Senate Committee Passes Bill on Municipal Tax Abatements; Would Require Cost-Benefit Analysis Before Local Tax Breaks Are Approved

Legislation sponsored by Senator Troy Singleton, Senate President Steve Sweeney and Senator Brian Stack that would require a cost-benefit analysis before an application for a long term property tax exemption is approved by municipalities cleared the Senate Budget and Appropriations Committee yesterday. The analysis would provide information on the net impact on local revenue if tax breaks are granted for new development projects.

Many New Jersey municipalities use long-term tax abatements to attract local development projects and help generate economic activity. The agreements, intended for projects in areas in need of redevelopment, replace local property taxes with payments-in-lieu-of-taxes, known as PILOT payments. The written financial agreements outline the payments for a specified period of time, usually 30 years. All abatements are required to reflect the same tax dollar distribution breakout percentage as opposed to the current requirement of 95 percent to the municipality and 5 percent to the county.

“These tax abatements are intended to provide incentives for new projects that will create jobs and generate economic opportunities in our communities,” said Senator Singleton (D-Burlington). “There should be an immediate or long-term financial gain for the municipality and its residents. Otherwise, the favorable treatment of reduced payments will help the developer at the expense of taxpayers.”

The bill, S-1701, would ensure that municipalities consider and evaluate whether an investment in a redevelopment project with a long-term property tax exemption would generate satisfactory revenue returns to the municipality.

“The cost-benefit analysis will show how abatements affect local and county entities,” said Senator Sweeney (D-Cumberland/Gloucester/Salem). “This includes effects to schools and its impact on the equalization aid component within New Jersey’s current school funding formula. The bill ensures that all parties receive an equal share of the tax abatements.”

The bill would require an abatement applicant to include a cost-benefit analysis and the mayor to produce an independent analysis to be submitted along with the application to the municipal governing body before it could be decided upon. The analysis would have to include the financial impact on the county, the local schools district and any other affected local government. The analysis would also include the impact of the exemption on school funding, and in particular, its impact on the equalization aid component of the current school funding formula. The report would have to be made available to the public, including the municipal and state websites.

The process of awarding long term abatements is governed by local ordinances and by state law, but the decision-making process lies squarely with the mayors or chief executives of the municipality and they often make the agreement with the developer without input from the county or school district. The PILOT agreement often directs all payments to the municipality, denying the counties and schools their share of funds from property taxes.

Municipalities are required to file copies of all financial agreements permitting short-and-long-term property tax abatements and exemptions with the county’s chief financial officer and county counsel, within 10 days of adoption.

The bill was released from committee by a vote of 12-0, and next heads to the full Senate for further consideration.

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