Memphis ranks high in the percentage of land that is not producing property taxes, and while the PILOT program is the easy one to blame, the proliferation of nonprofit organizations in the city has arguably more impact.

Tax-exempt properties include nonprofit hospitals (whose behavior is no different that for-profit hospitals), state universities and private colleges, museums, State of Tennessee buildings, private schools, and nonprofit organizations of all shapes, sizes, and purposes.

And yet, most of them use the basic services provided by Memphis but the cost of providing these services to the nonprofits is shifted to everyone else.

It’s hard to be unsympathetic to the pressures on nonprofits to raise money in these challenging times, but local governments too need more revenues to cope with rising costs for vital services.

As a result, some cities are asking large nonprofits to make a voluntary PILOT payment which is a discounted amount compared to a normal tax bill.

Millions Of Dollars

Voluntary PILOTs were all the rage seven years ago, and we even wrote a blog post about them at the time.  Back then, Brown University pledged $31.5 million over 11 years to help Providence, Rhode Island, with its budgetary challenges.

Already, there were other institutions in other cities agreeing to make similar annual payments – a voluntary PILOT – in lieu of its full tax bill.  Harvard University and Yale University respectively paid their local governments $5 million and $7 million.  MIT, Princeton University, and the University of California at Berkeley paid more than $1 million.

Johns Hopkins agreed to pay $10.4 million over four years.  The University of Pittsburgh and Carnegie Mellon University agreed to pay a voluntary PILOT in return for City of Pittsburgh forgoing a 1% tax on all tuition paid by college students.

At the time, along with an interest in voluntary PILOTs for nonprofit hospitals, there was a renewed interest in determining if they were meeting states’ charitable standards.  That subject resurrects itself periodically as it did recently in the wake of Wendi Thomas’ outstanding reporting on the MLK50.com journalism website about Methodist Le Bonheur Healthcare’s harassment in suing thousands of poor patients for their medical bills which climbed as a result of lawyers’ fees and court costs.

This concern has produced rules in Utah requiring charity care plans, for publicizing the opportunity for charity care and for providing charity care commensurate with the value of  property tax exemptions.  In a few places, there have been questions about why nonprofit hospital executives are making seven-figure salaries, but so far, that’s been a minor theme.

Getting It On The Agenda

Congress gave nonprofits a waiver in 1917, and state and local governments followed without a clear and convincing justification for why they should not pay taxes in support of their communities; however, times change, and as local governments struggle to find revenues for vital services while the federal government cuts its support to cities, it’s like to be back on the agenda.

For context: Boston collected $33.6 million in PILOTs last year, more than twice what it got in 2011; however, institutions are beginning to resist paying the amount requested from their city governments.  In 2012, the four dozen Boston nonprofit organizations that signed on to the payments paid 90.7% of what city government requested, but in the latest year, that had declined to 56.4%.

Last year, Harvard University unilaterally gave itself a 20% discount, paying 79%, while at the same time, its endowment was approaching $40 billion.

In the end, the program is voluntary so the payments hinge completely on the civic spirit of the nonprofits to support services in their cities.  That’s not to say that their own services don’t benefit their hometowns, a factor that is part of the calculation of the voluntary PILOT.

It Was Once On The Agenda Here

Voluntary PILOTs were briefly on the Memphis agenda in the waning years of the Wharton Administration when city government developed a Five-Year Fiscal Plan to increase efficiency, reduce redundancy and waste, and identify new sources of income.

One of its recommendations was to develop a voluntary PILOT program to raise several millions of dollars for city services with an initial focus on hospitals.  At the time, Chris Mclean, who was then chief administrative officer at Methodist Le Bonheur Healthcare, said in a committee meeting for the five-year plan that his hospital would have no objection to considering such a payment.

Today, he is chief financial officer for the Shelby County administration of Mayor Lee Harris, where he has a unique perspective to serve as a bridge to convene conversations about the potential of implementing a voluntary PILOT program here.

That said, voluntary PILOTs could be part of a comprehensive review of possible new tax sources, starting with whether the forgiveness of $80 million a year in city and county taxes to developers and large companies could be tweaked to free up even one-fifth of the amount to support city services.

In Baltimore, it was found that property owners subsidize an average of $1,575 in annual tax liability for exempt properties.  Local government there also has pursued the taxation of  commuters who use its services but pay no property taxes, which remains the single largest source of most cities’ revenues.

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