Joe and Steve’s Tax Breaks

Two significant tax-breaks are associated with the sale and development of the Maplewood Village Post Office site.   The first is a “PILOT”, a replacement for tax payments over a five year period, and the second is a  federal capital gains tax exclusion made possible by an accelerated sale of the property that Mayor DeLuca agreed to.

When properties are declared in need of rehabilitation, and then a Redevelopment Plan is written,  a selected developer then makes a detailed proposal and negotiates financial terms with the seller (the Township).

PILOT (Payments in Lieu of Taxes) are often a part of these deals.  They provide a 5 year, or 30 year, waiving of taxes on the building and replaces them with a direct payment to the municipality each year.

PILOTs are great as incentives to developers to take risks in areas that are not attracting enough market-driven development activity.

In the Spring of 2015, Joe Forgione made his case for a PILOT in connection with his proposed development of the post office site.  A full copy of the PILOT he was awarded is here

The justification given for the PILOT is in section 5 of the application, and is available in detail here, and Joe’s complete application for the PILOT is here.

Here’s a summary, with our interpretation shown in brackets:

  • Affordable housing:

Joe said this was an expense that made the project less profitable  [Robbing Peter to Pay Paul?:  Joe agreed to donate $200,000 to our housing fund–now he is asking the taxpayers to pay him back.  Suddenly, the taxpayers are the housing fund contributors, not Joe.  What’s more, Joe gets to charge market rents on two more apartments, year over year.  And that revenue stream increases the sale price of his project when he moves on].

  • Demolition:

Joe says it is costly, and will impact project financials. [Mayor DeLuca has stated that the Town will pay all demolition costs].

  • Remediation:  exactly that same as demolition, above.
  • Public improvements:

Joe says these are costly. [He bought a vacant site in a prime location–certainly, he expects to have to landscape and replace sidewalks, right?  That would be true if he bought it from a private seller–why is he saying that warrants a tax refund?  Moreover, the terms of sale “credit” Mr. Forgione six parking spaces at The Woodland, which are subtracted from the number of parking spaces his project is required to provide.  The reason cited for the credit is the public improvements Forgione is making.  Finally, the sewer repairs, also in the category of public improvement, will be paid for entirely by the Township according to Mayor DeLuca.  Total cost of these is approaching $100,000]

At the November 16, 2015 Township Committee meeting the Town allowed Joe to add Steve Kalafer to the PILOT, and make him partial owner of the site.  Mr. Kalafer is a busy guy, as outlined in this recent New York Times article–why he wants to own a small parcel in the center of our Village has not been explained.

Steve was also understood to be an investor in Joe’s project all along–but now he is part-owner.  The financials of the deal are clearly changed with Mr. Kalafer included, yet the Township failed to do a new analysis before deciding whether the PILOT was still necessary.¹

The PILOT application, in Section 5, reads “A 5 year tax exemption will provide a short-term, but substantial stimulus in the crucial early years of the development of the Project.  The burden of conventional taxation…will prohibit the project from moving forward without the tax exemption.”

Could our Township Committee have really believed that?

¹Steve Kalafer was a co-investor in the PSE&G project on Springfield Avenue.  When they sold it to Avalon Bay in May of 2016, they had 6 months under Section 1031 of the IRS code to use the funds on another project–allowing them to shelter the profits from capital gains tax.  Placing Mr. Kalafer on the sale of the Post Office site allowed him to enjoy this tax break–and qualified him just a few days before the six month window closed.  It also provided additional motivation to defend legal challenges–the tax break could be seen as financing a legal defense, since a decision to not defend would require the tax break to be paid back!  By assuring both developers a direct interest in the property, the Town worked to make legal challenges by citizens even more burdensome.

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This site chronicles the five year public process leading to the construction of Clarus Maplewood.   We recently re-arranged it to provide easier access chronologically and by topic area.  Check out the changes here.