer went to court and forced Bloomingdale to let them build. This project was well on its way to being built before this gimmick was proposed. This kind of tax break was never supposed to be applied to a viable project in a suburban town like Bloomingdale.

Q: Is this a good deal for the Taxpayers?
A: No. The Developer will not be paying their fair share of taxes. If any homeowner in Bloomingdale was given the opportunity to pay a lump sum once a year to the Borough at a savings of 18% they would jump at it. To put that in perspective, if a home owner pays $10,000.00 a year in taxes they would save about $1,800.00 a year in taxes and the amount would increase as taxes rose for the next 30 years. That’s a minimum of $54,000.00 that the homeowner would save over those 30 years, before factoring in tax increases or applying interest payments. A more realistic estimate, based on the last 30 years of tax increases, is the home owner would save up to $150,000.00. Nice deal but the homeowner can’t get it.

Q: How much in lost taxes will the taxpayers have to make up?
A: You can’t tell exactly because you don’t know how much taxes will rise during the next 30 years, but in the unlikely case that taxes didn’t rise and if you don’t consider interest on the amount saved it’s about 4 million dollars. Obviously the real amount will be will be much more and could really skyrocket if the tax rate rises. A ballpark estimate would be anything up to 10 million.

Q: Why do the Mayor  & Democrat council members like this deal so much?

A: Because they get to control all but 5 percent of the reduced payment, creating a large slush fund for them to dole out as they see fit. If the tax bill was paid normally the Municipality would get about 21 percent of the taxes collected, but under this arrangement that jumps to about 77 percent. Of course the School Board would get none of the 55 percent or so of the taxes that would be paid and the county would get only 5 percent of the amount they are entitled to. The Mayor’s municipal budget would receive a boost and the School Board, County and taxpayers would get shafted.  Any way you cut it, if the developers are allowed to avoid paying their fair share of taxes the rest of the taxpayers have to make up the difference.

Q: What effect could this have on our schools?
 A: It would be very detrimental.  Enrollment would increase without any secure source of funding and this would continue for 30 years.

Q: Isn’t the taxpayer protected to some extent by the 2 percent cap on spending?
A: Right now there is a 2 percent cap, which means that with certain exceptions, budgets can only increase 2 percent from year to year, but this can be changed or eliminated by the State Legislature at any time and almost certainly will over the next 30 years.  Under the program the Developers are guaranteed that their already lowered taxes will not rise more than 2 percent per year for 30 years no matter what happens.
That’s the bottom line on the PILOT (Payment In Lieu Of Taxes) program for AvalonBay.