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Payments in Lieu of Taxes in the Future

University Business, Jan 2011

Interest in collecting payments in lieu of taxes (PILOTs) from higher ed institutions and other nonprofits is likely to grow as cash-strapped municipalities seek additional revenue, according to a new report by the Lincoln Institute of Land Policy. But the recommendation for cities and towns is to collaborate with colleges about the payments to ensure greater consistency and transparency.

In some cities, case-by-case negotiation with one or several nonprofits is deemed best, such as the agreement between Yale University and New Haven. In cities with a large number of nonprofits, such as Boston, creating a systematic PILOT program can promote horizontal equity among tax-exempt nonprofits and raise more revenue than negotiating individual agreements, the report notes.

Another recommendation is to consider alternatives to PILOTs, such as state governments providing grants to local governments that host tax-exempt nonprofits to compensate them for their loss of property tax base, as is done in Connecticut. Increasing user fees is another alternative way for municipalities to raise revenue from tax-exempt nonprofits.

More information on the report, which covers 117 municipalities across 18 states, can be found at --Melissa Ezarik