PILOTs – Frequently Asked Questions

What are PILOTs?

PILOTs – or payments in lieu of taxes – are made to a municipality by charitable corporations that own
tax-exempt property, normally after a request from a municipality. The amount may vary but typically it
would be well below the amount payable in taxes if the property were taxable. PILOTs are completely
voluntary. Cities and towns in Massachusetts have authority to determine if a given property qualifies
for exemption.

If charitable human services organizations are, by law, not paying property taxes or a PILOT, then
what value do they have to local municipalities and residents?

The value charitable organizations provide to the community is far greater and more impactful than any
tax payments. Human services nonprofits deliver essential services to our vulnerable populations; take
care of our sick, elderly and disadvantaged; educate our young; serve individuals with a disability or
experiencing homelessness; and provide residents with services that might otherwise be unavailable.

These organizations provide a great deal of value in the communities where they are located, and the
tax-exempt status of their real estate helps them provide these services and programs at low- or no-cost
to clients. If not for human services organizations attracting donors and raising money to help
supplement the programs they run, the entire burden of providing those services would fall on local and
city government. Massachusetts far exceeds the national average, as nearly one in four municipalities
have collected PILOTs, compared to less than 50 others across the entire nation.

Why PILOTs? Why now?

Many local communities are facing increased fiscal pressure to met revenue needs. Many nonprofits,
however, are facing these similar fiscal pressures as well. Local governments can lack appreciation for
the value nonprofits with tax-exempt property offer the community in non-monetary ways.

In addition, local cities and towns strapped for cash think these nonprofits can offer them needed
revenue. As the economy worsens for local governments, this may foster more requests for PILOTs.
Cities and towns across Massachusetts have increasingly asked charitable organizations to pay PILOTs as
a way of addressing their budget gaps. Boston has released a report with a recommendation to request
PILOTs from nonprofits with an aggregate assessed value of more than $15 million.

Are charitable organizations required to pay property taxes?

For the most part -- no. In Massachusetts, M.G.L. c. 59, §5 (Third) exempts from taxation the personal
property of a charitable corporation and real estate that is owned by a charitable corporation and is
occupied by that corporation (or another charitable corporation) and used for charitable purposes.
Cities and towns have authority, subject to appeal rights, to make determinations as to tax–exemption
for a particular property.

Can a charitable organization that owns exempt property be legally forced to pay a PILOT to a
municipality?

To put it simply, absolutely not. As long as the property is used for tax-exempt purposes and has
received local approval, a municipality may not force a nonprofit organization to pay a PILOT or withhold
tax supported services or permits

Why is this particularly significant for the human services community in Massachusetts?

In Massachusetts, the human services sector is restricted by its state contracts, many of which haven’t
been updated since 1987. With over 24 years of level funding and not even a basic cost of living
adjustment, community-based human services providers are trying to do more with less as costs rise,
but payments stay the same. As a result, the human services community simply doesn’t have any extra
money to give cities and towns through PILOTs. Some facts:

 About 60 percent of human service providers have less than 30 days cash-on-hand at year’s end.
 Nearly half of human service providers do not generate sufficient cash to cover operations.
 These are relatively small nonprofits with inelastic contracts, unlike well known universities and
hospitals with considerable reserves.
 With no new money available for human services and the state dollars not being offered to
support PILOTs, these payments can only be generated by cutting services and/or jobs.

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How should I address the issue with my local community?

While nonprofits are under no obligation to pay a PILOT, remind the city or town about contributions,
such as:

 The number of residents your program serves every year and the number served since your
inception.
 The number of residents from the area you employ and the contingent economic benefit
generated for the community. For instance, the Help Wanted report, done by the UMass
Donahue Institute, estimated that spending by the human services sector creates an additional
34,000 jobs in the private sector.
 The types of services your organization provides that are unique and those which would
disappear if your organization closed. Remind them about your contributions to the safety net.

You can also:

 Explain how your organization is funded and the difficulty in securing PILOT funding from state
government contracts or philanthropy. Let them know your organization has already “shared in
the sacrifice” and that state’s economy has affected all organizations. You cannot pass costs on
to clients and consumers.
 Explore a way to work with the municipality that is non-monetary. Would a town entity like to
use a conference room or playing field at your nonprofit occasionally?
 Explain that you understand their predicament; you share it and will be reasonable in your need
for municipal services. Begin a dialogue that helps to create a greater understanding.

What should I do if I have a question about PILOTs?

Contact the Providers’ Council, and we may be able to help you. If the issue warrants, we can provide
you with a referral for legal counsel or an accounting firm that are expert in these matters.

March 22, 2011