Jersey City is in the middle of a bruising budget fight after approving a memorandum of understanding for state aid and introducing the budget at last week’s council meeting. Part of the budget controversy surrounds PILOT agreements.

Many residents believe that the city entering into too many tax abatements has caused the city’s budget problems; at the same time, the Solomon administration’s communications director Nathaniel Styer claims the city has not entered into enough PILOT agreements. A significant about-face since, as recently as last year, then-councilman Solomon voted against a PILOT for 177 Grand Street.

How big — and to what extent — are PILOT agreements a problem for the Jersey City budget?

The Solomon administration is projecting a structural deficit of roughly $90 million and has proposed a 15.5% property tax hike to cover it (down from an original 20% proposal). Against that backdrop, agreements with developers for Payments in Lieu of Taxes (“PILOT”) have come up repeatedly as either a cause of the city’s fiscal problems or a source of potential relief. PILOT agreements were frequently used to spur development and balance the city’s budget until 2017, when those agreements were largely phased out due to political backlash from activists and the Board of Education. Since then, Jersey City has only signed eight new PILOT agreements, entirely for affordable housing or significant community givebacks like the Embankment Park or the cultural center that would have housed the Pompidou.

With few new PILOT agreements in the books, what happens to the city’s finances as 32 long-term PILOT agreements expire over the next four years of the Solomon administration?

This article will focus on the impact of expiring PILOT agreements on the Jersey City budget. The state maintains a public database with detailed records on every PILOT agreement in New Jersey — Agreement Start/End, PILOT Billing Amount, Assessed Value, and what the property would owe under conventional taxation. If you want to run this analysis for your own city or town, you can start here:

Who actually benefits when PILOT agreements expire?

Before getting to the tax impacts, it’s worth understanding the structural design of PILOT agreements in New Jersey, because it shapes everything that follows.

Under state law, 95% of long-term PILOT revenue goes to the municipality and 5% to the county. The Board of Education gets no direct payments from the PILOT agreement (although both Fulop and Solomon have proposed sending 10% of a PILOT to the JCBOE). Under conventional property taxation, by contrast, the city keeps roughly 35–40% while the BOE takes the lion’s share and the County levy accounts for the rest.

This is by design under state law as PILOT agreements were conceived as a municipal financing tool to stimulate redevelopment, in order to combat urban blight and declining urban tax bases. City Hall has defended them for years as a revenue source for the same reason that the Board of Education has attacked them.

The tension between the city and the schools matters enormously for what happens when PILOT agreements expire because the end of a PILOT isn’t a neutral fiscal event. Two things happen simultaneously: 1) the property returns to conventional taxation so total taxes paid increases but 2) the city now only collects 35-40% of the conventional tax (down from 95% of the PILOT revenue) so the revenue the city receives decreases as the county and Board of Education take their full share under conventional taxation. The end result is the city has to make up for the lost revenue either by entering into new PILOT agreements or by raising its portion of the conventional tax levy.

Turning $41 million in PILOT Revenues into $75 million of Conventional Taxes

Jersey City has around 32 long-term PILOTs expiring between now and 2029. Together they currently generate $40,897,235 in annual PILOT revenue — nearly half of the city’s total long-term PILOT receipts, which came to just under $80 million last year. That’s going to greatly reduce the total amount as use of PILOT agreements has declined in recent years with the city signing only eight new agreements since 2017.

According to the state database and city budget documents, those same properties would generate an estimated $74,986,703 in conventional property taxes once the conventional tax exemptions expire. That’s a gross increase of roughly $34 million in total tax revenue but, as noted above, the distribution of who receives that revenue changes dramatically.

The city recently published a tax calculator that lets you model assessed-value properties under current and proposed tax rates. I used it to calculate the projected split of conventional tax revenue from these 32 properties:

City	Board of Education	County	Other
$27,469,379	$34,957,975	$14,406,312	$1,544,733

A few things stand out. First, the Board of Education’s projected share ($35M) is larger than the city’s ($27M). Under the current PILOT structure, essentially all $41M goes to the city. The end of the PILOT agreement lowers the city’s revenue take by over 30%. The city goes from receiving ~$41M in PILOT payments to ~$27M in conventional tax revenue, which is a net reduction of roughly $13 million. That translates to about 2% of the city’s current budget, which will need to be made up somehow.

One important caveat on the above conventional tax projections: when a long-term PILOT expires and a property gets assessed for the first time, developers routinely file tax appeals challenging the initial valuation. The $74.9M gross figure above could come in lower after successful appeals, and potentially meaningfully so for older projects where market values have diverged from cost-basis assessments.

Factor in the proposed tax increases

The city’s proposed 15% tax hike changes the picture somewhat but, as noted above, valuations can change pending successful appeals. Running the same 32 properties through the city’s tax calculator at the higher proposed rates, the projected conventional tax split becomes:

City	Board of Education	County	Other
$31,589,786	$39,999,513	$16,484,314	$1,651,857

With the rate increase, total conventional tax revenue from these properties rises to $89,725,469. The Board of Education’s share grows to $40M; the city’s to $31.6M.

What about 5-year abatements?

Five-year tax abatements are a completely separate instrument from long-term PILOT agreements. They are shorter-term, approved by-right, and are typically used for smaller projects or renovations. They also pay the city, county, and schools their appropriate share just at a reduced rate while they phase in. According to the 2025 budget, the current stock of 5-year abatements represents about $9.6 million in forgone tax revenue annually. The biggest beneficiaries of the short-term tax exemptions are home owners and condo owners.

So are PILOTs the problem?

For all the controversy they generate, long-term PILOTs are not a significant driver of either the city’s structural deficit nor do they defund the public schools (the topic of school funding has been addressed in previous articles on how PILOT agreements work; in short, PILOT agreements do shift more school funding onto the conventional tax bill). The expiration of 32 agreements over the next four years will modestly reduce city revenues while substantially increasing taxes paid to the Board of Education. A well-disciplined school board could use that windfall to limit its tax hikes while the city makes up for its expanded deficit.

PILOT agreements are a tool, and the city has broad discretion over when and how to use them. They likely make the most sense when used to spur development without overwhelming the schools with new students. The biggest potential threat PILOT agreements pose to the city’s long-term fiscal stability is a situation where PILOT agreements are only used to pay for high affordable housing set asides, which reduces the income from the PILOT agreement while increasing costs to the schools.