New Jersey municipalities can grant tax abatements that significantly reduce — or eliminate — the property taxes a development project would otherwise pay. These deals are negotiated directly between a town and a developer under broad authority granted by state law, and most are structured as PILOT (Payment In Lieu Of Taxes) agreements that run 15 to 30 years.
This page summarizes how the system works in plain language, drawing on a 2017 policy brief I wrote for the William J. Hughes Center for Public Policy at Stockton University. The full brief is linked at the bottom for readers who want the legal citations and reform analysis.
How NJ tax abatements work
Two state laws give municipalities the authority to grant tax abatements:
- Long Term Tax Exemption Law (N.J.S.A. 40A:20) — used for large redevelopment projects. PILOT payments typically run 15-30 years.
- Five-Year Exemption and Abatement Law (N.J.S.A. 40A:21) — used for smaller projects, typically residential or rehabilitation work, with a maximum 5-year abatement period.
A municipality first adopts an enabling ordinance authorizing abatements under one or both statutes. Once the ordinance is in place, the municipality can negotiate individual project agreements with developers — those agreements set the percentage of project revenue or annual payment that the developer will pay to the town in place of regular property taxes.
Who pays for them
The structural issue with NJ's tax abatement framework is the revenue distribution. When a property pays regular property taxes, that revenue is split between the municipality, the county government, the school district, and other taxing entities (fire districts, library districts, etc.) according to a formula set by the county tax board.
When the same property pays a PILOT under an abatement agreement, almost all of that revenue goes to the municipality. The county, the school district, and other taxing entities receive little or none of the PILOT payment — even though they continue to provide services to the development and to its residents. The result is that the cost of those services shifts to the residents of non-abated properties in the same municipality and county.
The reform debate
The Hughes Center policy brief recommended amending state law to require municipalities to share PILOT revenue with counties, school districts, and other affected taxing entities in proportion to what those entities would have received under the regular property tax distribution. Various reform bills have been introduced in the New Jersey Legislature; the broader reform has not been enacted.
Frequently asked questions
What is a tax abatement in New Jersey?
A tax abatement in New Jersey is a negotiated agreement between a municipality and a property developer that significantly reduces or eliminates the property taxes the developer would normally pay on a project. Abatements are authorized under state law to incentivize development that the municipality determines would not otherwise occur. Most abatements are granted for residential, commercial, or mixed-use development projects.
Can local municipalities in NJ implement tax abatements on their own?
Yes, but within a framework set by state law. New Jersey gives municipalities broad discretion to negotiate and grant tax abatements directly with developers. The two main statutory authorities are the Long Term Tax Exemption Law (N.J.S.A. 40A:20) and the Five-Year Exemption and Abatement Law (N.J.S.A. 40A:21). Municipalities adopt enabling ordinances and then negotiate individual project agreements under those ordinances.
What is a PILOT program?
A PILOT (Payment In Lieu Of Taxes) is the most common form of long-term tax abatement in New Jersey. Instead of paying property taxes calculated from the assessed value of the property, the developer pays the municipality an annual payment based on a percentage of project revenue or a fixed schedule. PILOT agreements typically run for 15 to 30 years.
How are tax abatement revenues distributed to counties and school districts?
This is the structural issue identified in the Hughes Center policy brief. Under existing state law, when a municipality grants an abatement, the revenue from the resulting PILOT payments goes overwhelmingly to the municipality — county governments, school districts, and fire districts receive little or none of the PILOT revenue, even though they would have received their normal share of regular property taxes from the same property. This shifts the tax burden for county and school services onto residents of non-abated properties.
Is there a sunset clause on NJ municipal tax abatement ordinances?
There is no automatic statewide sunset on municipal tax abatement enabling ordinances. Long-term PILOT agreements themselves are time-limited (typically 15-30 years per project), but the underlying municipal ordinance authorizing abatements remains in effect until the municipality chooses to amend or repeal it. Some municipalities include sunset clauses in their enabling ordinances; most do not.
Where can I find the full NJ tax abatement policy brief?
The full policy brief — "Municipal Tax Abatements" by Gavin Rozzi, published by the William J. Hughes Center for Public Policy at Stockton University in 2017 as part of the "Election 2017" issue series — is available at https://stockton.edu/hughes-center/documents/2017-0731-election-2017.pdf.
Are there reform proposals for NJ tax abatements?
The Hughes Center policy brief recommends amending state law to require municipalities to share PILOT revenue with counties, school districts, and other affected taxing entities in proportion to what those entities would have received under the regular property tax distribution. Various reform bills have been introduced in the New Jersey Legislature over the years; none have been enacted into law as of the brief's publication.
Read the full policy brief
For the legal citations, the full reform analysis, and a worked example, see the original 2017 policy brief I authored for the William J. Hughes Center for Public Policy:
- Municipal Tax Abatements (publication entry on this site)
- Full PDF — Election 2017: The Policy Priorities of New Jersey College Students (Hughes Center, Stockton University)
Related work
- The Underground Construction Economy in New Jersey — multi-year Hughes Center research on the underground construction economy and its impact on legitimate contractors.
- Government Operations expertise — more on how policy implementation translates into operational outcomes inside NJ government.
About the Author
About the Author