Senator says municipal tax abatements still unregulated and not transparent

State Sen. Joe Pennacchio Monday decried the use of tax abatements to lure development to municipalities saying many of the recommendations made in a 2010 State Comptroller’s report have never been adopted.

Pennacchio echoed the 2010 report from Comptroller Matthew Boxer, saying the abatements, known as Payment in Lieu of Taxes programs are detrimental to school districts and local taxpayers and should be more heavily monitored and regulated by the state.

 “State Comptroller Boxer was extremely clear in his executive summary stating that Payments in lieu of Taxes (PILOTS) shortchange school districts and the taxpayers by hundreds of millions of dollars,” Pennacchio said in a statement following the Senate Budget committee’s hearing on the Department of Education budget.  “The Comptroller’s report further states that municipalities often pursue tax abatements and PILOTS for direct monetary gain, creating a windfall that does not benefit local schools.”

In August, Boxer issued a report critical of the process and calling for better oversight of the process. In his report, Boxer said the total amount of tax revenue given up in exchange for PILOTS amounts to “hundreds of millions of dollars.” PILOTS are governed by weak, opaque parameters and stakeholders are not adequately included.

According to the report just 20 municipalities throughout the state use PILOTs with any frequency, however, Boxer said the small number should not disguise the expanse of the problem.

The municipalities, which include Trenton, Atlantic City, Newark, Asbury Park and Bayonne are among the state’s most populous. In addition, Boxer said, the underfunding of schools that results from PILOTs becomes the burden of all taxpayers in the form of increased state aid.

Under abatement plans, the municipality receives 95 percent of all PILOT money with the remainder going to the county government.  School districts receive none of the money under the agreements, which can go out as long as 30 years.

“While abatement of taxes otherwise owed is uniformly positive from the perspective of the developer, it results, at least in the short term, in lost revenue for government entities,” Boxer wrote.  “In addition, these financial arrangements can create tax inequity and present opportunities for unfair favoritism or cronyism.  Given these concerns, municipalities’ use of abatements warrants scrutiny, particularly in ensuring that the abatement of taxes actually is necessary to spur the property owner’s investment.”

Pennacchio vowed to work to implement Boxer’s recommendations as part of the budget process.

  Senator says municipal tax abatements still unregulated and not transparent