Studying PILOTS: Ad Hoc Taxation and The Difficulty of Data
One of the barriers to articulating a grundnorm for PILOTS is that PILOTS are inherently ad hoc and indeed oxymoronic. A payment in lieu of taxes means a payment made so the authorities won’t tax the payer. In other words a tax, though one not imposed at a uniform rate. The payment is made all by private contract between government and taxpayer. Seems a strange way to run a tax system. But not entirely without precedence in other contexts. Local authorities frequently offer concessions from generally applicable taxation to entice new business to their jurisdictions, for example. Its hard to generalize on PILOTS, and the bigger elephant in the room — the exemption of charity- owned property from taxation — without a better understanding of the individual communities seeking to impose PILOTS, and the varying terms of PILOT agreements. A city like Pittsburgh, for example, might need a different approach than New York or Chicago, though all the cities have relatively wealthy nonprofits with significant land holdings. But nonprofits in Pittsburgh might own proportionately higher percentages of property; and certainly a PILOT program in the northeast might be unnecessary or irrelevant the farther west we travel, until we arrive in Palo Alto where the approach in the northeastern United States might once again be appropriate. PILOTS are terribly local.
A report out of Ithaca New York provides a deeper dive into the analytics behind the PILOT agreement between Cornell and Ithaca, bringing home some of the counter-efficient impacts of charitable property tax exemption:
THE HARD NUMBERS
As reported by Ithaca’s local radio station, WRFI, February 1, 2023, “according to the rental real estate listing service Dwellsy, Ithaca has the highest rent of any small city in the U.S. The study shows the average price for a one-bedroom was $1908 per month in 2022, up 4.5% over 2021. Only eight cities had higher average rents…New York, Boston, San Francisco, San Jose, Washington DC, Santa Barbara, Los Angeles, and San Diego.”
Sometimes forgotten in high rent areas, is that rents and property taxes are connected. Some assume landlords wanting to maximize profits are behind high rents, but landlords must pay local taxes, too, and this is a large factor in establishing rents. Ithaca and Tompkins County taxes are exorbitant by many standards across the country.
According to realtor.com, the median sold home price in Ithaca was $337,500 in 2022. This equates to a 2023 city tax bill of $4,043, county bill of $1,909, and school tax bill of $5,683. Additionally, city residents minimally pay $851 per year for water, $80 to a sidewalk repair fund, an $80 solid waste fee, and $4.50 and $1.50 for each garbage and yard waste collected curbside. The bill is about $13,000 though many pay more. By contrast, the average American household spends $2,471 on property taxes each year for a median home valued at $268,800, according to the U.S. Census Bureau, as reported by WalletHub in March 2022.
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Running a city is clearly no cheap proposition, especially when a majority of the city’s total assessed properties are tax exempt. To help understand how billions of dollars of tax-exempt property affect the cost of living, Assessor, Jay Franklin, estimates that if all property were taxable in Ithaca, the city tax rate would drop more than 50% and the Ithaca City School District tax rate would decrease 45%. If all Cornell property was taxable at the same rate as all homeowners pay, Cornell would owe the city $33 million, the county $15 million, and the school district $46 million.
Knowing this, how does a community calculate an equitable number for the next agreement. Cornell’s 2023 contribution of $1,575,204, as stipulated in the current Memorandum amounts to just a bit less than the amount collected by the city for dog and other licenses and permits.
There are examples within the Ivies worth reviewing. One is for institutions with property valued over $15 million, to pay 25% – 40% of the property taxes they would owe if they did not have tax exempt status. This is done in the form of a PILOT (Payment in Lieu of Taxes). For Cornell with nearly $3 billion worth of city property, the 25% minimum would equal $8.25 million for the city. The county would receive $3.8 million and the school district $11.5 million.