Morristown would reap an estimated $6.2 million in extra revenue, and the Morris School District would get virtually nothing, under a 25-year tax deal for a Morris Street redevelopment introduced Monday by the town council.
Financial analysts told council members that without this “PILOT”–short for Payments in Lieu of Taxes–Hampshire Realty could not expect a reasonable profit, and probably would scrap plans to build 85 apartments on a former oil company depot near Ridgedale Avenue.
That would mean no revenues for anyone–and the loss of 18 affordable units that would include 14 supervised apartments for people with special needs
“This is a very good thing in terms of the municipal housing obligation. And it’s a good thing, morally, I would venture to say,” town Planner Phil Abramson said of the proposed special units, an amendment to plans approved by the council in 2019 and the planning board in January.
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PILOTs enable redevelopers to skip school taxes, as an incentive to build on blighted or challenging properties. The municipality, meanwhile, pockets annual payments that exceed what it would collect if it were sharing the tax pie with schools.
Three residents objected. Richard Modzeleski compared PILOTs to the “smoke and mirrors” of vacation timeshares. Marie Rozan and Caroline Kleinman asked whether the town should be subsidizing developers at the expense of local schools.
“This is not trustworthy government. I expect more from my elected officials,” Kleinman said in an email to the council.
The vote was 6-0 for the PILOT. Councilman Michael Elms was absent.
A public hearing and final vote are scheduled for Aug. 17, 2021. The amended site plan, with its additional affordable units, also must pass muster with the planning board, town planning board Attorney John Inglesino told the virtual meeting, convened for this PILOT.
Morristown has approved at least seven PILOTs over the last decade.
‘MISSING THE POINT’
Town financial advisor Robert Powell of Nassau Capital Advisors in Princeton asserted the school district will get the money it requires, no matter what.
“Whether or not this project is subject to full taxes or a PILOT payment will have no impact whatsoever on the Morristown school budget. I want to repeat that. If this project were built with full taxes, or if it’s not built at all, or if it’s built on a PILOT…it will have no impact at all on the expense budget of the Morristown school board,” said Powell.
“So it’s important to understand that there’s nothing about a PILOT agreement that takes money away from schoolchildren,” he said.
But residents will shoulder future school tax hikes that would have been shared by the developer if not for the PILOT, First Ward Councilman Robert Iannaccone told Powell.
“I think that’s the point that you missed when you’re explaining this, and that’s the point they’re trying to make,” said Iannaccone. The councilman supported the PILOT, after pushing for the special needs apartments.
The project will cost about $34 million, Powell calculated. Hampshire will invest $11 million and borrow $23 million, he said.
If Hampshire were taxed fully, its return on investment would be 8.09 percent, “well below an acceptable rate of return in the real estate market today for a project with this degree of construction and lease-up risk,” according to Powell, who said he spent months analyzing the company’s estimated construction costs and financing.
With the PILOT, Hampshire should see “an acceptable return” of 10.59 percent, “a reasonable financial incentive to develop the project with the 18 affordable units,” Powell indicated.
That’s five more affordable units than were approved previously. And the special needs portion should go far towards satisfying the town’s affordable housing obligation. Each bedroom counts as a unit, said Abramson, explaining that this project will be credited as 28 affordable apartments.
PILOT payments are pegged to a percentage of a redeveloper’s annual gross revenues. This number is audited annually, Powell said.
The town has negotiated minimum payments, in case the Morris Street project under-performs. If it earns more than expected, payments to the town will increase proportionally, Powell said.
Payments are lower for the first four years, when the redeveloper’s risk is greatest. They escalate until the 25th year, after which the project will be taxed normally.
‘A LONG TIME COMING’
The council also heard from Russell Bershad, a lawyer with four decades of real estate experience. Redevelopment of the Jersey City waterfront has relied heavily on PILOTs, he said, adding that Morristown now faces a basic decision.
“So you have a choice of incentivizing a project, and having the project built, and enjoying the benefits of the project, and taking a non-productive or fallow piece of property and converting it into something productive, or not having the project built…(and) there will be no revenue,” Bershad said.
Could something be built on this tract without a PILOT?
“Of course it can,” said Council President Stefan Armington.
“But will it have the quality that the town has asked for, will it have all of the benefits that the town receives as a result of being part of this public /private partnership? And the answer to that is no,” he said. “So, that is the tradeoff.”
Bill Byrne of the ARC/Morris County Chapter called the special needs proposal a “win-win situation” that will empower citizens to live independent, productive lives.
“Isn’t that what it’s all about?” he asked. “This is a long time coming.”
IN OTHER BUSINESS…
Morristown has entered the “homestretch” in its negotiations to purchase the Morristown Post Office near the Green, town Administrator Jillian Barrick said.
Iannaccone pressed her for the town administration’s intended goals and projected costs for the structure, which dates to World War I.