Drive southwest on Federal City Road just past the 1-295 North on ramp and you’ll see a vacant property that used to be a landscaping business. It’s been empty for a couple of years now and has since become somewhat of an eyesore. According to stateinfoservices.com, 87 Federal City Road generated $30,302 in property taxes in 2016.
In the process of meeting affordable housing obligations required by the state, this property, known now as Woodmont, was identified as a potential site for affordable housing and subsequently the site was confirmed as eligible for “redevelopment.”
According to the Redevelopment Handbook: A Guide to Rebuilding New Jersey’s Communities, the purpose of redevelopment is to “transform an underutilized or distressed area into an economically viable and productive part of the community.”
A redevelopment plan is essentially an ordinance on steroids that dictates what a developer can and cannot do with the property. This is good for the municipality because it keeps the developer from running amok and it’s good for the developer because it allows them go into the project with increased certainty, i.e., knowing what’s expected and what will and won’t fly, which increases their chances of a successful project.
Since this property has been designated for redevelopment, it is now eligible for a financial arrangement allowed by a New Jersey law that authorizes the Township to accept from the developer an annual service charge instead of property taxes. This is agreement is referred to as a PILOT, short for Payment In Lieu Of Taxes.
A PILOT is an agreement between a developer and the municipality that allows the developer to pay an annual service fee over a period of 30 years instead of property taxes. This arrangement makes it feasible to undertake the costly process of adding infrastructure such as tying into sewers and funding things on the redevelopment plan that the Township wants.
To be eligible for a PILOT, a developer has to prove that their investment of equity and borrowed funds are insufficient to feasibly pay for all of the costs associated with the development and construction of the project. This includes infrastructure costs such as sewer tie ins and any other costs of complying with the agreed upon redevelopment plan.
A PILOT can be extremely advantageous to a municipality. Why? Because 95% of the annual service charge goes directly to the municipality (5% goes to the County). Opposed to just 14% of property taxes it would receive under normal circumstances. That’s if the project ever got built, which without the PILOT agreement in place, it wouldn’t because it wouldn’t be financially feasible.
For example, under the PILOT agreement struck with Woodmont in late 2017, the Township will receive an estimated $829,000 in year one, once apartments are occupied. As opposed to $30,302. That is a +2,636% increasein income from that property for the Township.
Here’s another reason this is important. We know Bristol Myers Squibb is slated to move out in 2020. The municipal tax on the BMS property is $888,432.
That’s right, this one PILOT agreementwill generate almost as much revenue as the Township’s highest ratable commercial property in year one, from a property that is a fractionof its size.
But wait, there’s more. This single PILOT agreement will, over 30 years, funnel over $46 million directly into Township coffers. Compare to under $1 million if the property continued to lay fallow.
That’s not including the benefits of the project itself, which will turn a tired site into a vibrant series of apartment buildings with clubhouse perfect for young professionals looking for a great place to live (and who are likely to “trade up” within the Township as their careers develop and families are started). It also will contribute 48 integrated units toward state affordable housing requirements.
But what about the taxes that would normally go to the School District?
To answer this question, it’s important to realize that the Woodmont property is not Hopewell Township’s first PILOT project. Did you know that Capital Health was built using a PILOT? In that case, the Township was able to turn around and give the school district $400,000 to move the baseball field so they could build the turf field. The quality of our schools is a major asset to living in Hopewell Valley. It is in the Township’s best interest to share with the School District. For larger PILOTs there is the option of creating an agreement with the school district about how that share happens over time, if need be.
PILOTs also give the administration the option to make moves to ensure the Township’s long-term financial health. The concentrated influx of tax money (95% vs. 14%) gives them the option to pay down Township debt (principal repayments and interest), which now eats up a whopping 22.3% of our Township’s budget. Money that is going to pay for past purchases, not current services. Also worth noting—the PILOT money also can be used to create a hedge against future tax increases.
Redevelopment plans and PILOTs are powerful tools that should continue to be used to provide Hopewell Township with all available options and benefits moving forward. Thoughtful and well-executed Redevelopment plans in concert with PILOTs are a creative way to satisfy current state requirements to provide more affordable housing in Hopewell Township in a way that leads to win-win outcomes for residents and businesses alike, throughout Hopewell Valley.
Brandon Farms, Hopewell Township
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