January 5, 2012; Source: Planet Princeton | The tug of war between municipalities and tax-exempt property owners is playing out in Princeton, New Jersey. Some residents of Princeton Borough and Princeton Township have challenged approval of a new arts and transit zone for Princeton University’s $300 million arts and transit project. Their argument is that the two local governments (borough and township) approved the zoning for Princeton in exchange for money, including an increase in the University’s “voluntary” payments in lieu of taxes.

The University has long said that the approval of the zoning was completely separate from its negotiations about a payment in lieu of taxes. The lawsuit charges that a much more straightforward tit for tat was involved:

Princeton University President Shirley Tilghman has stated publicly that the University would not renew its agreement for Payment in Lieu of Taxes (PILOT) if the Borough did not approve the Arts district proposal or acted to bar implementation of such proposal. Princeton University Vice President Robert Durkee thereafter stated publicly that the amount of the University’s PILOT would need to be reconsidered if the Borough did not facilitate or approve the necessary zoning for the University’s Arts campus.

The suit alleges that the zoning deal included the University’s paying for a $500,000 transit study, increasing its annual PILOT to Princeton Borough by $500,000, and making a $500,000 PILOT payment to Princeton Township.

In a way, this is a classic situation revealing the involuntary nature of voluntary PILOTs. Local governments can withhold zoning approvals and building permits until tax-exempt property owners fork over PILOTs. Yes, making zoning decisions contingent on such payments seems to cross into illegality, but many tax-exempt property owners would find themselves facing the choice of upping their payments to local government to get their projects underway, or opting to have their projects delayed or killed as they challenge recalcitrant local government administrators in court. Princeton University has deeper pockets than all but a handful of private universities in the U.S., so writing checks for $1 million in property taxes (oops, PILOTs) and paying for other municipal expenditures is a flyspeck on the school’s multibillion-dollar budget. But tax-exempt property owners without Princeton University’s immense wealth would find this kind of zoning quid pro quo hard to fight—and hard to afford.—Rick Cohen