PILOTs & Other Local Fees Presented by: Yasya Berezovskiy Regina Gieler Holly Szafarek Krsni Watkins PA 744 Professor Shea March 21, 2011

What are PILOTs?

Payments in Lieu of Taxes ◦ “The voluntary or negotiated payment made by tax-exempt organizations to local governments” (Murphy, 2010). Other local fees can include: ◦ Drainage fees ◦ Street light fees ◦ Elevator and fire inspections

Where are PILOTs Most Appropriate? Municipalities with heavy reliance on property tax Areas where large amounts of total property are owned by nonprofits

How are payments determined? PILOTs tend to be secretive, ad hoc agreements ◦ Similar nonprofits end up paying different amounts

Why Nonprofits Pay Recognize the value of services received from local governments and are willing to pay their fair share Act of goodwill Pressure from local government ◦ Negotiate to avoid mandatory payments

Historical Roots of PILOTs Property tax exemption derives from British common law Becomes the rule around the mid- nineteenth century 1859-Kansas exempts churches from taxation

Why the Current Debate? Financial strain on local governments ◦ Loss in federal aid ◦ Erosion of property tax base Increased scrutiny of nonprofits ◦ Recent scandals ◦ Increasing commercialization

Normative/Philosophical Questions Tax exemption as government subsidy or a nonprofit entitlement? How voluntary are PILOTs, anyway?

Arguments in Favor of PILOTs Nonprofits benefit from core city- provided public services Revenue generated from PILOTs can be used to improve public services, lower property tax rates for citizens, and/or pursue other public projects Reduce taxation inequities amongst nonprofits Export tax burden to non-residents

Arguments Against PILOTs Nonprofits contribute in nonmonetary ways PILOTs may force nonprofits to reduce services Inconsistency and lack of transparency

Implications Brace for more tax encroachment Educate public Reveal inconsistencies with corporate tax breaks