New property tax source for Mecklenburg?

As more local governments such as Mecklenburg County find themselves in intense revenue pain, more are looking to their well-funded nonprofit institutions, which don't pay property taxes. In programs called "payments in lieu of taxes," the nonprofits make voluntary contributions in recognition that they use local services but pay no property taxes.

A new report from the Lincoln Institute of Land Policy on "Payments in Lieu of Taxes" finds at least 117 municipalities in at least 18 states are using them. Large cities collecting PILOTs, as they're called, include Baltimore, Boston, Philadelphia and Pittsburgh.

The report notes that PILOTs aren't appropriate for all types of nonprofits. They're most appropriate, the report says, in local governments that rely heavily on property taxes, and for nonprofits owning large amounts of tax-exempt property and that provide modest benefits to local residents.

Some PILOT programs are done case by case, such as New Haven, Conn., and Yale University. Boston has a systematic PILOT program that creates more equity among the nonprofits.
The report notes that Duke University Medical Center in Durham pays a $300,000 fire service fee paid to the City of Durham.

In an era marked by teacher layoffs, library closings and cuts to important public health and educational services, is it time for Mecklenburg County to start talks with some of its larger and big-property-owning nonprofits?

Hyong Yi, the county's budget director, tells me Mecklenburg County isn't getting any payments of this sort from any nonprofits in the county and he didn't know of its being discussed locally. Nor is Charlotte budget director Ruffin Hall aware of any to the City of Charlotte.

Obviously, there are many sides to consider beyond simple tax revenue: How financially stable is the nonprofit? What services does it provide to the community that might make up for its lack of property tax payments? What services does it require from the community? Should a PILOT program apply to churches? What about nonprofit hospitals, such as Carolinas HealthCare System, which owns a ton of real estate, or Presbyterian Hospital? Several other states ended up in lengthy court battles over nonprofit hospital properties and whether they should be taxed.

The report's authors offer several cautions. A news release about the study says:

“PILOTs can provide crucial revenue for certain municipalities, and are one way to make nonprofits pay for the public services they consume,” said the report’s authors, Daphne A. Kenyon and Adam H. Langley. “However, PILOTs are often haphazard, secretive, and calculated in an ad hoc manner that results in widely varying payments among similar nonprofits. In addition, a municipality’s attempt to collect PILOTs can prompt a battle with nonprofits and lead to years of contentious, costly, and unproductive litigation.”