It's Time for Urban Redevelopment Through Benefit Corporations

RABs, named for the Redevelopment Area Bond Financing Law, N.J.S.A. 40A:12A-64 et seq., are a New Jersey application of national tax increment financing tools. RAB proceeds are often a necessary component of the capital used for urban real estate redevelopment projects, to enable the economics of inner city redevelopment to balance out. Pursuant to a RAB, a municipality agrees to forgo a revenue stream—in this case, a payment in lieu of tax (PILOT) under the Long Term Tax Exemption Law, and/or a special assessment—from the development of a real estate project for a period of time statutorily not to exceed 35 years (typically shorter), under the theory that the development would never occur absent this subsidy.

After a required 5 percent allocation to the county in which the development is located, the municipality and redeveloper negotiate how much of the future annual PILOT payments will go to pay RAB debt service, and what portion will go to the municipality to offset the public services required as a result of the development. As real estate taxes are a component of any development, but typically provide no value to the redeveloper, PILOTs securing RABs allow the same economic dollars to be applied as a source of project funds, thereby bridging an urban development project cost gap.