Presentation for Trends in Redevelopment Finance session.

1. PILOTS & RABS
REDEVELOPMENT TOOLS
Valerie Jackson
Redevelopment Finance

2. What is a PILOT
 A PILOT, or payment in lieu of tax, is an amount that a
property owner pays to the Township pursuant to a financial
agreement instead of paying generally applicable real estate
taxes on the improvement portion of their property.
 In most instances property owners continue to pay real
estate taxes on the land portion of their property.
 The amounts due on the PILOT are a municipal lien and
collected in the same manner as property taxes.
 After the expiration of the PILOT Agreement the property
pays conventional taxes.

3. Purpose of a PILOT
 PILOTs are used in redevelopment projects in order to
attract redevelopers by offering an alternative to
conventional ad valorem taxes.
 In the current economic climate, redevelopment
projects are frequently unable to attract private
investment without assistance from the local
government entity in the form of PILOT agreements
or, in some cases, bond financing.
 The combination of risk associated with
redevelopment projects and uncertainty of
conventional taxes make marginal projects difficult to
finance.

4. Common Misconceptions
 PILOT = No Taxes
 Under a PILOT agreement the property owner is still paying taxes, they are
simply calculated differently.
 Under a PILOT, the City receives significantly less revenue than under conventional
taxes.
• The amount received through the PILOT is often equal or more than the amount
the Township would receive under conventional taxes.
 The additional costs of services associated with the project exceed the PILOT
revenue.
• A PILOT must provide a net benefit to the municipality.
 PILOTs cause an increase in property taxes for existing residents.
• Offering a PILOT does not put any additional burden on the residents of the
municipality. All additional municipal costs are typically covered by the PILOT
and there are built in escalators to ensure the payments increase over time. A
PILOT should decrease or stabilize costs to current taxpayers.

5. Project Example
Conventional Taxes PILOT
Annual Gross Revenue
$
10,000,000 Annual Gross Revenue
$
10,000,000
Operating Expenses
$
(2,500,000) Operating Expenses
$
(2,500,000)
Net Operating Income w/o
Taxes
$
7,500,000
Net Operating Income w/o
Taxes
$
7,500,000
Conventional Taxes
$
(2,500,000)
Annual Service Charges
(PILOT)
$
(1,000,000)
$
5,000,000
$
6,500,000
Effective Tax Rate 3.00% Effective Tax Rate 1.20%
Cap Rate 6.00% Cap Rate 6.00%
Total 9.00% Total 7.20%
Project Value
$
83,333,333 Project Value
$
104,166,667
Project Cost
$
100,000,000 Project Cost
$
100,000,000
Net Value
$
(16,666,667) Net Value
$
4,166,667
Yield on Cost 5.00% Yield on Cost 6.50%
The Yield and Internal Rate of Return under
conventional taxes would be insufficient to
attract private capital.
The PILOT creates sufficient economic
incentive for investment.

6. What is a RAB
 Modeled after the Large Site Landfill Reclamation and Improvement Law which was used in
connection with Jersey Gardens
 Allows for pledge of PILOTs or special assessments to bondholders, subject to Local Finance
Board approval
 Pledge may be in lieu of or in addition to municipal security
 The RAB is a tool that can provide additional assistance through a reduced PILOT or a larger
securitization of PILOTs to make investments in a redevelopment project that cannot be funded
through a traditional PILOT structure

7. RAB Examples
 Bayonne Crossing clean up of 40 acres of contaminated land and
provide infrastructure improvements necessary
to cause redevelopment
 Asbury Park created mechanism for $40 million of infrastructure
improvements that allowed for the redevelopment of blighted
waterfront that had no redevelopment for decades
 Journal Squared caused the first major project in Journal Square for a
generation that included 540 residential units as well as retail
space and a new plaza entry to the Journal Square PATH Station
 EO Hospital caused over $40M in much needed capital improvements at East
Orange General Hospital

8. Conclusion
 PILOTS/RAB
 Only financial incentive available at the municipal
level
 Necessary to assist in closing project financing
gaps
 Other financing incentives still needed
 Tax credits
 Federal and state economic incentive programs