The City Council unanimously (8-0) approved a 15-year PILOT for Meridia Lafayette Village at its meeting Monday night that will nearly halve the developer’s overall property taxes while providing more revenue directly to the city than it might typically get once the project is built out.

Ordinance O-24-12 sets an annual payment to the city of 10 percent of the project’s annual gross revenue, estimated to be $163,980 in the first year ($1,426 per unit). The schedule provides for 3 percent revenue growth annually, so by year 15 the payment is projected at $248,034 ($2,157 per unit). Over 15 years, the total projected payments average out to $203,323 annually ($1,768 per unit). The two comparisons are spelled out in the final pages of the PILOT application, filed by Capodagli Property Company in May.

An analysis of what typical property taxes for a fully constructed Lafayette Village might be is estimated to be about $400,000, or $3,480 per unit. Over 15 years, not taking into account tax increases or decreases, that would total about $6 million. However, what the property will ultimately be assessed at can only be determined once construction is completed, so any preliminary estimate requires a degree of speculation.

The county would receive 5 percent of the PILOT payment, with 95 percent (all but $8,200 in year one) going to the city. Meanwhile, the three largest portions of a typical property tax bill in Rahway are the school district, 44 percent; municipal, about 37 percent, and county, about 16 percent. While the PILOT is about half what typical property taxes might be, the city will get about $164,000 to start where its portion of the tax bill would have yielded about $148,000, under 2012 tax rates.

Chief Financial Officer Frank Ruggiero said Monday night that PILOTs typically can be either 2 percent of total construction cost for a project (as was done with Meridia Water’s Edge) or 10 percent of annual gross revenue. Of course, if the annual gross revenue increases more than projected, the PILOT payment would increase. A cost-based PILOT was projected at $230,000 ($2,000 per unit) annually for 15 years, for a total $3.45 million, compared with a projected $3.049 million under the revenue-based model.

A 36-unit condo complex called The Savoy halted construction after it began in 2008 and has been inactive until Capodagli secured the property from Wells Fargo, which in the process of foreclosure. The vacant property on Main and Monroe streets (Block 320, Lot 1.02) currently has an annual property tax bill of about $8,000. Construction on the $11.5-million, 115-unit Lafayette Village is scheduled to begin in January, with completion slated by February 2014, according to the PILOT application filed with the city in May.

Two speakers raised questions during the ordinance’s public hearing. Patrick Cassio, the local Republican chairman, found it “unbelievable” that the property will not contribute school taxes, and failed to see any “extraordinary circumstances” to warrant a PILOT, describing it as an “insider, sweetheart deal.” Former Zoning Board member and Rahway Center Partnership Chairman Josh Donovan said a PILOT typically is awarded when a developer has some hardship to overcome, but this developer had built Meridia Grand without a PILOT and that has already been sold. A PILOT may very well be deserved, he said, but council members should explain why they think it’s necessary.

December 2009

Council members didn’t comment during the public hearing but some did later during the council comment portion of the meeting. “When the economy was good, we turned down a PILOT for that site,” said Council President Samson Steinman. The former site of the proposed Savoy condominiums has been vacant for several years. “We saw it (PILOT) as a way to get the project up and running,” he said, describing it as “simple math”: $2 million over 10 years, versus $8,000 in annual property taxes today. He also requested an analysis of how many school-age children other recent developments have contributed to the school district’s enrollment, which he said has been minimal.

Councilman At-large James Baker said Meridia Lafayette Village has been presented to the public at various stages where questions could be asked to explain how and why it’s being developed. “We think this is a positive thing for Rahway, based on marketing studies,” he said, though he didn’t get into specifics.

“We did get information regarding why a PILOT was justified. I wouldn’t have voted for it if I wasn’t comfortable,” said 5th Ward Councilwoman Jennifer Wenson-Maier, though she didn’t share that information during her comments. She said she had called for a meeting with the developer regarding unit size and green building standards and while there was some unwillingness initially, Capodagli has decided to pursue LEED certification for both Water’s Edge and Lafayette Village.