Promising PILOTs: A look at How Baltimore & Other Cities Manage Tax Gaps with Non-Profit Institutions

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Published March 22, 2024

Baltimore City faces a unique challenge, with higher property taxes than surrounding areas and a greater concentration of non-profit organizations than most of the State. These nonprofits provide critical services but, owning extensive and valuable real estate, they erode the City's tax base by not paying property taxes. This situation has led to increased pressure on the nonprofit sector, driving a demand for Payments in Lieu of Taxes (PILOTs). PILOTs are voluntary payments made by tax-exempt nonprofits to municipalities, in place of property taxes, to cover the cost of city services they use. For Baltimore City and other local governments, PILOT programs offer a vital avenue to generate revenue from charitable organizations exempt from property taxes.

In 2016, Baltimore City entered into a 10-year-long PILOT with the 14 largest non-profit organizations in the City, known as the “meds & eds.” It requires contributions based on their size and their community benefit impacts. The collective payment totals $6,000,000/per year on property that would otherwise bring in $108,317,863.00 in revenue – and use $47,659,860.00 in City services.

With this PILOT set to expire in two years, we've researched how other cities have tackled similar issues and reviewed our history with this challenge. Based on our findings, we've developed some recommendations:

  1. Municipalities should work collaboratively with nonprofits when seeking and negotiating PILOTs. Because PILOTs are voluntary payments, the best PILOT initiatives arise out of partnerships between municipalities and nonprofit organizations.
  2. PILOT agreements should standardize a formula that determines an institution's contributions. Using concrete and quantifiable methods reduces the appearance of unfairness, which increases exempt organizations’ willingness to comply with municipal PILOT requests.
  3. Cash contributions should be adjusted annually for public benefits provided to residents. City officials and nonprofit leaders should work together to identify which services would be most valuable for residents and most appropriate for each nonprofit to provide. But there must be a standard methodology used to calculate those community benefits.
  4. Agreements should provide the opportunity to adjust annual contributions based on acquiring or relinquishing new property by exempt institutions. PILOTs that provide additional Promising PILOTs | Office of Comptroller Bill Henry 21 payments when land becomes tax-exempt under nonprofit ownership could help ensure that local governments can continue to provide the same level of services.
  5. Municipalities should listen to each institution’s priorities and earmark PILOTs for services consistent with a non-profit’s mission and/or target a PILOT to fund activity that directly benefits the institution or supports its mission.
  6. State governments should provide grants to reimburse overburdened local governments for the loss of revenue due to property tax exemptions, particularly when the entire state derives significant economic benefits from the nonprofit.
  7. PILOTs should be multi-year agreements – with 10 years being the minimum. This provides for a predictable revenue stream for local governments and a known budget number for nonprofits.
  8. Agreements should specify a payment in the base year but adjust for inflation each year.
  9. PILOT agreements and their negotiations should be a public and transparent process.
  10. Local governments should track and publish PILOT contributions detailing total amounts – both cash contributions and community benefits credits – made by each nonprofit. Universities and hospitals may be more inclined to pay into PILOT agreements if they see other universities and hospitals doing so and know the public is privy to the information.

These best practices are designed to establish fair, sustainable, and collaborative PILOT programs that benefit municipalities and nonprofits alike. I trust this report will serve as a foundation for the Administration's discussions with the meds & eds. These discussions must be public, transparent, equitable, and thoughtful.

Read the report.

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