Frequently Asked Questions on PILOTs

Embedded Scribd iPaper - Requires Javascript and Flash Player
PILOTs – Frequently Asked Questions What are PILOTs? PILOTs – or payment in lieu of property taxes – are fees to charitable organizations that are sometimes requested by local governments to cover the cost of providing municipal services. Why PILOTs? Why now? Many local communities are considering this option to add money to their bottom line in difficult economic times. With funding continuing to stay stagnant and costs rising, many municipalities have considered PILOTs as a possible way to generate income from charitable organizations located in the community. Cities and towns across Massachusetts – including Boston and Concord – have been increasingly asking charitable organizations to pay PILOTs as a way of contributing to municipal services they receive. Are charitable organizations required to pay property taxes? For the most part -- no. In Massachusetts, the exemption for property of charitable organizations is created by state statute. M.G.L. c. 59, §5 (Third) exempts from taxation the personal property of a charitable corporation and real estate that is owned by a charitable corporation and is occupied by that corporation (or another charitable corporation) for charitable purposes. To obtain an exemption for its property, a charitable organizations must follow required procedures. So, why are PILOTs an issue? PILOTs are an issue because municipalities are making them an issue by asking charitable organizations for a financial contribution. This can create an uncomfortable situation for charitable organizations which choose not to contribute with a PILOT, particularly if others are making a payment in lieu of taxes. If a charitable organization needs basic city services or a building permit, but hasn’t paid a requested PILOT, the municipality cannot legally withhold or unreasonably delay the municipal service or action. However, this can create tension between them and the organization if there isn’t a mutual appreciation of the full value the organization may provide. Can a charitable organization that owns exempt property be legally forced to pay a PILOT to a municipality? To put it simply, absolutely not. Why is this particularly significant for the human services community in Massachusetts? In Massachusetts, the human services sector is restricted by its state contracts, many of which haven’t been updated since 1987. With 23 years of level funding and not even a basic cost of living adjustment, community-based human services providers are trying to do more with less as costs rise, but payments stay
the same. Because of this, the human services community simply doesn’t have any money to give cities and towns through PILOTs. Some facts:     About 60 percent of human service providers have less than 30 days cash-on-hand at year’s end. Nearly half of human service providers do not generate sufficient cash to cover operations. These are relatively small nonprofits with inelastic contracts, unlike well known universities and hospitals. We have no price flexibility. With no new money available for human services, increased costs can only be met by reducing services or a loss of jobs.
If charitable organizations are not paying property taxes or a PILOT, what is their value to a municipality? The value many charitable organizations provide to the community is far greater and much more impactful than their projected tax payments. Most human service providers deliver essential services for our vulnerable populations, take care of our sick and disadvantaged, educate our young adults and provide services to residents that might otherwise be unavailable. These organizations provide a great deal of value in the communities where they are located, and the tax-exempt status of their real estate helps them provide these services and programs at an affordable cost. While human services organizations are under no obligation to pay a PILOT, you can remind someone from the city or town about your contributions to the town, such as:   How many residents in the community does your organization serve? How many you have you served since your organization’s inception? How many residents from the area do you employ? What is the contingent economic benefit for the community? For instance, the Help Wanted report by the UMass Donahue Institute stated that across Massachusetts, spending by our sector created an additional 34,000 jobs outside of this sector. What services does your organization provide that are unique and would disappear if your organization left town? Do you contribute to public health and safety? Explain how your organization is funded and the difficulty in securing PILOT funding from either state government contracts or philanthropy. Explain that you have shared in the sacrifice. Your costs cannot be passed on to the people you serve. Is there another way to work with the town that is non-monetary? Would a municipal board or committee be interested in using a conference room or playing field at the nonprofit once a month? Explain that you understand their predicament as you are trying to balance your budget as well.
 
 
What should I do if I have a question about PILOTs? Contact the Providers’ Council, and we may be able to help you. If the issue warrants, we can provide you with a referral for legal counsel or an accounting firm that are expert in these matters. Providers’ Council May 2010