The City Council on Monday will consider a 15-year Payment In Lieu Of Taxes (PILOT) for Meridia Lafayette Village that would reduce its annual property tax bill by as much as 40 percent.
If not for a PILOT, the 115-unit development at the former Savoy site likely would face an annual property tax bill estimated at about $400,000, or $3,500 per unit, a difference of more than 40 percent. (***For a breakdown and explanation of how I arrived at that estimate, skip to the end of this blog post***)
The governing body introduced the PILOT ordinance (O-24-12) at its meeting last month and a public hearing and final approval is scheduled on Monday. The draft ordinance indicates an annual PILOT of $156,000 but the PILOT application, obtained Friday from the City Clerk's Office, notes an annual payment of $230,000. Over 15 years, a standard property tax bill of $6 million (not taking into account future annual tax increases)
would be transformed into $3.45 million in PILOT payments -- less than 60 percent of
the original tax bill, based on a $230,000 payment. ***9/11/12 UPDATE: The ordinance, as finally adopted, stipulates a payment of 10 percent annual gross revenue, projected at $163,980 in year 1, with 3 percent projected growth per year, making the year 15 payment about $248,000, and $3.049 million over 15 years.***
Redevelopment Director and City Administrator Peter Pelissier previously has said that the city persuaded Capodagli to take over development of The Savoy site rather than pursue development of the Center Circle
because it's considered critical to efforts downtown. He said the
city is aiming to be a partner with the developer and a PILOT would be
beneficial in securing bank financing.
There's also the
benefit to the city of receiving revenue directly rather than splitting
it with the county and school district. City officials have also noted
that most of the city's new developments have not brought in school-age
children that would add to district enrollment.
The city would get most all of a $230,000 PILOT while a regular property tax collected would be split between the city ($148,000 based on estimated taxes of $400,000), the county (roughly $64,000) and the school district (about $176,000). City officials have made the case that PILOTs are not taking funds away from the school board because the district would receive whatever funds it requests through the annual school budget vote.
***9/11/12 CLARIFICATION: The original version of this post indicated that a typical property tax bill is comprised of 50 percent schools, 25 percent city and 25 percent county. Upon closer examination of Rahway's most recent property tax bill, the split is actually 44 percent to the schools, 37 percent to the city and 16 percent to the county.
The former Savoy property on Main and Monroe streets has been vacant and at a standstill
for several years. The site (Block 320, Lot 1.02) currently has an annual property tax bill of about $8,000. Capodagli Property Company has approval for a 115-unit rental complex, with two small retail spaces oriented toward residents but open to the general public.
Construction on the $11.5-million project would begin in January
2013, with completion scheduled in February 2014, according to the PILOT application filed with the city in May. The cost includes $1.9 million
for land, liens and closing costs.
The governing body earlier this year approved a 10-year PILOT for
Meridia Water's Edge, another Capodagli project. The
firm also built Meridia Grand and sold it for $19 million shortly after completing construction in 2011. That project has no PILOT and pays about $313,000 in property taxes annually. Almost $1 million in revenue from several PILOTS in the city were anticipated in the 2012 budget.
Using two recent sales of rental apartments for comparison (River Place and Meridia Grand), the property tax bill for Lafayette Village would likely be more than $400,000, based on 2011 tax rates and an estimated assessment of $7 million. Feel free to check my math in this Google Docs spreadsheet, which extrapolates what a potential tax bill for Meridia Water's Edge
would look like as well (that 108-unit project was approved for a
10-year, $216,000 PILOT).
The estimated assessment is
based on the recent sale prices of River Place
and Meridia Grand, as well as their tax assessments and tax ratios. No
doubt, my assessments require a degree of speculation and likely will differ somewhat, taking into
consideration the size of units, the one- and two-bedroom splits, and
other amenities, even down to the granite countertops. Using two recent sales of rental apartments should
provide a ballpark estimate of what a property tax bill might look like
without a PILOT -- something that hasn't been raised publicly during
discussions about either project.