A strong public school system is essential bedrock to a healthy community. Yet in Jersey City, our bedrock is threatened by a fiscal policy that is over-reliant on PILOTs. Here’s the crux of the problem: PILOTs help grow the city, which in turn increases demand for public schools. But PILOTed residents don’t pay school tax, leaving taxpayers to bear the burden of increased school cost. Two factors compound this problem:
(1) the city is now dependent on PILOTs to fund itself, so there is economic and political pressure to maintain the current course instead of fixing this structural problem before it grows even worse and
(2) state education aid has been flat the past several years, shifting the cost burden to local Jersey City taxpayers.
How we fund our public schools in the short and long-term is critically important. We need an open dialog about this issue. Our collective investment in the public schools speaks to the quality of our future as a community.
Let’s get civic and break it down.
PILOTs vs Regular Taxes: What’s the Difference?
A PILOT (“payment in lieu of tax”, aka abatement) is intended to alleviate blight. The idea is that the developer takes on risk by building in a blighted area. As a trade-off, the developer pays a PILOT instead of a conventional tax. The goal is: once the building is constructed, private capital and interests will help to lift the area out of blight.
There are two main differences between a regular tax and a PILOT:
(1) PILOTs avoid risk. A PILOT is a contract consisting of pre-defined payments over time (like a loan). Contrast that with a regular tax which can rise unpredictably over time.
(2) PILOTs benefit the city at expense of the schools. A PILOT pays 95% to the city and 5% to the county; the schools receive 0%. Contrast that with a regular property tax that splits the payment; in Jersey City, a property tax pays about 50% to the city, 25% to the schools, and 25% to the county.
I’ve written a series about tax abatements here if you want to read more.
PILOTs “Rob” from the School System
When used with discretion to alleviate blight, PILOTs can serve a public good. But when used without discretion to increase market rate housing in already-gentrified areas of the city, PILOTs can do real harm, particularly to the public schools.
This harm, and the difference between regular taxes and PILOTs, was first brought to my attention by then-Councilman Steven Fulop. During his 2013 mayoral campaign, Mr. Fulop criticized the PILOT policy of his predecessors and stated that PILOTs “should be allocated in equal proportions to the County, City, and Board of Education.” Mr. Fulop was criticizing a key characteristic of PILOTs: they don’t pay school tax.
But as mayor, Mr. Fulop’s actions have run counter to his promise. Since November 2013, 18 abatements have been granted(7), none of which are allocated in “equal proportions” to the city, schools, and county.
Robbing from the Schools Helps the City Pay Its Bills
Looking at city budget data informs the pressures facing Mr. Fulop and the City Council. The city has grown more reliant on PILOTs because it needs the 95% share of revenue to help fund the city budget. We can see this by looking at how the city paid its bills in 2007 versus how it’s paying them in 2015(1).
Three noticeable trends jump out:
(1) State municipal aid to the city decreased from 2007 to 2015. (Note: this is a separate bucket of state aid from what the public schools receive.)
(2) Local taxes increased over that same timeframe.
(3) PILOTs also increased.
So the city was historically reliant on state aid, but when that spigot was tightened, the city fell back on tax hikes. But tax hikes are legitimately painful and unpopular for residents. So the next best source of money for the city is PILOTs.
- Local taxes are funded by the tax base, i.e. homes and businesses that pay property tax. The 2014 assessed value of this property was $5.9 billion(2) per tax data published by NJ Department of Community Affairs.
- PILOTs are paid by abated homes and businesses. The 2014 assessed value of PILOTed property was $2.5 billion(3) per the city’s 2015 User Friendly Budget. [Note: I’ve removed affordable housing to make the comparison with the tax base more apples-to-apples.]
Another way to look at this is:
- People living in the PILOTed buildings don’t pay school tax. Instead, those families are sending 95% of their payment to the city, to help grow Jersey City.
- The foregone school tax from the PILOTed buildings is, in turn, being picked up families living in regularly taxed homes.
An Alarm Bell: State School Aid Flatlines, Jersey City School Tax Goes Up
Since 2011, state aid to Jersey City has been flat at about $420 million per year (4). Yet over this time, the local school tax levy has increased about 7.5%, from $104 million in 2011 to $112 million in 2015(5).
We can reasonably predict that school taxes will continue to go up based on the following:
- The district released a 2013 demographic report(6) predicting increased school enrollments. Increasing enrollment will, barring significant cost cutting measures, lead to increasing costs.
- Since 2013, the city has approved 18 new long-term (10+ year) abatements that are not affordable housing related(7). Eight of these abatements are in Ward E (arguably the most gentrified ward in Jersey City). We should reasonably assume some of the abated residential properties will be home to public school students. Yet these families will not pay school tax. Logically speaking, taxpayers will make up the shortfall.
Finally, we can see how problematic the city’s PILOT policy is by looking at the impact of a single PILOT. In Ward C, Mr. Fulop’s signature, 3-tower “Journal Squared” project will add 1,840 units. Yet the school district’s 2013 demographic report(8) had this to say about PS #11, the zoned school for Journal Squared:
“P.S. 11: a combination of pressures include the increasing need for dedicated learning support spaces (Basic Skills and Resource), the continuing dependence on temporary trailers inadequately sized for the observed class size, and the overall over enrollment of the school results in increased numbers of students per class (sometimes up to 150%) and a generally compromised teaching environment.”
We know that the city (not the board of education) is on record for systemically under-estimating public school students coming out of abated buildings. For instance, the city estimates that the 1,840 unit project will house only 7 students(9). This number was taken from the city’s fiscal impact reports for the Journal Squared project.
This is a complex problem and we need thoughtful dialog to arrive at meaningful solutions. A first step is coming to greater understanding and getting engaged. To that end, here are three reasonable questions every taxpayer can ask the school board, the city council, and the mayor:
(1) Why are abated residents not paying school tax like regular taxpayers, a concern that Mr. Fulop highlighted to the public when he ran for mayor in 2013?
(2) What are the projected increases in the local school tax levy in the next 1-5 years, given obligations around teachers salaries, facilities maintenance and upgrades, and other essential costs?
(3) What is the fiscal impact to local taxpayers if state aid to Jersey City decreases?
- A one-page summary of revenue data is located on Sheet 11 of each year’s budget. PILOT data is a subtotal within “Special Revenues” and can be found on Sheet 10G of each year’s budget.
- Two files at the provided link contain the “Net Taxable Value” for taxable property: (a) the “Property Tax Tables” for 2014 (the column labeled “Net Valuation Taxable” contains the noted data) and (b) the “Abstract of Ratables” for 2014 (the column labeled “Net Taxable Value”).
- To view abatement data in the “User Friendly Budget” for 2015, click the link which will download an MS Excel file. Then navigate to Tab “UFB-6 Tax Abatements”. I have also provided this data in a single-table format here.
- State aid amounts by district are available at the link provided by drilling into the year and then the district.
- See slide “P-29” in the presentation at the link provided.
- See page “i” of the Executive Summary.
- The city provides abatement data for 2014 and 2015 on its Open Data Portal. However, data is only current through January 2015. Fifteen of the 18 market rate abatements are in this data. Additionally, in November 2013 the city approved three abatements for the 3-building “Journal Squared” project (each building is a separate abatement).
- See page 14 of the report.
- I OPRA’d Fiscal Impact Statements for the Journal Squared project. Those documents are available here.
The following correction was made to this post: the zoned school for Journal Squared is PS #11, not PS #23.