Proposed N.J. Assembly Bill Allocates a Share of PILOT Funds to School Districts

As reported in the June 16, 2017 NAIOP WeekEnder, a bill is pending in the Assembly requiring five percent of each annual service charge under a PILOT agreement in connection with a residential redevelopment be remitted to the school district. At present, a municipality retains 95 percent of PILOT payments, the other five percent being remitted to the county.

Conventional real estate tax payments are divided among the town, county, school district, and some other stakeholders, such as a fire district, municipal open space, etc. The splits vary, but the school district portion is substantial, often the largest share. To use one example, in Sayreville, the 2016 allocation to the school district is 55.74%; the municipal share is 26.49% and the county share is 14.79%.

It is often contended that PILOTs are unfair to school districts because none of the PILOT payment is allocated to the school district. Indeed, school districts have challenged PILOT agreements in court. See, for example, the unreported 110 page, 2005 decision of Mercer County Assignment Judge Feinberg Hamilton Township Board of Education vs. Township of Hamilton and 240 Princeton Urban Renewal, LLC.

Whether or not PILOTs truly adversely impact school district budgets is a matter of debate. Regardless of the merits of the debate, it is fair to ask if remitting five percent of PILOTs to the school district will bring repose to the debate when the school district is receiving as much as 50 percent or more of each conventional tax dollar.

Russell B. Bershad is a Director in the Gibbons Real Property & Environmental Department.
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