Collingswood and PILOT Agreements Part I: the 'Old' Zane School

Our report on the sale of the “Old” Zane School building to the architectural firm of Kitchen & Associates drew comments from a number of readers.

Many railed against what they perceived to be the artificially low value of the transaction. Some decried the 10-year PILOT agreement (Payment in Lieu of Taxes) into which the borough entered with the firm as an overly favorable arrangement.

In both cases, those instincts are spot on.

But that doesn’t necessarily mean that there’s anything nefarious at work.

“The Zane School hasn’t had taxes paid for 60 to 70 years,” Mayor James Maley told Patch on Wednesday. “So in order to make the whole deal work, the purchase price is based on the value of the property as determined by the lease we have in effect.”

Maley himself called it “a real sweetheart lease'”; it was written that way to make the property more attractive to a business like Kitchen & Associates in 1998. But that’s because Kitchen & Associates also oversaw the rehabilitation of the historic, yet vacant, borough-owned building “for no fee,” he said. 

Ten years later, when the property was last appraised, it was valued at nearly $2 million. Kitchen & Associates didn’t pay half of that, but it certainly played an active role in creating that value.

'A focal point of town'

In 1998, a much different-looking property sat smack in the center of a borough that was striving to upgrade its image, windows boarded up, “with pigeons flying through the roof,” noted Commissioner Joan Leonard at the Tuesday night borough government meeting.

Today, “it’s become a focal point of town,” Maley argued.

In December it hosted the carolers that attract small-town Christmas shoppers and doubled as the solemn backdrop of a vigil for the victims of the Sandy Hook school tragedy.

Those same steps will host an organic fish rally this Saturday at noon, in front of the borough-installed clock that local photographer Joey DeMarco noted harkens back to the Hill Valley courthouse in Back to the Future.

“They’ve had 80 people working [at Kitchen & Associates] since 1998, 99,” Maley said. “I don’t think it’s any accident that that’s the time that things started happening on the avenue.”

Fifteen years ago, Collingswood signed a 25-year lease with Kitchen & Associates from which it will exit 10 years early thanks to the sale, Maley said.  

In doing so, he said, the borough is relieving itself of at least two challenges: finding a third-floor tenant for the building—something it hasn’t been able to do in the past 15 years—and repairing a thermal heating system that’s “struggling along.” 

That $800,000 purchase price is based upon the lower-than-market-rate lease (which was, again, the cost of renting two-thirds of a building). But Maley calculates the sale of the property as saving the borough another $100,000 a year for the next decade—ten years in which it would still not be a ratable lot.

“The property has been generating no property taxes for the school, the county, anybody else for 50 years,” Maley said. “The sale of this property does what we always envisioned it to do, which is remove our debt, get this property back on the [tax] rolls.

“Some people might yell that the price wasn’t high enough,” Maley said. “The price of that building is reflective of the rental income. We set a PILOT on this for the next 10 years that is a little more than 30 percent of what the total taxes would be. “If they’re going to be paying full taxes, the purchase price would be less.”

Maley also pointed out that the borough got “some softer things with it too," including off-hours use of its rear parking lot "with 30-40 spaces in it," as well as "use of the front steps,” he said.

“The net effect of it is that in a 25-year process, this building has been renovated and rehabilitated and put back on the tax rolls,” Maley said.

“It’s all a balance. I think any town would trade to have a project done like that.”