Report Details Use of Payments in Lieu of Taxes by Nonprofits

More cash-strapped cities seek revenue, says research by Lincoln Institute of Land Policy

CAMBRIDGE, Mass., Sept. 28, 2012 /PRNewswire-USNewswire/ -- At least 218 local governments have received payments in lieu of taxes (PILOTs) from nonprofits that are collectively worth more than $92 million per year, according to a new report by the Lincoln Institute of Land Policy that provides far more detail on these voluntary payments than was previously available in any single source.

The great majority of PILOT revenue comes from universities and hospitals, most PILOT activity occurs in the Northeast, and a small number of multi-million dollar PILOTs account for the majority of all revenue received nationwide, according to Payments in Lieu of Taxes by Nonprofits: Which Nonprofits Make PILOTs and Which Localities Receive Them, authored by Daphne A. Kenyon, Adam H. Langley and Patricia C. Bailin.

Tables that list all local governments that have received PILOTs and all nonprofits that have made them are available at the online resource Significant Features of the Property Tax in the Resources & Tools section of the Lincoln Institute website.

The research is a follow-up on the Lincoln Institute Policy Focus Report Payments in Lieu of Taxes: Balancing Municipal and Nonprofit Interests, authored by Kenyon and Langley.

In recent years, a growing number of cities and towns have looked to PILOTs from tax-exempt nonprofits as one way to address growing fiscal challenges. Boston recently put in place the most comprehensive PILOT program in the nation and received $19.4 million in the first year. Providence, R.I. has made PILOTs an important part of efforts to deal with a serious fiscal crisis and has negotiated new agreements with Brown University and four other nonprofits.

Some of the key findings from the study:

• PILOTs have been received by at least 218 localities in at least 28 states since 2000; these payments are collectively worth more than $92 million per year.
• Although more than 90 percent of all PILOT revenue comes from "eds and meds"—college payments are far more important than hospital payments with colleges contributing about two-thirds of PILOTs and hospitals another quarter.
• Many other types of nonprofits also make PILOTs even if their contributions are generally small. Nonprofits that make PILOTs of these types: housing (47), religious organizations including churches (36), social services (15), and arts/culture (11).
• The Northeast accounts for roughly 75 to 80 percent of PILOT activity, with the largest share in Massachusetts and Pennsylvania.
• Most nonprofits make fairly small PILOTs while most revenue generated comes from a small number of multi-million dollar PILOTs. As a result, the average PILOT for all nonprofits ($292,952) is nearly 10 times larger than the median ($30,000).
• While at least 420 nonprofits make PILOTs, the majority of revenue comes from just 10 organizations: Harvard University, Yale University, Stanford University, Brown University, Boston University, Massachusetts General Hospital, Dartmouth College, Brigham & Women's Center, Massachusetts Institute of Technology, and Princeton University (in order of payments, beginning with the highest).
• PILOTs generate little revenue in most localities—accounting for less than 1 percent of total general revenue in 165 out of 181 localities that have information available.
• Most PILOTs go to cities and towns, but at least seven school districts and four counties also receive PILOTs.

Although many more municipalities are considering PILOTs, the report provides a reality-check for anyone expecting them to be a panacea for cash-strapped cities and towns. For the typical locality receiving PILOTs, these voluntary payments account for only 0.13 percent of general revenue. That's the same amount that local governments raise from charges for parking meters and parking lots.

"Sometimes the debate surrounding PILOTs can seem a lot bigger than the dollars involved," said Adam H. Langley. "PILOTs simply don't generate enough revenue to be a panacea for cash strapped cities and towns, and concerns that these payments will seriously undermine nonprofits' financial health seem exaggerated since these payments are voluntary—nonprofits can say 'no'—and are typically much less than what nonprofits would pay if taxable."

"It's important to keep in mind that PILOT revenue overwhelmingly comes from large universities and hospitals," added Daphne A. Kenyon. "While there are cases where churches and small social service organizations have made PILOTs, most contributions come from large institutions that rely on publicly-provided services like police and fire protection but don't pay property taxes to cover that cost."

Findings in the report are based on a survey of local government officials in approximately 600 jurisdictions with the largest nonprofit sectors and a three-year data collection project. This expansive methodology resulted in the identification of roughly twice as many instances of PILOTs than in previous research.

The Lincoln Institute of Land Policy is a leading resource for key issues concerning the use, regulation, and taxation of land. Providing high quality education and research, the Institute strives to improve public dialogue and decisions about land policy.

About the Authors:
Adam H. Langley is a research analyst in the Lincoln Institute's Department of Valuation and Taxation.
Daphne A. Kenyon is a visiting fellow in the Lincoln Institute's Department of Valuation and Taxation.
Patricia C. Bailin is a graduate student at Tufts University.

SOURCE Lincoln Institute of Land Policy