New Jersey Payment-in-Lieu-of-Taxes (PILOT) Program

In 1971, New Jersey implemented the Payment-in-Lieu-of-Taxes (PILOT) Program.¹ Through this program, the state pays municipalities to protect and conserve open, undeveloped lands owned by the state and tax-exempt nonprofit organizations. This program was created to benefit environmental quality, quality of life, and economic health in New Jersey by conserving open space for natural resources and recreational purposes. While this program has been amended throughout its tenure, it is a noteworthy example of a state program that creates incentives for local governments to create open space by mitigating the impacts of lost tax revenue and land maintenance costs. In a managed retreat context, a similar program could be coupled with hazard mitigation buyouts and open space acquisitions to encourage local governments to conserve vulnerable properties impacted by sea-level rise and flooding.

The PILOT Program was created to conserve New Jersey's opportunities for outdoor recreation, education, and relaxation for present and future generations. The New Jersey legislature recognized that open spaces were being lost to development and that the costs of protecting and maintaining open space land could economically burden local governments. The PILOT Program offset the economic burden of lost tax revenue upon local governments while helping them attain the multiple benefits of open space conservation. Specifically, the legislature found that open space conservation supports local economies, helps protect and restore imperiled species, and supports good ecosystem health generally. Further, in addition to mitigating lost tax revenue, open space conservation through this type of program can also provide a myriad of other co-benefits, including mitigating local heat and flood risks and creating local amenities.

Payments made under the PILOT Program were issued on a thirteen-year declining payment schedule. Under that schedule, in the first year following the land acquisition, the state paid the municipality one-hundred percent of the property taxes last assessed and paid by the taxpayer in the prior year. The payment to municipalities subsequently declined by approximately eight percent each year for the following twelve years. After the thirteenth year, PILOT payments were based upon a sliding-scale depending upon the total amount of open space within the municipality owned by the state or nonprofit organizations.² Specifically, municipalities received $2 per acre when the state or nonprofit organizations owned less than 20 percent of the total acreage in a state for open space conservation purposes; $5 per acre for between 20-29 percent state or nonprofit ownership; $10 per acre for between 40-49 percent state or nonprofit ownership; and $20 per acre for 60 percent or more state or nonprofit ownership. Municipalities receiving payments were required to contribute the payments to the same purposes to which tax revenues were contributed.

From 1971 until 1999, the PILOT Program was authorized through bond issues. In 1999, the New Jersey State Legislature passed the Garden State Preservation Trust Act (N.J. Stat. Ann. § 13:8C-1 et seq.), which established an expanded PILOT program to benefit municipalities with state- and nonprofit-owned open space. The PILOT Program is funded by appropriations from the New Jersey General Fund. The state continues to make payments to municipalities in which lands were conserved before 2011. However, no new properties have been acquired under the program since 2011.

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