Pennsylvania PILOT

I'm catching up to this P-G article by Rich Lord detailing Pittsburgh's struggles to raise revenue from its wealthy, expanding, and tax-exempt nonprofits. The piece describes alternatives in place elsewhere, notably Connecticut's PILOT (Payment In Lieu Of Taxes) program, which compensates cities for revenue lost due to the non-taxability of nonprofit-owned land. The major beneficiary is New Haven, where Yale is the large tax-exempt land-owning elephant in town. (2 Political Junkies comments.)

PILOT programs have some potentially serious drawbacks: PILOT payments are, in a manner of speaking, the gifts that keep on giving: Constituencies on the receiving end are never happy with what they get; they're apt to lobby for increases in the amount paid, which leads to some level of continuing conflict. New Haven, for example, receveives PILOT payments that equal roughly 2/3 of what Yale would otherwise pay in regular property tax, and Yale faces pressure from community organizations (including labor unions representing Yale employees) to cover the difference voluntarily. The entities that are subject to PILOTs may be chosen more for their political impact than because of concern that tax burdens should fall genuinely equitably.

And the possibility that a PILOT program may solve their revenue gap may encourage local governments to play some ugly hardball: Threatening (via state legislatures) to revoke the tax-exempt status of nonprofits, and using local control of zoning to freeze their expansion and development plans -- until and unless "voluntary" payments are made. In New Haven, that last tactic ultimately persuaded Yale to start kicking in voluntary payments to the city. Yale was desperate to expand its footprint; only New Haven could say yes -- and New Haven, with the cooperation of a friendly legislature, got to set the terms. [Added 3/02: At the end, in fact it was Yale that lobbied the legislature hard for the PILOT, because the university figured that it could put an end to the city's hardball tactics.]

In retrospect, New Haven's hard bargaining was a success -- not just because Yale started compensating the city for lost tax revenue, but because over a number of years the university administration realized that it could fend off most political pressure to do more by quantifying its other contributions to the community. Yale invested its money in New Haven, bringing taxable property on line and new business to town. It offered to underwrite low-interest mortgages to Yale employees who bought houses in the city -- and many have. Yale designed and located new facilities in cooperation with New Haven, so that they would benefit city residents as well as the university.

The moral of the story? The city of Pittsburgh has leverage here -- if Pitt or UPMC (among others) want to build. Which they do. And history shows that using that leverage can work in the long run, and the results can build better communities. For the first time in their joint history, New Haven and Yale are mostly on the same page today, and the city actually has a little economic momentum. But using that leverage is costly: It provokes litigation. It burns goodwill. Realizing those long-term benefits takes time. Leaders with vision on both sides of the table can cut through much of that. If Pitt and UPMC and Highmark want to avoid demands for payment by claiming that their regional contributions are worth so much, then they need to step up as investors in the city and as partners with the private sector, not just with charitable contributions and valuations for free and low-cost health care. One quick example, since this post has been long enough: South Oakland could use a police substation. Pitt could pay for it and jointly staff it.