Foodtown Lot Tax Break Possibility Draws Scrutiny

Providing a tax break to developers to build on otherwise undesirable properties is a way to – in the end – generate tax revenue. But should a tax abatement plan be used at the former Foodtown site on Route 70 in Brick?

Some residents took aim at the option of entering into a so-called Payment in Lieu of Taxes, or PILOT, program with the township's chosen redeveloper of the former supermarket site at a township council meeting Tuesday which included an information session on the program.

The PILOT program is relatively self-explanatory: the redeveloper of a piece of land is exempt from traditional property taxes for a set period between 10 and 30 years, and instead makes an annual set payment to the municipality.

The option has upside and downside, according to those familiar with the practice. The pros of PILOT programs include making a blighted or undesirable site more attractive to a redeveloper, and keeping the revenue within the municipality, since the county would only receive 5 percent of the payment, rather than more than 20 percent on a traditional tax bill. The cons include the potential for the money to be directed only to the municipality instead of the local school district, despite the potential for more students to be added to local schools if the project is residential.

"Redevelopment projects often carry a greater risk and are more expensive to develop, so the PILOT encourages redevelopment," said Chuck Liebling, an attorney who represents Brick Township in redevelopment efforts. "They would pay less under a PILOT than regular property taxes."

According to Liebling, the dollar amount paid under a PILOT is calculated in two different ways when there are no bonds involved (there wouldn't be on the Foodtown project): The township can set the payment to represent a minimum of 10 percent of the annual gross revenues the project generates, or a minimum of 2 percent of total project costs.

Increases over the PILOT period are also usually worked in, said Liebling.

Last month, M&M Realty Partners, the site's redeveloper, requested the township council allow them to build 192 condominiums, about 70 rental units and 19,000 feet of commercial space at the site. The current redevelopment plan calls for a hotel and banquet facility to be built there.

M&M claims the hotel plan is not viable. The township council has not yet decided whether or not the redevelopment plan should be changed.

Liebling's estimates for the Foodtown project – under the newly proposed plan by M&M – include a $592,972 annual tax payment under the first option and approximately $1 million under the second option, assuming the project's cost is about $50 million. The first figure was estimated based on a combination of the commercial rental space, residential rental space and a formula based on the value of the condominiums.

Under traditional property taxes, however, the site would generate about $1.3 million per year, Liebling said, though that figure would have to be shared with the county and several other county taxing authorities, including the health department and library system.

The township can share its portion of the revenue generated under the PILOT with the local school district, though it is not required to do so. The township council would determine how much, if any, of the money would go toward the schools.

"It basically becomes a budget line item," said Liebling.

The subject of school districts missing out on potential tax revenue was the subject of a 2010 report by the New Jersey Office of the State Comptroller. The report cited a "race to abate" by towns in order to attract development statewide, and warned that school districts often end up on the losing end of the deal.

School districts "lose out on the municipality's new wealth," the report said.

The report did acknowledge, however, that tax incentives have often worked to create jobs and revitalize communities that are struggling.

"Abatements should be granted only when the public at large will come out the winner," said Comptroller A. Matthew Boxer, in the report.

Business Administrator Scott Pezarras said the decision to use a PILOT program instead of simply charging traditional property tax rates is one of simple economics. If taxes are too high, a redeveloper may only be willing to pay a lower price for a lot, if he wants it at all. Further, a redeveloper may be less willing to take a chance on a project that a municipality would prefer.

"He has to make the project work financially," said Pezarras, of any redeveloper.

"The governing body has a fiduciary responsibility to represent the residents here," said John Zingis, a township resident who formerly served as a Point Pleasant Borough councilman. "We all own a piece of this parcel."

For resident George Scott, it's all about the numbers.

"If those taxes were, in effect, the way that they should be, the school board would be getting $628,355," he said. "The taxpayer is eating another $600,000, and we can't afford to do that. I don't want to be subsidizing M&M."

Some residents also doubted M&M's target price of about $300,000 for the condominiums on the site, or $1,625 monthly rental prices. In the first option presented by Liebling, the prices of the units could affect the PILOT amount.

"Who is going to rent an apartment over a store on Route 70 for $1,625 a month?" asked Kathy Erickson.

Liebling said he has not had any discussions with M&M on the prospect of a PILOT program.

Likewise, council members said they have not decided to change the redevelopment plan.

"As far as we're concerned, we have a development agreement in place right now," said Councilman Domenick Brando. "We can't stop them from coming in and asking us for changes, and that's all they did. Nobody is saying, 'we're going to be doing this.' They just came in and asked."