The five things you should know about PILOTS (that the Municipality of Princeton didn’t include in their FAQ)
Dear Editor:
As part of the justification for the approval of the recent payment in lieu of taxes (PILOT) deal for the former Tennent-Roberts campus and the Whiteley Gymnasium sites (TRW), Princeton Council has published an FAQ on the municipal website.
This FAQ has been used to make statements by the council members to the public, so I feel it is important to point out where statements are misleading or fail to provide the facts fully. While there are many such instances here are the top fice things that need correcting.
1) The town claims that the most recent TRW (Tennent-Roberts & Whiteley Gym) PILOT is justified “to make possible expensive enhancements such as underground parking, quality materials, sustainability features and stormwater mitigation that exceed state standards, and to cover the cost of amenity fees for residents in the affordable units”.
Given the density of this project, the need for underground parking is a fundamental part of the design, as is the need for stormwater enhancement due to the approval of over 70+ percent impervious surface coverage.
The underground parking was the developer’s vision. These are not expensive enhancements; they are original design elements.
The developer is essentially saying this project is not and never was viable without a $40 million tax break. The affordable units are required by law. The amenity fee for the affordable units that are included in this project represents less than 5 percent of the tax break and does not justify such an extravagant burden on Princeton taxpayers.
2) The town claims that “the Board of Education is guaranteed to receive 100 percent of its budget each year with annual increases capped at 2 percent. Changes in municipal receipts to the positive or negative do not affect that budget.”
While this is technically correct, it ignores how property taxes are calculated and paid and their impact on the taxpayers.
To understand the deception embedded in this argument, you need to understand that the schools, the town, and the county don’t manage their budget in the same way a household would. Most of the costs are fixed – personnel, insurance, healthcare, etc.. Once budgets are finalized, this amount is levied against all taxpayers as property taxes.
So, the argument that the schools will be funded whatever happens is true, but the approximately $1M that would have accrued to the schools from this development, as part of that funding must now be picked up by the taxpayers.
Including this project, it is estimated that around $140 million has been given to developers by Princeton in 30-year PILOT agreements over the past few years. Using crude simple math, based on the tax break representing 40% of taxes due, this equates to a total property tax revenue of $350M over 30 years. If half goes towards the schools, that is $175 million or an average over 30 years of $5.8 million a year that will be diverted to the municipality and the developers and will need to be picked up by taxpayers.
This is substantial and it is being obscured by the slow ramp-up of the impact of these projects. However, in a few years, it will be noticeable when the impact of more students is realized.
3) The town states “that studies conducted by the Center for Urban Policy Research at Rutgers University have shown that the number of school-age children in multi-family housing is dramatically lower than that from detached single-family dwellings.”
This statement is correct on a unit basis but crucial information is missing. For example, using the TRW development, 198 units of the total 241 units will be on the Tennent-Roberts site, which is 3.51 acres, or 56 units/acre – the second highest density for the town in developments over 20 units.
To make a comparison with a single-family home is ludicrous. The study quoted above suggests conservatively that there will be over 40 additional children added to the school system by the TRW project and over 200 if the additional 1,000 new units recently added by multi-family housing are considered.
There is a real cost to the taxpayers for giving a tax break to the developer of an individual property.
The town and developers consistently make an argument that on the margin, there is negligible impact in allowing the developers to not contribute to the school system. They assert that the extra number of children is not that large or that the school will get its money anyway. That is not how taxes are supposed to work. From what I can determine, fewer than 40 percent of the 10,000 households in Princeton have children in the school system. That means over 60 percent of households that do not have children in the school system contribute the majority of property tax funding towards the school system. Given that the impact of these households on the school system is zero, should they be allowed to make a lower contribution? We would say, of course not!
Contributing to the schools is a moral and ethical obligation that makes our community strong and desirable. It is also an issue of fairness and equal treatment.
4) The FAQ states that “the 30-year term of PILOTs provides a new, substantial, reliable source of revenue which directly supports the municipal budget, helping to keep resident taxes down”.
There have been vague public assurances that municipality taxes will be lower and that the schools will be helped. No estimates have been provided for the expected total PILOT payments that will be made to the town. Without this information, these assurances are meaningless. The town’s share of overall taxes is roughly 20 percent of the taxes of each resident’s bill, so a small reduction of that percentage will be insignificant to each taxpayer’s obligation if the school and county portions increase as a result of this agreement, which they surely will. For the town, PILOTs are no more reliable than taxes and rely on the commercial success of the project.
5) The town asserts that “upon expiration of the tax abatement the project returns to conventional taxation.”
This suggests that the tax break will eventually end, and the properties will revert to paying property taxes in full. It excludes the most relevant fact that at the end of this PiLOT agreement, which is for 30 years, the 48 affordable units will revert to the developer and will no longer be part of the town’s affordable housing inventory.
A primary justification for supporting this project has been the addition of these affordable units for the town. For this project alone we are essentially renting the 48 units over 30 years at the cost to the taxpayer of $830,000 per unit. It feels as though this is more than it would cost to build these homes and at the end of 30 years, the town would still own them.
Those units will need to be replaced once they revert to being market-rate units. How will we replace them?
What burden are we leaving for future residents?
Sincerely,
Mike Head
Is there any way to arrest and rethink this or is it too late?
Thank you.
It is hard to trust a developer who says the project is not viable without $40 million tax break. If so tell him tough luck develop elsewhere. Call his bluff, there are always other developers.
“Call his bluff” indeed. Developers have come to see Princeton as an easy target to obtain PILOTs because we’ve given so many these last 10-15 years. It’s way past time to get a staff person in Town Hall who will cast a net far and wide for a developer who is willing and able to make developments that are 30-50% affordable housing without pilots. Other towns and cities have. Why can’t Princeton?