P.I.L.O.T.s and Their Importance in Local Government and Not-for-Profit Finance
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Stephen R. Rolandi
August 30, 2021
On a vacation in Rhode Island in June, my wife and I had dinner in a local restaurant in downtown Providence that had recently opened. When dinner, which was excellent, concluded, and I received the dinner bill, I noticed an item on the bill that referred to a PILOTS program tax charge.
I asked the restaurant manager, who was not sure what the tax was for. I remember from my career as a finance executive in New York City government that PILOTS were used for economic development purposes by the City’s Economic Development Corporation (EDC) and NYC Industrial Development Agency (IDA), so I decided to do some research on these financing programs.
PILOTS may become a “sleeper issue” in time for local government and not-for-profit organizations.
Payments in lieu of taxes (usually abbreviated as “PILOTs” or “PILTs”) can be defined as payments made to compensate a governmental entity for some or all of the property tax revenues lost due to the tax exempt ownership or use of real property (real estate). Usually, PILOTs represent a temporary/partial reduction or delay in paying future property taxes.
In return for the reduction in these taxes, the PILOT applicant (the one receiving the tax reduction) commits to projects that benefit the community, which would not occur without the PILOT benefit. PILOT recipients may include hospitals, not-for-
profit organizations, colleges and universities and certain manufacturing and industrial companies.
PILOTS are also utilized by the federal government as well as numerous state and local governments throughout the United States. In the federal government, the U.S. Department of the Interior (through its Bureau of Land Management; National Park Service; US Fish and Wildlife Service; Bureau of Reclamation) makes PILT payments to local governments to help offset property losses due to the existence of nontaxable federal lands within their boundaries. This federal program helps local governments carry out such vital services as fire fighting and police protection; construction of public schools and roads; as well as search and rescue operations (pursuant to Public Law 94-565 of 1976).
Some nations, such as Canada, utilize PILOT programs to promote local governments and First Nations Indian tribes, where the national government owns real estate. American governments typically utilize PILOTS for economic development purposes as to facilitate investment from not-for-profit organizations, hospitals, schools, colleges universities and others.
PILOTs perform many useful functions; for example, they can provide crucial revenues for certain municipalities, and are one way to make not-for-profit organizations pay for the public services that they consume. However, PILOTs have been criticized for the sometimes inconsistent and opaque ways that they are calculated and administered among similar not-for-profit organizations.
It should be noted that PILOTs for not-for-profit organizations are voluntary. However, many cities want to change this arrangement. The issue is the relatively vast amounts of land owned by universities, hospitals, churches and other NFP entities. These organizations enjoy tax-exempt status by IRS (usually as 501-c-3 tax-exempt entities) which means that property taxes would have been paid to municipalities had this land been owned by private individuals or businesses, and not NFPs. At the same time, these NFPS enjoy the same level of services (police, fire, sanitation, etc.) that residents of a given city or county enjoy
It has been argued by some that requiring these NFPS to pay some taxes, either voluntarily or by statute, would go a long way to alleviate some of the fiscal strain on cities and counties, particularly in this (COVID-19) environment, and thus increase local governments’ tax base. Many not-for-profits, who have relatively small size budgets, fear this trend. And many citizens resent tax breaks being given to not-for-profits as well.
What can be done to remedy this situation? Here are some ideas:
- PILOTs may not be appropriate for all types of not-for-profits; those NFPS that are very large, own large amounts of tax-property, and provide benefits to local government citizens, are likely good candidates for a PILOT.
- Municipalities should work more collaboratively with NFPs when seeking PILOTs. According to a recent study done by the Lincoln Institute of Land Policy, the best PILOT initiatives come about as a result of a partnership among government, NFPs and the private sector;
- State and local governments should consider alternatives to PILOTs, such as providing grants to local governments that host NFPs to compensate them for their loss of property tax base, as has been done in Connecticut; another option would be to increase user fees.
As a public administration professional who has worked in both sectors, I am sensitive to the financial and budgetary needs of both local government and the NFP sector—they need each other, particularly in today’s economic climate, as the nation builds itself out of a severe recession caused by the COVID-19 pandemic.
One advantage of public administration professionals with experience in both sectors is that they can walk the line between both and develop needed solutions. An option that balances both sectors’ interests may be the best solution.
Time will tell.
Author: Stephen R. Rolandi retired in 2015 after serving with the State and City of New York. He holds BA and MPA degrees from New York University, and studied law at Brooklyn Law School. He teaches public finance and management as an Adjunct Professor of Public Administration at John Jay College of Criminal Justice (CUNY) and Pace University. Professor Rolandi is a Trustee of NECoPA; past President of ASPA’s New York Metropolitan Chapter and Senior National Council Representative. He has also served on many other association boards in New York and Washington, DC.
You can reach him at:
[email protected] or [email protected] or 914.536.5942 or 212.237.8000.
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P.I.L.O.T.s and Their Importance in Local Government and Not-for-Profit Finance
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Stephen R. Rolandi
August 30, 2021
On a vacation in Rhode Island in June, my wife and I had dinner in a local restaurant in downtown Providence that had recently opened. When dinner, which was excellent, concluded, and I received the dinner bill, I noticed an item on the bill that referred to a PILOTS program tax charge.
I asked the restaurant manager, who was not sure what the tax was for. I remember from my career as a finance executive in New York City government that PILOTS were used for economic development purposes by the City’s Economic Development Corporation (EDC) and NYC Industrial Development Agency (IDA), so I decided to do some research on these financing programs.
PILOTS may become a “sleeper issue” in time for local government and not-for-profit organizations.
Payments in lieu of taxes (usually abbreviated as “PILOTs” or “PILTs”) can be defined as payments made to compensate a governmental entity for some or all of the property tax revenues lost due to the tax exempt ownership or use of real property (real estate). Usually, PILOTs represent a temporary/partial reduction or delay in paying future property taxes.
In return for the reduction in these taxes, the PILOT applicant (the one receiving the tax reduction) commits to projects that benefit the community, which would not occur without the PILOT benefit. PILOT recipients may include hospitals, not-for-
profit organizations, colleges and universities and certain manufacturing and industrial companies.
PILOTS are also utilized by the federal government as well as numerous state and local governments throughout the United States. In the federal government, the U.S. Department of the Interior (through its Bureau of Land Management; National Park Service; US Fish and Wildlife Service; Bureau of Reclamation) makes PILT payments to local governments to help offset property losses due to the existence of nontaxable federal lands within their boundaries. This federal program helps local governments carry out such vital services as fire fighting and police protection; construction of public schools and roads; as well as search and rescue operations (pursuant to Public Law 94-565 of 1976).
Some nations, such as Canada, utilize PILOT programs to promote local governments and First Nations Indian tribes, where the national government owns real estate. American governments typically utilize PILOTS for economic development purposes as to facilitate investment from not-for-profit organizations, hospitals, schools, colleges universities and others.
PILOTs perform many useful functions; for example, they can provide crucial revenues for certain municipalities, and are one way to make not-for-profit organizations pay for the public services that they consume. However, PILOTs have been criticized for the sometimes inconsistent and opaque ways that they are calculated and administered among similar not-for-profit organizations.
It should be noted that PILOTs for not-for-profit organizations are voluntary. However, many cities want to change this arrangement. The issue is the relatively vast amounts of land owned by universities, hospitals, churches and other NFP entities. These organizations enjoy tax-exempt status by IRS (usually as 501-c-3 tax-exempt entities) which means that property taxes would have been paid to municipalities had this land been owned by private individuals or businesses, and not NFPs. At the same time, these NFPS enjoy the same level of services (police, fire, sanitation, etc.) that residents of a given city or county enjoy
It has been argued by some that requiring these NFPS to pay some taxes, either voluntarily or by statute, would go a long way to alleviate some of the fiscal strain on cities and counties, particularly in this (COVID-19) environment, and thus increase local governments’ tax base. Many not-for-profits, who have relatively small size budgets, fear this trend. And many citizens resent tax breaks being given to not-for-profits as well.
What can be done to remedy this situation? Here are some ideas:
As a public administration professional who has worked in both sectors, I am sensitive to the financial and budgetary needs of both local government and the NFP sector—they need each other, particularly in today’s economic climate, as the nation builds itself out of a severe recession caused by the COVID-19 pandemic.
One advantage of public administration professionals with experience in both sectors is that they can walk the line between both and develop needed solutions. An option that balances both sectors’ interests may be the best solution.
Time will tell.
Author: Stephen R. Rolandi retired in 2015 after serving with the State and City of New York. He holds BA and MPA degrees from New York University, and studied law at Brooklyn Law School. He teaches public finance and management as an Adjunct Professor of Public Administration at John Jay College of Criminal Justice (CUNY) and Pace University. Professor Rolandi is a Trustee of NECoPA; past President of ASPA’s New York Metropolitan Chapter and Senior National Council Representative. He has also served on many other association boards in New York and Washington, DC.
You can reach him at:
[email protected] or [email protected] or 914.536.5942 or 212.237.8000.
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