Dateline: February 27, 2007, Chicago
Today, Rich Lord of the Pittsburgh-Gazette a continued his series on the City of Pittsburgh's efforts to obtain voluntary payments for city services from nonprofits. In the trade, these payments are known as PILOTS, or Payments in Lieu of Taxes. Nonprofits provide benefits to major cities, but they also can pose a drain on the tax base by taking property off the tax rolls. According to Lord, one-third of Pittsburgh's property value is exempt, divided evenly between property owned by the government and property owned by nonprofits. See, Rich Lord, Pittsburgh's Pleading for Nonprofit Money Called 'Unique': Most Cities have Formulas for Payments in Lieu of Taxes Payments, Feb. 26, 2007.
Some cities enter into voluntary, but enforceable contracts with exempt entities such as...
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colleges, universities, museums, and hospitals. Boston, New Haven, Connecticut, and Providence, Rhode Island have all used such agreements. In the case of New Haven, the arrangement brought in $38 million last year, according to Lord. Pittsburgh has relied on voluntary contributions by charities located within its boundaries, but those contributions are not made pursuant to an agreement. Each nonprofit contributes the amount it deems appropriate and it does so on an anonymous basis. The city has not even provided the nonprofits with standards or suggested criteria to help them define what an appropriate contribution would be. Lord has obtained a list of the donors, publishing part of it in the Gazette. The city had hoped to collect $6 million per year from local nonprofits, for three years. So far 102 groups have promised a total of $13.25 in total contributions. In other words, Pittsburgh is about $5 million under plan.
The largest contributor was the University of Pittsburgh Medical Center, contributing $1.5 million in 2005. That is a lot of money, but according to Lord, it is about 20% of what the Medical Center would have paid in property taxes had it been a commercial entity. Nonprofit hospitals have come under fire for not providing enough charity care in exchange for their property tax exemption, as those familiar with Illinois Attorney General Lisa Madigan's proposal to tie Illinois property tax exemption to the charity care provided by a hospital know. The Medical Center provided $176 million in charity care in 2005, justifying its entitlement to the property tax exemption.
The Pittsburgh YMCA only contributed $100 in 2005, despite having a building valued at $8.6 million, a small portion of which is taxable. We suspect that the YMCA would argue that it is providing valuable benefits to the community. That is typically how nonprofits justify the exemption. Those running the taxing authority often counter, that the taxing authority is providing fire, police, and other services to the YMCA and other charities.
At this point, nobody is proposing a change in Pittsburgh system. But Pittsburgh is asking nonprofits to continue the voluntary payments. Lord indicates that there is some resistance because Pittsburgh has recent lyoperated with surpluses. Deficits, however, may be on the horizon.
This situation is not unique to Pittsburgh. As more and more local governments face more demands for services and shrinking tax bases, we can expect to see more discussion and debates over the exemption and whether PILOTS are in order.
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