MORRIS COUNTY — The Morris County School Boards Association convened a Zoom meeting to deliberate on PILOT programs within their respective municipalities. Over 100 members representing various Morris County school districts participated in the event. Councilman Justin Musella from Parsippany-Troy Hills was the guest speaker during the meeting.
A PILOT (Payment In Lieu Of Taxes) agreement is a contractual arrangement between a municipality and a property developer or corporation. In this agreement, the property owner agrees to make payments to the municipality instead of traditional property taxes for a specified time. These payments are typically based on a predetermined formula or percentage of the property’s assessed value. PILOT agreements are often used as incentives to encourage developing or redeveloping specific properties, particularly in areas targeted for economic revitalization or affordable housing initiatives. They provide financial predictability for developers and can help mitigate the risks associated with fluctuating property tax rates. However, PILOT agreements can also be controversial, as they may result in reduced tax revenues for local governments and school districts and lack the transparency and public oversight that traditional property tax assessments typically involve.
Musella began his presentation with an introduction to PILOT programs and contractual arrangements between local governments and developers or corporations. These agreements enable the latter to compensate the municipality through payments instead of conventional property taxes. Although frequently promoted as economic growth and urban renewal tools, Musella underscored their potential drawbacks.
Musella stated, “PILOT agreements are pyramid schemes that enrich developers and their lawyers at the detriment of local schools, town resources, and working families. These programs will be known as the biggest unforced error by municipalities, making living in New Jersey suburbs outright unaffordable for current and future generations of residents.”
The issue of PILOTS has concerned the School Boards as the rise in PILOT programs is given to developers to entice them into building projects. As hybrid work hardens from trend to new normal, office occupancy rates have hit all-time lows. Meanwhile, interest rates have spiked to historic highs. Parsippany has over 1.5 million square feet of vacant office space. With the new round of affordable housing rapidly approaching, municipalities seek developers to convert vacant office space into more feasible projects such as Warehouses. Parsippany holds the largest portion of office space within Morris County. The resurgence of office attendance has hit a roadblock: Fridays see little activity, and Mondays aren’t noticeably busier. With tenants reducing their office space, landlords are grappling with the reality that certain buildings have become outdated, if not entirely valueless. Numerous building owners now face the tough decision of investing further or cutting their losses. For some, defaulting on bank loans and relinquishing real estate may be the chosen path forward.
In addition to financial implications, Musella emphasized the lack of transparency and accountability inherent in numerous PILOT agreements. He elucidated that unlike traditional property tax assessments, which undergo public scrutiny and oversight, PILOT negotiations frequently take place in private, without sufficient input from impacted stakeholders.
In 2023, Parsippany greenlit five PILOT agreements, including 249 Pomery Road, an 85,434-square-foot dormant printing plant built in 1965. The developer proposed to convert the site into a warehouse project contingent upon receiving a PILOT.
As outlined in Parsippany’s Master Plan, the Roseland Residential Trust property at 2 and 3 Campus Drive, designated Block 202, Lots 3.12 and 3.20, was slated for need of redevelopment. The owner had endorsed plans for constructing 410 units, with 82 units allocated for affordable housing. These units were to be housed in two new multi-family apartment buildings: one intended to replace a vacant office structure at 2 Campus Drive and the other to be erected on vacant land at 3 Campus Drive. This development, including its affordable housing component, stemmed from a court settlement with Affordable Housing. However, following Roseland Residential Trust’s withdrawal from the project, Parsippany faced a dilemma. The township needed another developer to either take on the responsibility or locate a developer willing to construct the 82 affordable housing units. Avalon stepped forward, presenting a proposal to the Township Council to undertake the project in exchange for a PILOT agreement. Subsequently, the PILOT agreement was approved.
The developer of 7 Campus Drive has been approved for a PILOT (Payment In Lieu Of Taxes) agreement to develop a warehouse on a 156,000-square-foot vacant office building. The building has been identified as in need of redevelopment.
Another project granted a PILOT agreement is 6 Sylvan Way. This building, constructed in 1981, is a four-story, 195,200-square-foot Class A office building. Formerly occupied by Avis – Budget Rent-A-Car, the property was vacated in November as they relocated to a more contemporary facility on Interpace Parkway, boasting comprehensive amenities. Subsequently, a developer proposed to subdivide the property, intending to construct a Life Time Fitness facility and 280 multi-family housing units, including an affordable housing component.
Another issue facing Parsippany is the former Kmart building. According to Parsippany’s Master Plan, the owner had initially proposed to develop a total of 313 units, 63 of which will be affordable, to replace a former K-Mart store. The Courts approved this during Parsippany’s last round of affordable housing. The developer decided to convert the building into three retail stores, two of which are HomeGoods and Marshalls, which will be opening around Easter.
Parsippany is not the only municipality in Morris County to have these issues. Hanover Township, Montville, Boonton, Florham Park, and East Hanover, to name a few, are in the same dilemma. Those towns have already created PILOT programs or are in the process.
A PILOT agreement is a contract between the town and the developer. Usually, in a 30-year agreement, the Township receives 95% of the agreed revenue, and Morris County receives 5%.
Bernadette Dalesandro, President of the Morris County School Boards Association and recipient of New Jersey’s Board Member of the Year award, stated that Payment in lieu of taxes (PILOT) programs are blurring school budgets and overcrowding issues.
Mayor James Barberio said, “First, it is imperative to understand that PILOTs do not take any money away from our schools. The Board of Education receives every dime in its approved budget – whether the Township has PILOT agreements. The Board of Education’s contention that PILOTs take money away from the schools is false.”
The Parsippany Board of Education members attending the program were Board President Andy Choffo, Board Vice President Susy Golderer, Wendy Wright, Judy Mayer, Alison Cogan, Michelle Shappell, Sheethal Abraham, Susy Golderer, and Jack Raia.
“At the county level, we take on issues affecting all of our districts to inform board members and advocate for their local districts. PILOT programs, however, are a burden to the local taxpayer. When the county Association decided to do a presentation to inform board members of its potential and downfalls, we reached out to Senator Anthony Bucco and Senator Joseph Pennachio, neither of whom could present to the county. We contacted Justin Musella, a Parsippany-Troy Hills council member who has become an authority on the subject. Justin‘s presentation was informative and timely, as many county municipalities want to implement PILOT programs. If anyone needs information on a pilot program, I highly recommend contacting Justin Musella. He is highly professional and advocates for educating and informing the public of how it will affect them personally and their community,” said Dalesandro.
Andy Choffo, President of the Parsippany Board of Education, stated, “In many ways, a town is only as good as its school district. PILOT projects do remove tax revenue from a school district. The children attending school in Parsippany will suffer. This will cause short- and long-term problems that the district will have to solve. I hope that the municipal governing body in Parsippany is willing to negotiate in good faith with the Board Of Education to share in the revenue it receives from the PILOT projects that it approved without any input from the Board of Education.”
“PILOTs are not the answer to all of our problems. However, PILOT agreements can be used – and I argue — should be used — on a targeted basis to attract good quality commercial development that would otherwise not come to Parsippany and to help shape development patterns in our Township,” continued Parsippany’s Mayor James Barberio.
“The PILOTs we have negotiated will not cost taxpayers money. The opposite is true – these PILOTs will jump-start revenue to town hall from commercial projects, reducing the tax burden on our residential taxpayers. But for these PILOT agreements, these projects would not come to Parsippany. This fact exposes the fallacy in the argument made by those opposing these PILOTs. They count the money the town would never receive from ordinary taxes because those projects would never be constructed without a PILOT,” stated Mayor James Barberio.
