PILOTs: Grounded or Ready for Flight?

"It’s in the university’s best interest to help the city thrive. And the city has to realize it can’t kill the goose". That’s the assessment of the lead author of a Lincoln Institute for Land Policy report on PILOT (payment in lieu of taxes) programs between cities and non-profits. Killing the goose might have been what would have happened if the "post-secondary education privilege tax" proposed by the Mayor of Pittsburgh would have gone into effect.

The report provides quite a comprehensive picture of where PILOT agreements exist, but it still is not perfect owing to the fact (acknowledged by the authors) that many municipalities might have individualized agreements with non-profits or might not identify them as PILOT programs. The data shows there are only 117 municipalities in 18 states that have a PILOT agreement. Many are concentrated in the northeast U.S.

Pittsburgh is one of those municipalities: it has reported a positive dollar figure under the heading of "non-profit payment for services" at least going back to 1999. The highest amount for any one year came in 2006 when the total was $9.038 million as the Pittsburgh Public Service Fund came together. Recent audited numbers are much lower.

The report says that with the scrutiny on non-profits as to what constitutes non-profit activity and the pressure on local budgets that the interest in PILOTs is quite high, but yet their use it not widespread. Municipalities in Massachusetts account for 70% of the agreements found in the report. As we wrote in a Blog two years ago, Boston-a city that is often looked to when studying non-profit/municipal agreements-had a total value of hospital and university property that was just slightly less than the value of Pittsburgh’s total (taxable and exempt) property.

Pittsburgh’s last few budgets have said this in regards to PILOT agreements with non-profits: "the City and the non-profit tax-exempt organizations are developing a long-term arrangement regarding this revenue source".

Grounded PILOT?

A major part of the City’s pension bailout plan hinges upon getting more money from the Parking Authority as a payment in lieu of taxes (PILOT). This year "Authority Payments", which count money from authorities in addition to the Parking Authority, total $11.4 million. Next year the amount is forecast at $20.1 million, an amount projected annually from the current five-year forecast.

A letter from a Councilman to the Mayor stated the Parking PILOT agreement "…currently gives the City $1.3 million dollars…This needs to increase to $2.6 million this year and $9.3 million in 2012 and beyond in order to cover the hole in the City’s budget from diverting parking tax revenue to the pension". Movement on that measure has effectively ground to a halt. The latest incident coming last week when a majority of the board voted against forming a panel to study how the Authority could raise revenue and dedicate some of it to the City. The panel idea was put forth by a board member who is also a City Council member and a proponent of the bailout plan. All of this serves as a way to examine what the proper relationship between the City and its authorities really should be.

The Controller’s CAFR notes that the cooperation agreement between the City and the Parking Authority dates back to February of 1995. It was amended five years later to increase the PILOT payment to where it currently is. That increase was 36%; the current proposal for 2011 to 2012 would be for a more than three fold increase. The payment is made, however, "…only upon the Parking Authority successfully meeting its debt service requirements". The Authority has outstanding debt of around $100 million.