Study: Governments Could Look to Nonprofits for PILOTs

The paid parental leave policy will begin July 1.

A new study from Indiana University says some local government officials in Indiana would consider collecting payments in lieu of taxes, or PILOTs, from certain nonprofits. The report suggests doing could combat a decrease in local property tax revenue, which those organizations typically do not pay.

The study utilizes data from a 2010 survey of local government officials, of which 41 percent said they were in favor of requiring PILOTs from private universities or schools. About one third said nonprofit hospitals should pay and 27 percent said churches should pay.

"Given the importance of property taxes for local government finances — about 23 percent of total local government revenue in the state and 80 percent of all tax revenues under local government control — many local governments face major budgetary challenges as a result of the property tax cap implemented by Indiana in 2010," said Kirsten Grønbjerg, associate dean for faculty affairs at the Indiana University Bloomington School of Public and Environmental Affairs and the Efroymson Chair in Philanthropy at the Indiana University Lilly Family School of Philanthropy in Indianapolis. "It is not surprising that local government officials may look to PILOT requirements from charities as a way to help cover the cost of important services, such as police, fire, sanitation and local schools."

The study added local officials may be more likely to support PILOTs if their communities were struggling economically, are urban areas or have a high voter turnout. Many officials said the need for tax revenues is a major factor for requiring PILOTs, but also said if nonprofits provide valuable services to the community, they should not be required to pay.

"In the final analysis, it is important to remember that there are other, less damaging avenues for addressing the very legitimate fiscal concerns of local government than imposing PILOTs on local charities," said Grønbjerg. "As noted by the Indiana Commission on Local Government Reform in 2007, Indiana’s system of local government is highly inefficient, and streamlining the system would result in significant cost savings."

IU says an in-depth article about the study will soon be published in Public Administration Review.