A Different Approach to PILOTs

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April 20, 2012; Source: GoLocalWorcester

Most newspaper coverage of the issue of payments in lieu of taxes (PILOTs) applied to tax-exempt property owners reads like a boxing match: round after round of punches and parries about how much nonprofits cost a city in lost revenues, how much nonprofits contribute outside of paying property taxes, and so on. This article from Worcester, Mass. is different in the depth of its analysis, drawing on a report from the Worcester Regional Research Bureau (WRRB).

Several WRRB observations are very useful in this piece. Tax-exempts account for 21 percent of Worcester’s property tax base, higher than the state average of 12.8 percent, but Steve Eide, a WRRB senior research associate, noted that “the percentage of tax exempt properties doesn’t seem to be a good predictor of the overall health of the local economy…I think the typical back-and-forth is not very helpful. You may have a good economy or a bad economy with a high percentage of tax exempt properties.”

In Worcester, as in many cities, the economic landscape has shifted from manufacturing to education and health care. The tax-exempt entities that keep Worcester alive are landmark universities such as Clark University and Holy Cross, plus major hospital facilities. Five of the top nine employers in Worcester are exempt. There is little question that the presence of these two universities alone account for a major part of Worcester’s national and international image, adding significance to an otherwise small city that gets left in the shadows by two larger Bay State cities, Boston and Cambridge. 

Worcester’s PILOTs program deals with some, but not all, of its major tax-exempt property owners, which have tended to put tax-exempt contributions to specific, earmarked uses rather than dumping the payments into the general fund. For instance, the Massachusetts College of Pharmacy and Health Sciences, whose willingness to stay in downtown Worcester when other for-profit employers are leaving for the suburbs (as we’ve noted in the NPQ Newswire), has a PILOT deal to pay something around $1.25 to $1.5 million over 25 years to the Worcester Public Library. Clark University has pledged $6.7 million over 20 years for improvements to the public library and in the neighborhood adjacent to Clark, and while Holy Cross apparently hasn’t officially agreed to a PILOT deal, it did pledge to spend $80,000 annually during the next five years to support the library’s bookmobile.

In a way, the strategy that Worcester appears to be pursuing with its tax-exempt property owners looks like the economic development strategy of partnering with “anchor institutions” that was described in the NPQ Newswire last week. In Worcester’s case, it appears the public library, usually horribly underfunded in most cash-strapped urban localities, is the primary partner/beneficiary institution.—Rick Cohen