Toward More Equitable Gloucester Township Tax Abatements

As a concept, Tax Abatements and Payments In Lieu of Taxes (PILOTs) are not necessarily bad incentive tools for municipalities. These exemptions to certain taxes can achieve what they were originally designed for: to encourage businesses and developers to improve existing properties or to locate a business in a distressed or blighted area while supporting economic and community development in those municipalities.

The problems arise when these tools are put into practice. Previous postings of The Kola Files here on the Gloucester Township Patch have explored tax abatements and PILOTs in general, Gloucester Township’s previous use of these programs, and how Millville, New Jersey, crafted their tax incentives to ensure that the original goals of their tax abatements and PILOTs are achieved and detrimental affects are minimized.

While it is somewhat reassuring that Gloucester Township Council Vice President Orlando Mercado has been quoted as saying, "This governing body is against offering any PILOT to the developer" of the Gloucester Premium Outlets, the taxpayers of Gloucester Township do not know for certain whether the PILOT will be denied until the developers actually apply for the tax relief. No matter the outcome for the Gloucester Premium Outlets specifically, tax abatements and PILOTs will continue to play an important but controversial role in future development of the Township.

So how do Gloucester Township’s taxpayers and elected officials ensure that future tax abatements and PILOTs are equitable to all of the interested parties (the taxpayers and residents of Gloucester Township and Camden County, the local school boards, and the businesses and developers who are seeking the tax abatements and PILOTs)?

Suggestions for improving Gloucester Township’s tax abatement and PILOT ordinances can be found in the 2010 report, A Programmatic Examination of Municipal Tax Abatements* by New Jersey State Comptroller A. Matthew Boxer. As the report states, there are “identifiable best practices that can help reduce waste, ensure fairness, and support the benefits of tax abatements.”

Some ideas would have to be implemented by the New Jersey State Legislature and Governor, such as allowing PILOT collections to be split along the same distribution lines and percentages as normal tax collections. However, both the Five-Year Exemption and Abatement Law and the Long Term Tax Exemption Law as currently written provide local municipalities with broad discretion in how they structure and execute their tax abatement and PILOT ordinances.

Gloucester Township can ensure fairness of its five-year tax abatement and PILOT ordinances by incorporating the following recommendations, as endorsed by the New Jersey State Comptroller:

Grant abatements only when necessary to attract development that otherwise would not occur.

•  Limit abatements to areas that are truly in need of rehabilitation or redevelopment.
• Abatements should not be any more generous than is necessary to attract the development sought.
• Stronger criteria and processes should be set forth in the local Township ordinances in advance to ensure that abatement applications adhere to appropriate standards to receive approval.
• Require five-year tax abatement and PILOT applications to be filed with the initial land development or redevelopment application and approved or denied before construction can begin.

Directly involve all affected stakeholders in the abatement decision-making process through notifications and a Gloucester Township Tax Abatement Committee.

• All interested stakeholders should be directly notified of a potential abatement and afforded a meaningful opportunity to provide input to ensure that all costs are considered and all interests are represented.
• Foster more general public discussion by holding a Township Community Meeting at the earliest stage in the redevelopment process to focus on the cost of the abatement and its desired outcomes.
• The formation of a Tax Abatement Committee that would include nonvoting representation by both the affected school board districts and the Township Tax Assessor.
• Hold a public referendum on large-scale PILOT projects. If a developer is asking for a PILOT lasting between seven and thirty-five years, the residents of Gloucester Township should have the final say in its approval, as they would be the ones making up the proportion of tax normally paid by the project’s developer.

Conduct a robust full cost-benefit analysis for any potential tax abatement deal to ensure that all issues are considered and expected outcomes are reasonably assured and worthwhile.

• The cost-benefit analyses would include consideration of any losses in ratable property that would be suffered by the Township, the county, and the local school district, as well as the resulting revenue implications; consideration of the necessity of the abatement for attracting the project; and  justification for the length of the abatement period, the community benefits in both the short and long terms, and the relationship between the potential benefits and community needs.
• Make the cost-benefit analysis for a particular abatement publicly and easily available on the Township’s official website.

Follow up throughout the abatement period to verify fulfillment of the agreement terms.

• Include in the abatement agreement enforceable provisions that would permit rescission of the agreement, imposition of penalties, or other remedial measures that the Township can take in situations where the developer fails to fulfill its obligations.
• Publish abatement agreements and straightforward follow-up performance evaluations in a transparent manner on the Township’s official website to allow the public to compare these agreements and see whether the mandates are being met.
• Periodically review the areas designated “in need of redevelopment” to track progress on previously identified blighted conditions. If the conditions have been remedied, then the “in need of redevelopment” classification should be removed and the area returned to the regular tax assessment base.

The above recommendations should help promote a more equitable use of tax abatements and PILOT programs in Gloucester Township, because, as the 2010 state report on Municipal Tax Abatements concludes:

“Any abatement program should be crafted carefully and should be designed to minimize the negative effects of resulting tax inequities. Tax abatements offer relief only to a selected subset of taxpayers, using the political process to shift tax burdens. Because these tax exemptions break from equitable tax principles, they should be exercised sparingly and only if they offer a considered and tailored solution.”

* The full report can be viewed, and a PDF downloaded, at http://www.state.nj.us/comptroller/news/docs/tax_abatement_report.pdf.

Next time: 

Gloucester Premium Outlets – Perils & Potential                                               Part I: Perils