Should municipalities ask nonprofits to pay fees for the land they use?
It’s a provocative question that, for years, has evoked strong responses for and against the idea. As many American cities grapple with declining property tax revenue in the wake of COVID-19 and the rapid adoption of remote work, the topic has received renewed interest.
One way municipalities may seek to add more dollars to their coffers is through “payments in lieu of taxes” programs, or PILOTs. These are agreements that require individual nonprofits to pay set amounts to their local municipality. The idea is to offset the cost of services that a nonprofit receives from the city, such as garbage removal or policing.
The topic popped up again in the news within recent weeks in the Massachusetts town of Concord, where plans for new PILOT programs appear to have been put on hold amid a leave of absence by the town’s CFO, The Concord Bridge reported.
For finance chiefs at financially strapped cities, PILOT pacts may look enticing. Ron Rakow, fellow at the Cambridge, Massachusetts-based Lincoln Institute of Land Policy, said that such programs can have positive results for both nonprofits and their communities, but they require time and “sustained focus” to pull together.
“They’re not something that just one person can do,” he said in an interview. “And it’s not always a matter of ‘add water’ and have an instant PILOT program.”
Rakow, who previously was tax commissioner for the city of Boston for 25 years, said that PILOT programs are often undertaken in cities with a high concentration of nonprofits. From his experience, Rakow said that’s been the case in many East Coast cities like Boston. As a result, several cities along the East Coast have either explored or formally rolled out PILOT programs.
Boston, which is home to several high-profile academic and medical centers, is one such city with a long history of PILOTs. The Massachusetts capital began seeking payments from nonprofits in the early 1970s, Rakow said.
PILOTs can’t, of course, solve every municipal budget crisis. And the money cities receive through such programs may only be a fraction of their total budgets. For instance, in Concord, a city with revenue of $138 million in its 2025 fiscal year, CFO Anthony Ansaldi in May had suggested a first-year goal of just $100,000 for the city’s nascent PILOT program, The Concord Bridge reported last month.
PILOTs also aren’t legally binding, which leaves questions about enforcement.
For some nonprofit advocates, the downsides of PILOTs far outweigh any potential benefits. Rick Cohen, COO of the National Council of Nonprofits, said his organization is opposed to such agreements.
“Tax exemptions [for nonprofits] were written in because of the community benefit that nonprofits provide,” he said in an interview. “It’s going around law that’s in place.”
Cohen also pointed out nonprofits aren’t usually entirely tax-exempt, anyway. Nonprofits still usually have payroll taxes for their employees, he noted.
As Cohen sees it, PILOTs can be a “slippery slope.”
“You may start out with a PILOT for a school or a hospital,” he said. “But then once you start, where do you stop?”
