What Is a PILOT Program?

A plain-English guide for New Jersey residents

PILOTs come up whenever a development deal is discussed: on a banner, in an official announcement, or in a Facebook thread.

The basics

What does PILOT stand for? Payment In Lieu Of Taxes. It is an alternative to standard property taxation, negotiated between a municipality and a developer.

How does it normally work? Normally a property owner pays property taxes based on the assessed value of the land and any improvements (buildings, infrastructure). Under a PILOT, the developer instead pays a fixed annual fee, negotiated in advance, that is generally lower than standard property taxes.

Source: EisnerAmper, eisneramper.com

Why would a town agree? The idea is that a below-market tax rate incentivizes development that might not otherwise happen, particularly on vacant, underutilized, or contaminated properties. Some revenue from a developed property beats no revenue from a vacant one.

Why would a developer want one? A reduced annual payment improves project returns. For large commercial developments, the difference between full property taxes and a PILOT can be millions over the life of the agreement.

How the money gets divided

Where do PILOT payments go? In NJ, the split is set by state law:

• 95% to the municipality
• 5% to the county

Source: Planet Princeton / PKF O'Connor Davies, planetprinceton.com

What about the school district? This is the most significant and contested aspect: the local school district receives nothing from a PILOT agreement. Zero. Under normal property taxation, a portion of every tax bill funds local schools. Under a PILOT, that portion simply doesn't exist. The developer still pays taxes on the land itself (not the buildings), but school-tax revenue from the improvements is entirely absent for the duration of the agreement.

Source: PKF O'Connor Davies, pkfod.com

Who has raised concerns? The New Jersey Education Association (NJEA) has publicly called for legislation requiring municipalities to share PILOT payments with school districts. The concern: as development raises enrollment and costs, the school district sees no additional revenue from the development that caused the growth.

How long do PILOTs last?

• Five-Year Exemption: maximum 5 years; smaller/shorter projects.
• Long-Term Tax Exemption: generally 10 to 30 years upon completion. Requires final approval from the NJ Department of Community Affairs (DCA) in addition to the municipality.

Source: EisnerAmper, eisneramper.com

The debate: are PILOTs good policy?

Genuinely contested. The main arguments:

In favor:

• Can attract development to properties that would otherwise sit vacant, generating no tax revenue.
• Redeveloping a blighted or contaminated site can benefit the community even below market rate.
• Municipalities retain more revenue (95%) than under some other incentive structures.
• Development can bring jobs and economic activity.

Against / for reform:

• The school district, which bears real costs from growth, receives nothing.
• Payments are generally lower than full property taxes, so the community subsidizes private profit.
• Negotiation happens between town and developer without mandatory public input.
• Long-term (10–30 yr) agreements lock in terms future residents and officials can't change.
• NJ's State Comptroller has noted PILOT agreements "have been extremely lucrative for developers over time."

Sources: PKF O'Connor Davies, pkfod.com; NJ TOD Newsletter, njtod.org

What to ask when a PILOT is part of a local deal

1. What is the annual PILOT payment, and how does it compare to full property taxes?
2. How long does the agreement run: 10 years? 20? 30?
3. Has the school district been consulted, and are they aware they receive nothing?
4. What was the basis for the amount: a percentage of revenue, construction costs, something else?
5. Is the agreement subject to public review and comment before it's finalized?
6. What happens if the property changes hands or the use changes during the PILOT period?
7. Is the full agreement available as a public record? (Under OPRA, New Jersey's Open Public Records Act, it should be.)

Can residents access PILOT agreements?

Yes. PILOT agreements entered into by public bodies in NJ are generally public records accessible under OPRA. See How to File an OPRA Request in New Jersey for step-by-step instructions.

Source: NJ Government Records Council, nj.gov/grc

This guide is for informational purposes only and does not constitute legal or financial advice.