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Economy


PILOTs can ease budget pains

PILOTs can ease budget pains

But, they should be used with caution, report says.
  • Written by Ed Brock ([email protected])
  • 1st January 2011

Interest in collecting payments in lieu of taxes (PILOTs) from charitable nonprofit organizations is likely to grow as cash-strapped municipalities seek additional revenue, according to a new report released in November by the Cambridge, Mass.-based Lincoln Institute of Land Policy (LILP). However, the recession has affected those nonprofits, too, and the use of PILOTs can have varied results, according to the report’s authors.

The LILP report, “Payments in Lieu of Taxes: Balancing Municipal and Nonprofit Interests,” covers PILOTs programs, all of which are voluntary, in 117 municipalities across 18 states. PILOTs programs can provide some revenue, but they should be used cautiously, said the report’s authors, Daphne Kenyon and Adam Langley, in a statement. “PILOTs are often haphazard, secretive and calculated in an ad hoc manner that results in widely varying payments among similar nonprofits,” Kenyon and Langley said. “In addition, a municipality’s attempt to collect PILOTs can prompt a battle with nonprofits and lead to years of litigation.”

Boston, which hosts many tax exempt institutions, began its PILOTs program in the 1970s, and while it generates $34 million annually, Commissioner of Assessing Ron Rakow says it is still a minor contribution to a $2.4 billion budget. Last month, a city task force released a new formula intended to increase participation among institutions in the program. From the city’s hospitals and universities alone, the new formula is expected to increase PILOTs payments from about $14 million to $38 million annually.

Rakow expects some resistance from the participating institutions, but not much and not for long. “By and large, I think they understand the fiscal constraints that the city faces and that they need to be part of the solution,” Rakow says.

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