Lackawanna PILOT - Part 3: What the Statute Says and What It Doesn't

Residents should share in the upside value that our tax concessions, density bonuses, zoning approvals, and town culture help create.

At the 3/17 Town Council meeting, a series of narrowly framed questions produced a very broad conclusion: that the statute doesn’t allow residents to share in that upside.

In Part 3 of the Lackawanna PILOT series, I explain why that conclusion leaves out key parts of the story.

TL;DR

• The 2% transfer fee is an administrative provision; not a cap on sale participation.

• There is no statutory prohibition on sharing in sale proceeds.

• The statute explicitly allows profit participation.

• Redevelopment law provides additional negotiating authority.

What Was Asked and What Was Answered

First, the exchange between Council and the Township’s financial advisor:

Q: “Is the revenue the Township receives based on net profit or gross profit?”
A: “Gross revenue.  It is unconcerned with profit.  That is what is required…, and the statute is clear.”

Q: “And the definition we have in the… agreement is identical to the definition in the statute?”
A: “Yes.”

Rebuttal: The Wrong Question Was Asked

The question isn’t how PILOT payments are calculated, which is what this exchange attempts to establish. 

The real question is whether the Township can negotiate additional participation from a sale; particularly given the value created by residents’ accommodations.

What I’m proposing is straightforward: residents should share in the project's upside above and beyond standard PILOT payments.

Those are two entirely different concepts.

Now, the exchange with the Township’s legal counsel:

Q: “Does the statute allow the Township to share in the proceeds from a sale?”
A: “No, it does not.  You’re entitled to a fee of up to 2% of the annual service charge… There’s no provision for sharing in the gain on a sale.”

Rebuttal: Two Different Concepts Were Conflated

The 2% provision in §40A:20-10(d) is an administrative transfer fee; a charge for processing the continuation of the tax exemption when ownership changes.

It has absolutely nothing to do with whether the Township can negotiate participation in sale proceeds.

It’s not a ceiling on all sale-related economics.  It’s a narrow administrative provision that is being treated as something much broader.

Rebuttal: The Statute Explicitly Provides for Profit Participation

Section 40A:20-15 of the same statute explicitly allows for excess profit payments to a municipality.

At a minimum, this establishes that the statute contemplates municipal participation in project economics beyond base PILOT payments.

That raises a natural follow-up question: how are profits defined, and what is included or excluded?

The proposed agreement goes to significant lengths to explicitly exclude sale proceeds from the definition of Net Profit. That’s a "negotiated" outcome; not a statutory requirement.

The assertion that the transfer provision is the only relevant section of the statute is, at best, incomplete.

Rebuttal: The Statute Sets a Floor. Not a Ceiling.

Section 40A:20-9 outlines what a financial agreement shall include.

It doesn’t say what it can only include.

Those are two very different things.

Reading the statute as restrictive rather than permissive is a choice, not a requirement of the law.

The Part That Was Left Out

There is a second, independent legal pathway to residents’ participation in the proceeds from a sale: the Redevelopment Agreement (also currently under "negotiation").

Under redevelopment law (§40A:12A), municipalities have broad authority to negotiate terms and conditions as part of redevelopment. 

Even if you accepted the most restrictive reading of the PILOT statute (which I don’t), the Redevelopment Agreement can independently include financial participation tied to project outcomes, including at the time of sale.

These are two separate legal instruments that are governed by two separate statutes.

The Bigger Issue

This isn’t about what’s typical.  It’s about what’s permitted, and what our elected officials are willing to negotiate for.

When questions are framed narrowly, the answers tend to be narrow as well.  But those answers should not be mistaken for the full range of options available to the Township.

Residents are being asked to support a project that creates substantial value.

The question is whether we are negotiating to share in that value or knowingly choosing not to.

Questions Worth Asking

Why these possibilities were not fully surfaced or explored is a question worth asking.

These are the kinds of leading questions and answers you would expect from opposing counsel, not from those tasked with negotiating on residents' behalf.

And when that happens, it’s fair to ask:

Are we getting the best possible deal or just the most familiar one?

For full context, start with Part 1 of the Lackawanna PILOT Series below.