Or more? So, if the city were to ask large non-profits (like hospitals, but not religious institutions) to pay for police, fire and snow plowing services, they could increase their revenue by at least $1.2M a year. Do we have the political will to do that?
There has been a PILOT (Payment In Lieu of Taxes) committee that has been looking at potentially asking large non-profits to pay for their share of some services. The committee has put together a report, which spends the first 14 pages exploring our budget and where money comes from and is spent and compares it to other cities. It’s a good overview worth looking at. Then in spends several pages explaining what they are doing in other cities. Finally, it tells us what we might be able to do.
Hypothetical Voluntary Pilot Program (Boston Model)
Researchers Daphne Kenyon and Adam Langley have recommended that municipalities with large amounts of tax-exempt property within its borders take a systematic approach to the issue of PILOT payments from nonprofit, exempt property owners. The City of Boston, with 52% of its property tax-exempt, has taken such an approach. If the City of Madison were to take a similar systematic approach, some general policy decisions would need to be made. In addition, some guidelines regarding the subsequent negotiations between the city and a specific tax-exempt property owner would need to be established.
For Madison to follow the Boston model, the city would need to decide what percentage of its budget reflects essential city services. Boston identified primarily police, fire, and snow removal as essential services. It determined that these expenses represented approximately 25% of the city budget.
Concurrently, the city would need to value each of the exempt properties. In the case of Boston, a desire to recognize the limited resources of small nonprofits led to the creation of a threshold for valuations such that any nonprofit with property valued at less than $15 million would not be asked to participate in a PILOT. The City of Madison would need to decide, first, what methodologies to use in determining valuations, and, second, where to place its threshold amount. Also, Boston shared its determination of value with the property owners, allowing them the opportunity to persuade the assessor that a different valuation was more appropriate.
Once the City of Madison had decided the appropriate portion of the budget reflected essential services and the values of exempt properties that exceeded the threshold, the city could determine what the level of taxes would be if the property were not exempt.
At this point in the process, Boston‟s approach was to deal with each qualifying nonprofit individually. Boston felt it important to recognize the community benefit provided by each nonprofit. Nonprofits that were able to quantify the value of the benefits provided to residents of the City of Boston were able to have as much as 50% of that value be used as a credit against the PILOT amount indicated by the valuation. (Credits based on the benefits applied specifically to city residents had the effect of filtering the amount of benefits provided to the region based on the rationale that the city was providing the municipal services, not the region.)
In addition, Boston recognized that making a PILOT payment as specified by this process may be difficult for the nonprofit in the immediate future. Therefore, part of the discussion between the city and a specific nonprofit concerned the potential for phasing in the payment over a five-year period.
To summarize, for Madison to incorporate the Boston model, the following steps would take place:
1. Determine what portion of the city budget would be represented by essential services.
2. Determine valuations for tax-exempt properties with feedback by the respective owners.
3. Set a threshold value for properties below which the nonprofits would not be asked to participate.
4. Begin negotiations with qualifying property owners.
5. Determine the value of benefits provided by a specific nonprofit to residents of the City of Madison.
6. Agree to the value of those services that can be used as a credit for the PILOT payment.
7. Agree to a phase-in period that concludes with the PILOT payment reaching the appropriate amount.Based on the very limited data available on the value of tax-exempt properties located in the City of Madison, a very general estimate of a PILOT program based on the Boston experience can be made. Costs for police, fire and snow and ice control services are estimated to total $114.7 million in 2013. This represents 43% of the $267.1 million general and library funds budget for that year.
The municipal property tax rate for 2013 is 0.9312%. Forty-three percent of that amount would establish a preliminary PILOT tax rate of 0.4%. Using Boston‟s 50% deduction for community services provided to tax-exempt entities subject to the PILOT, the hypothetical tax rate would be 0.2%. This tax rate is only related to certain essential services provided by the City of Madison, it does not address other city services funded by the property tax, nor services provided by the school district, county, technical college district and state.
Using the currently available data on types and values of tax exempt property, an estimated PILOT payment from properties with value above $6 million, excluding religious properties, would be $1.2 million. This estimate is probably understated because the current reporting methodology has a top category of $25 million or greater in value. The $1.2 million revenue estimate assumes all of those properties have an average value of $37.5 million. Larger institutions in the city, such as hospitals, arguably have an assessed, replacement or insurance value that is greater than $37.5 million.
Committee Recommendations
They don’t go that far . . .
The PILOT task force was formed to review these issues and make recommendations to the Mayor and Common Council. Its recommendations are as follows:
1. Urge the State Legislature to meet its responsibilities to local property tax payers by fully funding the Municipal Services Program payments. Full funding, or a multi-year phase in toward full funding, would give over 300 cities, towns and villages around the state immediate property tax relief. Madison would receive up to $8.1 million in property tax relief for homeowners, renters, commercial property and small businesses.2. Educate the public on the long-term implications of the state‟s failure to adequately share income, sales and fuel tax revenues with local governments through the state shared revenue, local transportation and transit aid programs. In addition, strict limits on growth in property tax levies and limits on user fees and other revenue sources compromises the ability of local elected officials and their represented residents to make their own decisions regarding the level of essential local services.
3. Investigate broad-based, non-tax, revenue options. Some cities are introducing utility right-of-way fees to distribute street reconstruction and maintenance costs. The City of Milwaukee has adopted a snow and ice removal fee based on linear feet of street frontage paid by all property owners as a means of directly apportioning costs previously supported by the property tax. Urge the Legislature to maintain the authority of local elected officials to establish these alternative revenue options as a means of diversifying the revenue stream, reducing the property tax burden on residences and small businesses and addressing rising program costs, including the need to provide additional support to non-profit community services agencies.
4. Present more information to the public on the value and cost of essential city government services and on the value of benefits to the community provided by tax-exempt organizations.
5. Develop and evaluate a proposal for the establishment of a voluntary PILOT program that would provide non-profits with the opportunity to contribute to the cost of city services. Such evaluation shall include the financial and non-financial ramifications for all stakeholders of such a program.
BOARD OF ESTIMATES DISCUSSION
The staff did a report, Soglin comments that this was a difficult and challenging assignment given the tensions about city revenues and status of non-profits. Staff said that the only tool besides Boston model was coercion when nonprofits want to get something from the city, they say the only way to do that was the Boston model. Clausius is supportive and was surprised by how many nonprofits already pay a PILOT (750K per year) and supports the recommendations. Motion passes without further discussion.
And I”m guessing that is the end of that, that the council doesn’t discuss it and the report gets shelved.
Thanks for all of your hard work.
Joint Venture Specialist