PILOTs Take off in Several Cash-strapped Municipalities

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April 15, 2012; Source: GO LACKAWANNA

Yesterday was tax day for all of us individual taxpayers, but it always seems to be fending-off-municipal-property-tax day for nonprofit property owners in cash-strapped municipalities around the nation. This brief review of the trajectory of payments in lieu of taxes (PILOTs) strategies around the country touches on communities the NPQ Newswire has covered and some that are new PILOT venues:

Scranton, Pa., home of Dunder Mifflin on NBC-TV’s “The Office,” is always trying to find ways to get money from the University of Scranton, a Jesuit school. Recently, Scranton had to borrow $1.5 million to meet its payroll. The City Council got the university to increase its annual contribution to the city from $110,000 to $175,000, but now wants more, and it wants other educational institutions to ante up as well (many haven’t even responded to or acknowledged the city’s request). The Council’s so-called “supermajority” favors a fair tax for nonprofit property owners. This time around, Scranton’s three taxing entities overcame their mutual sensitivities and agreed to meet to plot a collaborative strategy to squeeze the university and other nonprofits. Note their strategy to play to Scranton taxpayers: One of the city representatives said that a 26-page list of tax exempt properties represented “multiple, multiple millions of dollars” not being collected from tax-exempt property owners, a “total tax loss from tax-exempt properties,” according to the City Council chairwoman, of “$196,293,893.” One doubts that the three taxing entities are taking quite as close a look at PILOTs from churches and synagogues as they are from universities and medical facilities.

Providence, R.I. is another PILOT-hungry municipality, as the NPQ Newswire has noted. The city has a $22 million projected operating deficit which has driven Mayor Angel Taveras to think about asking the several universities there for more in PILOT payments. Providence College has paid more than $2.5 million in voluntary payments since 2003, but because it is a “tuition dependent” school, the money comes out of the students’ tuitions, currently running around $50,000. Like many schools, Providence College is resisting increasing its payments, citing all the things it does for and brings to the city, including “saving the city thousands of dollars” thanks to students’ volunteer hours. The college’s student newspaper points out that the new legislation passed by the Rhode Island House of Representatives allowing cities to tax tax-exempts up to 25 percent of what they would have paid if their properties were fully taxable will lead Taveras to ask for the same from the College. That would potentially be a PILOT of $25 million, which the newspaper says “will likely lead to another tuition increase.”

Pittsburgh, Pa. was, for a time, the poster child-city of hitting up tax-exempts for PILOTs, leading to a prolonged standoff between the nonprofits and the mayor. Recently, a community organization called Pittsburgh United took aim at the University of Pittsburgh Medical Center (UPMC), suggesting that it should give up its nonprofit status and allow the hospital property to be taxed like other private commercial properties. Pittsburgh United contends that a nonprofit UPMC avoids $204 million in taxes (such as property taxes) and $133 million in income tax.  The group compares these figures to UPMC’s actual municipal contribution of $8.4 million in 2011.

Watch the development of the Pittsburgh situation closely. Pittsburgh United’s argument is one of tax fairness, suggesting that UPMC is paying an effective tax rate of 1.98 percent, leagues lower than other commercial property owners. One can imagine a nonprofit version of the Buffett rule, with someone in Pittsburgh calling for a payment scheme where UPMC is asked to pay taxes at a rate at least as high as that of its vendors. The season for localities looking to tax-exempts for revenues is just heating up.—Rick Cohen