Payments In Lieu Of Taxes (PILOT) and the Phantom Revenue

More details on the Phantom Revenues - the PILOT revenue.

In this recent posting, I touched upon the "phantom revenue" from the consortium of non-profits. Here's the quotation from the P-G again.

A consortium of nonprofit groups has said it doesn't plan to give the city money after 2007, but the city's plan counts on $5.7 million a year from such organizations through 2011.

But I still wondered what the story was with the PILOT stuff anyway. The P-G's Rich Lord from 2005:

The issue first emerged in the 1980s, when the city and Allegheny County both saw their property tax bases erode as expanding nonprofit institutions took land off the tax rolls.

And then

In the late 1980s, the city and county tried what was then a novel approach. They went before the county's Board of Property Assessment Appeals and Review to challenge the tax-exempt status of big nonprofit organizations including large hospitals, the Downtown YMCA and the Central Blood Bank.

"That forced some of them to come in and justify that they were purely public charities," said Ron Pferdehirt, an associate city solicitor who was involved in those efforts.

At the time, state law put the burden on nonprofit entities to prove that they advanced charitable purposes, had no private profit motive, provided free services, helped people in need and relieved the government of some of its burdens.

Rather than roll the dice before the assessment board, nonprofit groups settled with the city, signing on to multiyear contracts to make payments in lieu of taxes, or PILOTs, to the city.

And

The fund negotiated an agreement with Mayor Tom Murphy in which it pledges to contribute to the city through 2007. During its three-year term, the agreement would bar the city from pursuing any new taxes or fees on charitable organizations that make contributions, or from unduly slowing their applications for permits and licenses.

Murphy has estimated that nonprofit groups will contribute $5.7 million this year.

So that's where the $5.7 Million figure comes from. But there's the 2007 date as well. A month or so later Lord had more:

The fiscally troubled city set out last year to raise $33.5 million over five years from tax-exempt nonprofit organizations.

Yesterday, Mayor Tom Murphy and City Council received a response from the Pittsburgh Public Service Fund, which represents universities, hospitals, foundations, arts groups and nonprofit insurers. Their pledge: $12.1 million over three years.

"They're just present pledges," said the Rev. Ron Lengwin, spokesman for the fund and the Catholic Diocese of Pittsburgh. Under a proposed contract between the fund and the city, he said, "it could go up, it could go down."

The fund pledged $4.57 million in 2005, $3.89 million in 2006 and $3.69 million in 2007.

Mr. Murphy's 2005 budget called for $6.7 million from nonprofit organizations. In a new budget unveiled in February, he scaled that back to $5.7 million for 2006 and 2007.

There it is again. $5.7 million in 2007. And that's what Mayor Murphy asked for. The fund itself was pledging less.

And what of the possibility of extending the three year contract (or adding another or whatever)?

Here's The Trib's Jeremy Boren (again from 2005):

The Rev. Ron Lengwin, spokesman for the fund and the Pittsburgh Catholic Diocese, said he promised in a meeting with the council last week to ask his ruling board if members would be open to future contribution talks, but nothing more.

"I was asked if we would be willing to consider continuing, and I said I would take that request to the board, but it was my strong opinion that the board would not be interested.

"Did I acknowledge that there's some slim possibility? Well, never say 'never,' " Lengwin said.

Why the shift? Here's Rich Lord again:

In 1997, the state passed the Purely Public Charities Act. It shifted the burden of proof, creating a presumption that certain organizations were tax-exempt.

That undermined city leverage in negotiating PILOT agreements, said Pferdehirt. The city can, and occasionally does, challenge the tax exemptions of specific parcels of property, he said. But it no longer challenges the nonprofit status of entire institutions, nor vigorously pursues PILOT agreements.

Unless things have changed in the past few years (and I don't see where they have) adding revenue from the Pittsburgh Public Service Fund that the fund itself hasn't promised to deliver, is not really a good idea.

To say the least.