If it walks like a duck and quacks like a duck…
In an era of waning revenue streams and increasing demand for government services, some cash-strapped municipalities cast a longing eye at nonprofits’ real property as a missed source of revenue. Through Payment in Lieu of Taxation (“PILOT”) programs, states and municipalities encourage – and sometimes require – nonprofits to pay what they consider the nonprofit’s “fair share.” PILOT programs, however nicely packaged, are still essentially property taxes. The trend toward PILOT programs in the last fifteen years should concern the nonprofit sector because of the potential for substantial financial implications, as explained herein.
PILOT programs have long been used to compensate localities for lost property tax revenues. Historically, both state and federal governments have utilized PILOTs to reimburse municipalities containing exempt state- and federally-owned land. In addition, some large educational nonprofits for decades have made voluntary PILOT payments to municipalities to help offset their considerable use of municipal services. For example, Harvard and MIT have made voluntary payments to the City of Cambridge, Massachusetts since 1928.
Recently, use of PILOT programs has increased dramatically. From 2000 to 2010, eighteen states implemented PILOT programs affecting nonprofits. However, these programs have not gained universal approval; some states have expressly declined to implement PILOT programs. Florida, for example, determined its PILOT program statute violates Florida’s constitution. The overall trend, however, favors PILOT programs for nonprofits. Municipalities continue to pressure state legislatures to assist local communities facing tough economic realities.