The Trouble with Voluntary—or “Voluntary”—Payments in Lieu of Taxes

 May 1, 2012; Source: Bloomberg Businessweek

The NPQ Newswire’s ongoing monitoring of municipal efforts to exact property tax payments from tax-exempt entities has new news to report this week. Fiscally strapped Providence, R.I. has struck a deal with Brown University to raise its payment in lieu of taxes (PILOT) to $31.5 million over 11 years. Nonetheless, Standard & Poor’s dropped Providence’s bond rating to BBB, two steps above junk bond status.

In Omaha, Neb., the nonprofit health care provider, Alegent Health, is acquiring the Creighton University Medical Center from Tenet Healthcare, the hospital’s for-profit operator whose presence makes the Medical Center taxable. Once the Alegent acquisition is completed, municipal officials worry that the hospital will be removed from the tax rolls, and Alegent confirmed that it would apply for a tax exemption. Give credit to one Omaha city councilman who observed that the Alegent acquisition is “a positive for the community that will ensure long-term access to health care and emergency services in north Omaha. That’s worth a lot more to the City of Omaha than the tax exemption.”

That’s certainly the argument of the North Shore Medical Center in Lynn, Mass. as it defends against possible increases in its $419,000 annual payment to the city. This article in the Daily Item mentioned other nonprofits that were making “voluntary” payments to the city, including two small organizations, Raw Art Works, which paid $4,100 in 2011, and Abbott House, which paid $15,000 in lieu of tax payments in 2011. Lynn is also going for an in lieu payment from the All Care Visiting Nurse Association for its Market Street headquarters. Meanwhile, a representative of the Lynn Community Health Center said that it did not make in lieu payments, and she said she knew of no community health center in the state that did. Obviously in Lynn, small nonprofits are not immune to City Hall tax exactions. 

In New Jersey, the borough of Princeton is merging with Princeton Township, which means that the to-be-elected mayor of the consolidated municipality will have to think through the nature of the relationship with Princeton University, possessor of one of the nation’s largest and fastest-growing tax-exempt endowments. Among the candidates for mayor is one who wants to increase Princeton’s combined borough/township PILOT above the current $2.5 million. Another candidate isn’t saying she would increase it, but wants to move from year-by-year negotiations to a more long-term PILOT structure. 

Observers from Ithaca, N.Y. who saw the Brown University news have immediately thought about Cornell, whose PILOT is only $1.64 million, half of what Brown’s will be if it’s approved by the Providence City Council. In small Ithaca, Cornell owns 90 percent of the city’s tax-exempt property, making it a larger target than other tax-exempt property owners in other cities.  Interestingly, the new mayor of Ithaca is Cornell graduate Svante Myrick, who said during his campaign, “As mayor, I will ask every non-profit in the city to contribute to the tax base through voluntary contributions.” It sounds like Ithaca will indiscriminately be hitting up a lot more than the likes of a well-heeled university, perhaps even aiming at nonprofits like the tiny arts group in Lynn—and that is the problem with the voluntary or sometimes involuntary voluntary tax payments being exacted from tax-exempt property owners.—Rick Cohen

About

Rick Cohen

Rick joined NPQ in 2006, after almost eight years as the executive director of the National Committee for Responsive Philanthropy (NCRP). Before that he played various roles as a community worker and advisor to others doing community work. He has also worked in government. Cohen pursues investigative and analytical articles, advocates for increased philanthropic giving and access for disenfranchised constituencies, and promotes increased philanthropic and nonprofit accountability.