Jersey City Mayor James Solomon has issued an Executive Order directing a full audit of all Jersey City tax abatements and PILOT agreements, with a stated goal of completing the review by July 1, 2026.
“We’re going to audit the big developers who may not be paying what they owe, and we’re going to ensure they pay their fair share,” the mayor announced.
The order follows the announcement of Jersey City’s projected $250 million budget shortfall, which equates to approximately 28% of its annual operating budget. With pressure mounting to close the gap, the administration has turned to one of the City’s most significant revenue sources, long-term financial agreements with developers.
In announcing the initiative, Mayor Solomon underscored the seriousness of the effort: “We found that no one has been checking,” he declared about the PILOT agreements approved during his predecessor Steven Fulop’s tenure. “We actually don’t know if the developers have been following the rules. … We’re going to pursue any and all enforcement actions.”
A Citywide Audit With Far-Reaching Consequences
PILOT agreements have been central to Jersey City’s transformation over the last two decades, with more than 100 abatements remaining in effect today. Now, for many in the real estate community, this audit signals a potential shift in tone. What was once a redevelopment partnership model with the City appears to be entering an adversarial stage of strict compliance and enforcement.
A PILOT (Payment in Lieu of Taxes) is a contractual financial agreement between a developer and a municipality or other local government entity. Instead of paying traditional property taxes, the developer pays an annual service charge (ASC), typically calculated as a percentage of gross revenue or costs. The terms of the ASC are governed by a financial agreement (FA) entered into between the City and the developer, which governs how ASC payments are calculated and all other terms of the agreement.
The Financial Risk: Retroactive Assessments
The audits may reach back over the full life of an agreement, potentially 20 years or more, while the City attempts to reconcile decades of payments. The City could seek to recoup substantial retroactive payments if it concludes developers were not in compliance with their Financial Agreements. While we do not believe the City has the right to recoup payments for the full term of the agreements, prior PILOT audits have sought to recoup alleged underpayments dating back to the PILOTs’ entire terms. If successful, this can result in extraordinary retroactive assessments.
Compliance Risks That Threaten Abatement Status
The City may also examine the Developer’s compliance with the non-financial aspects of the FA with respect to the following issues:
- Project construction completion timelines
- Local hiring and prevailing wage requirements
Failure to comply with these conditions can result in the potential cancellation of abatements and PILOT agreements.
“The City may seek to revoke short- or long-term tax abatements if a developer failed to comply with the certain conditions of the Financial Agreements or local ordinances, which can have severe financial consequences,” says David Wolfe, Co-Managing Partner of Skoloff & Wolfe, P.C. “Project financing and economic projections are typically based on the expected tax burden with the benefits of the PILOTs or abatements. If a developer loses a PILOT or abatement and is required to begin paying regular property taxes, the project’s economics may simply no longer be viable.”
What Developers Should Be Doing Now
Given the mayor’s stated timeline of completing all audits by July 1, 2026, developers would be well served to prepare themselves now by:
- Engaging experienced counsel
- Gathering historical records, including:
- Executed Financial Agreement
- Audits for the past 6 years
- Copies of PILOT payments for the past 6 years
- Financial Statements going back at least 10 years
Once an audit notice or bill is issued, developers must make a strategic decision about how to respond. Each case is highly fact-specific and will likely be evaluated as a contractual dispute based on the language of the Financial Agreement.
“The financial agreement is frequently the key in a PILOT dispute,” points out Mr. Wolfe. “A review of this nature requires careful attention to the specific language of each agreement. We also like to examine the history of payments and the practice between the parties.”
Why Counsel Matters More Than Ever
This citywide PILOT audit represents one of the most significant compliance actions Jersey City developers have faced in decades. In this new enforcement environment, experienced legal guidance is essential. The outcome of an audit will hinge on contract interpretation, historical practice, and statutory authority. Developers who prepare early will be better positioned to respond effectively and reduce the risk of an adverse outcome.
According to Mr. Wolfe, “in the city’s efforts to ensure developers paid what they owed, we must ensure that the City does not collect more than the law permits.”
Skoloff & Wolfe, P.C., has extensive experience representing developers in PILOT disputes and litigation arising from municipal financial agreements, including in Jersey City. Our attorneys also frequently counsel clients regarding property tax assessments, exemptions, transfer taxes, and Non-Residential Development Fees (NRDF).
As this process unfolds, informed strategy and early action will be the difference between containment and crisis.
