Dear Editor:
Observers of Parsippany Town Council Meetings are used to spirited debate but can be forgiven for being caught off guard by the surprises on December 16.
In Tuesday’s Town Council meeting, Alison Cogan, the President of the Parsippany Board of Education (BOE), made a statement regarding the two PILOT Projects to be considered and voted on in Tuesday’s meeting. Among the important points made:
• This Ordinance could produce 400 students in addition to students from prior PILOT agreements.
• The BOE has tried unsuccessfully for the last two years, to reach agreement with the town on a revenue sharing agreement.
• There is no evidence that the financial incentive of a PILOT is necessary to redevelop under the existing Redevelopment Plan.
• No financial agreement supporting the proposed Ordinance was made available to the public before the meeting.
• Voting on this PILOT with no opportunity to review the underlying Financial Agreement and without any revenue-sharing agreement with the BOE in place is improper, premature, short-sighted, and is not in the best interest of Parsippany.
After Mrs. Cogan spoke, the audience was treated to Council President Carifi’s statement. It was then the audience learned of the great altruism of the Parq developer. According to Mr. Carifi, the developer offered to give land to the BOE and there would be PILOT money to build a new state-of-the-art school and the BOE said no. There was nothing to say ‘No” to as no details of this great generosity were provided in writing by the town, for the BOE to consider but it did provide a good talking point for Mr. Carifi.
Mr. Carifi further mentioned the $10K per student offer the town had submitted to the BOE in May. That offer did not include 1515 Route 10, nor were future PILOT’s included. Contrary to Mr. Carifi’s claim, the BOE did not say no to this offer but before responding with a counter proposal, an OPRA request was sent to the town on June 4 for PILOT contracts the town had with developers. Normally the deadline for responding to an OPRA request is 10 days. However, the town requested an extension to July 8. A response merely required electronic copies of existing contracts, which were already stored electronically. After the contracts were received on July 8, a counter proposal for $15K per student was submitted by the BOE that would include 1515 Route 10 and future PILOTs. The Mayor and the town chose to not respond to the counteroffer by the BOE until November, conveniently after the election. Once the Mayor responded at 4:00 pm on December 15, his counter of $12K per student was so riddled with caps and contingencies as to be unacceptable to all 9 members of the BOE.
The town has consistently used delay tactics such as bogus audit requests to get past milestones such as primaries, elections, and an alleged immunity deadline to to ram through a deal that benefits the town at the expense of the school district. These tactics are not consistent with a collaborative relationship.
The building of a school is not only a more expensive and front-loaded project than educating students, but the building of the school does nothing to alleviate the recurring costs to educate a child over the 30-year term of the PILOT. The school district requires an increased revenue stream in the form of a per student agreement that aligns closely with the additional costs incurred by the school district. Why would anyone think the town would make a larger contribution in PILOT funds for a school when they had to be dragged kicking and screaming to enter into a smaller revenue per student agreement sought by the BOE?
A major shortcoming in the Town Council meeting was the refusal to provide financial information on the PILOTs to the public in advance of the meeting. Even without those numbers, problems were apparent. First the claim by the financial expert, Michael Hawley of NW Financial Group, who cited the projected Internal Rate of Return (IRR) of 4.65%. He asserted the IRR on the project is below the risk-free rate of return and therefore unacceptable. While he is correct in principle that an IRR below the risk-free rate of return is unacceptable and should not be pursued, the estimated IRR of 4.65% is currently above the current risk-free rate of return of 4.13%. Under the widely used Capital Asset Pricing Model (CAPM), the risk-free rate usually employed to calculate the price of an asset is the interest rate on 10 Year US Government Bonds. The current interest rate on the 10-Year Bond is 4.13%. While an IRR of 4.65% is not particularly robust, it is demonstrably more than 4.13%. While it is likely the yield on the 10-year bond was higher when the forecast was prepared than it is now, that number was not disclosed. The forecast should have been updated to reflect the current risk-free rate as the return on the project would be higher.
Some of the questions that could have been asked if the public had received the projections in advance include:
• What discount rate was used? The higher the discount rate, the lower is the Project Value.
• Why aren’t there preferred lending rates on PILOT projects that would transfer a portion of the cost away from the school district to lenders?
• Were accelerated depreciation schedules incorporated into the forecast? That has a positive impact on taxable income
• The rep of NW Financial cited that the Net Operating Income was divided by 5% (which is a back of the envelope way to calculate the value of an asset into perpetuity) to arrive at Project Value. However, dividing $23,273,328 by 5% is not $423,151,412, it is $465,466,560. Why the $42.3 million difference?
There was also discussion of the significant difference cited between 400 projected students vs. 151 per the Rutgers study. That uncertainty is why the BOE has long sought a shared revenue per student agreement with the town. The following items were up for negotiation.
• The amount per student attending school and living in a PILOT project.
• Limitations on the total amount paid (Caps on the payout to the schools?)
• What PILOT projects are included and not included in the revenue share
• Are future PILOT’s (including the PILOT just voted on) included in the revenue share?
State legislators realize the flaws in the PILOT legislation. S3915 seeks to provide a remedy to the flawed tax abatement legislation by Requiring “municipalities to share certain payments in lieu of property taxes with school districts; informs counties, school districts, and DCA of certain information related to property tax exemptions and abatements.”
Usually missing from the vocabulary of politicians is “priority.” The Mayor and the Town Council have never put out a vision of what they plan to do with the extra money they are receiving with the PILOT money, at least not publicly. Whatever they have in mind, they consider it a higher priority than education so the public should know what that priority is, to decide if it is more important than education. Given the lack of transparency and collaboration from the town, the incoming administration faces a low bar to clear.
Jack Raia
