Long-Term Tax Abatement (PILOTs)

Payments in Lieu of Taxes (PILOTs)

What is a long-term tax exemption (LTTE) or PILOT? How does it work?

Long Term Tax Exemptions (LTTEs) are authorized by New Jersey State Law N.J.S.A. 40A:20 The tax abatement law was created to help NJ municipalities efficiently and responsibly improve their ratable base and redevelop underutilized and dilapidated properties. Long Term tax exemptions are only permitted in areas that have already be determined to be an Area in Need of Redevelopment. A tax abatement is not a right; the redeveloper must demonstrate the need for the abatement to make the project feasible.

A long-term tax exemption is an exemption from paying taxes on the value of the improvements made to a property as part of a redevelopment agreement. The maximum term of the exemption is 30 years. In lieu of paying taxes on the exempted value of the improvements during that term, the redeveloper pays annual service charges, or payments in lieu of taxes (PILOTs). The PILOT payments can be calculated as a percentage of revenue or a percentage of construction costs.

Redevelopers who receive PILOTS continue to pay regular taxes on the real estate on which the project sits. The revenue generated to the county, schools, and town from the property before the project was built is almost never reduced. It is only the value of the improvements that are subject to the PILOT. Once the PILOT period has ended, the entire property (including the improvements) is subject to conventional taxes. Law, N.J.S.A. 40A:20-1, et seq.

Who gets LTTEs and PILOTs?

Not all developers qualify for tax exemptions. To qualify for an LTTE, the redeveloper of the Area must be an Urban Renewal Entity (a limited dividend entity) or non-profit subject to profit restrictions (a maximum of 12% of project costs).

What are the benefits of a PILOT to a redeveloper?

The redeveloper benefits from a PILOT because the annual service charges paid each year are almost always less than what the redeveloper would pay in traditional taxes. After all, the idea behind the PILOT is to provide incentive to the redeveloper to complete a redevelopment project that likely cannot be made profitable without the financial incentive. Further, the redeveloper benefits by having predictable, stable payments over a long-term period. This stability is often necessary for the redeveloper to be able to obtain bank financing for the project.

What are the benefits of a PILOT to the municipality?

The municipality benefits from a PILOT because it is able to keep 95% of the revenue from the PILOT. In traditional taxation, Fanwood only keeps 21% of the tax revenue, with the larger piece going to the school district (60%), the remainder to the county (16%). But, as stated above, the school districts and county do not generally lose out on tax revenue, because these redevelopers continue paying the existing land taxes.

As an example, Elite Properties is the developer of Fanwood Crossing in downtown currently pays $311,684 on property that was prior to development paying $72,000 (of which Fanwood got 20% or $14,400). With a PILOT payment Fanwood keeps roughly 95%. Under the PILOT for the Fanwood Crossing project, Fanwood currently receives $233,831 annually versus the $107,384 it would get with conventional taxes (after schools take 62.63 and County takes 16%). That is a difference of $126,447 annually in the Borough budget

Under conventional taxation Fanwood would receive $107,384

$502,498 Conventional tax (2025 rate 0f 3.12)
$314,714 62.75% Schools portion
$80,399 16% County portion

$107,384 TOTAL Fanwood keeps

Under Tax Abatement Fanwood receives currently $233,831
$222,035 PILOT payment
$11,101 5% to County
$210,934 subtotal
+ $22,897 plus Fanwood portion of conventional land taxes
$233,831 TOTAL Fanwood keeps

Under this example, schools and county are still receiving their portions of the Land taxes ($56,234 and $14,339 respectively).

That makes a big difference in the Borough budget. The schools and county are not harmed because they are still getting what they always did from the land and Fanwood gets a healthier piece of the gain for a period of time (up to 30 years) of this consistent, recurring revenue. This directly supports the municipal budget helping keep resident taxes down. It also allows the Borough to undertake important community improvements and projects for example- the annual debt service for the new Fanwood Library rather than having any additional tax levy on the residents

Upon expiration of the tax abatement the project returns to conventional taxation.

PILOT agreements have a provision prohibiting excess profits. The developers must submit audited financial statements every year to show that.

Is the school district harmed by PILOTs?

Financially, the school district always receives 100% of its budget each year through traditional taxation. Regardless of how much the Borough receives in the school district gets its allocation to meet its budget.

Regarding school crowding concerns from multi-family residential buildings:

The anticipated number of school children that come from a new residential unit is dependent on numerous factors, including the age, cost, number of bedrooms, construction type, and level of amenities. Studies conducted by the Center for Urban Policy Research at Rutgers University, the Joint Center for Housing Studies at Harvard University, and information from other New Jersey municipalities have shown that the number of school-age children in multi-family housing is dramatically lower than that which comes from a detached single-family dwelling particularly in above median income communities like Fanwood. A typical threshold used based upon data in NJ is less than 5 school age children per 100 market rate apartments (1 and 2 bedroom). In the 80 units at Fanwood Crossing, the maximum school age children living at any one time has been below 8. This is percentage increases a bit in the affordable units built in Fanwood and that is as it should be, they are meant for families. These statistics are similar our neighboring town such as Scotch Plains, Cranford, Westfield & Clark.

What are the Fanwood Tax abatements (PILOTs)?

Fanwood Crossing I, II, III – (80 units total, 8 retail spaces). Fanwood Crossing is comprised of 3 phases. The three buildings are owned by separate Urban Renewal Entities and each has a PILOT Agreement. This PILOT was calculated based upon construction costs. The pre-development conventional taxes on the property were $72,000 (of which Fanwood received 20%, or $14,347)

Fanwood Crossing I (250 South Ave) -24 residential units with 3 ground floor retail spaces.
The project paid $107,074 in 2025 (Pilot $84,794 + conventional Land Tax $22,280).
Fanwood Crossing II (246 South Ave.) – 40 residential units with 5 ground floor retail spaces. The project paid $133,563 in 2025 (Pilot $89,059 + conventional Land Tax $44,504).
Fanwood Crossing III /233 La Grande Ave- 16 two-bedroom apartments. The project paid $70, 993 in 2025 (Pilot $48,161 + conventional Land Tax $22,832).

Station Square at Fanwood- 28 townhome style rental units and 7 affordable housing apartments. The project has a PILOT agreement based upon a percentage of revenue. The pre-development conventional land tax was $26.072.01

The Station Square project paid $217,278 in 2025 (Pilot $173,598 + Conventional land tax $43,680
These two redevelopment projects have resulted in over $400,000 per year of increased revenue for the town, without any reduction in pre-development tax revenue for the town, the schools, or the county.

PILOT Fact Sheet

Fanwood Residents Are Not Picking Up the Tab for Downtown Developers An Explanation of Tax Incentives
By Tom Kranz, President, Fanwood Borough Council and Elizabeth Jeffery, Fanwood Economic Development Director

Long-term tax exemptions are authorized by New Jersey Long-Term Tax Exemption Law N.J.S.A. 40A:20-1 et seq. (“LTTE”).
The LTTE was created to help NJ municipalities efficiently and responsibly improve their ratable base and redevelop underutilized and dilapidated properties.
Long-term tax exemptions under the LTTE are only permitted in areas that have already been determined to be an Area in Need of Redevelopment and are the subject of a redevelopment plan.
The LTTE allows municipalities to enter into agreements with redevelopers whereby they make annual service charge (“ASC”) payments in lieu of conventional tax payments (“PILOT”).
The LTTE allows PILOT agreements for a maximum term of 30 years from completion of the project or 35 years from entry of the PILOT, whichever is greater, and includes staged increases in annual payments over the term to full taxation.
The PILOT payments can be calculated as a percentage of revenue or a percentage of construction costs.
The redeveloper must be an Urban Renewal Entity which is a limited dividend entity or non-profit subject to profit restrictions (12% project costs).
A tax exemption is not as of right; the project must evidence the need to make the project feasible.
Upon expiration of the tax exemption, the project returns to conventional taxation.
Redevelopers who receive PILOTs continue to pay regular taxes on the land on which the project sits. The revenue generated to the county, schools and town from the property before the project was built is not reduced.
The PILOT payments are only on the improvements, not the land. Redevelopers who receive PILOTs receive a credit against the ASC for the amount paid in ordinary taxes on the land.
PILOT agreements have a provision prohibiting excess profits. The developers must submit audited financial statements every year to show that.
PILOTs are shown to encourage private investment, promote balanced growth and create economic development opportunities that are essential to long term financial health.
Municipalities retain much more of the annual payment than they would under a conventional tax.
Tax exemptions are often needed to offset extraordinary site or development costs or obstacles that threaten feasibility of the project such as environmental clean-ups, high acquisition costs or infrastructure needs.

Fanwood Tax Abatements:

Fanwood Crossing (80 units total, 8 retail spaces). Fanwood Crossing is comprised of 3 phases). The three buildings are owned by separate Urban Renewal Entities and each has a PILOT Agreement. The PILOT is calculated based upon construction costs.

Fanwood Crossing I (250 South Ave) -24 residential units with 3 ground floor retail spaces.
The project paid $107,092.85 in 2024 (PILOT $86,119.73 + conventional Land Tax $20,973.12).
Fanwood Crossing II/246 South Ave.- 40 residential units with 5 ground floor retail spaces.
The project paid $133,578.97 in 2024 (PILOT $91,685.60 + conventional Land Tax $41,893.37).
Fanwood Crossing III /233 La Grande Ave- 16 two-bedroom apartments.
The project paid $71,012.30 in 2024 (PILOT $49,519.33 + conventional Land Tax $21,492.97).

Station Square (28 townhome style rental units and 7 affordable housing apartments)

The project has a PILOT agreement based upon percentage of revenue. The project paid $217,308.63 in 2024 (PILOT $176,190.63 + conventional land tax is $41,118.00