Tax exempt property rolls threaten center city financial solvency: solution--make PILOTs mandatory?
It depends on the state, but generally, "non profit" organizations get property tax exemptions. It depends, because for example in DC, a "local" tax exemption has to be "earned" by providing services to the local population.
Tax exempt organizations, including large organizations such as colleges and universities and hospitals, and government-owned properties tend to be clustered in big cities.
Since most cities rely on property taxes for the bulk of their revenues, this can be a problem. And it's a problem that is structural, not the result of "bad management" (although that can contribute to municipal financial problems).
Connecticut's capital city, Hartford, is on the brink of bankruptcy because so much of the city's property is tax exempt. From the Connecticut Mirror story "For Hartford, bankruptcy not an easy way out":
The city’s fundamental problem is that it doesn’t have enough taxable property to support itself. Connecticut is heavily reliant on the property tax; it is virtually the only way municipalities can raise revenue.The broad solution would be to move away from tax exemption. One way would be to eliminate the exemption entirely. For example, in Canada, property tax exemptions are rare--even the provincial government in Ontario pays "property tax."
Hartford occupies only 18 square miles, and more than half of its property is off the taxable grand list — hospitals, colleges, government buildings, etc. The city has far and away the highest tax rate for commercial property in the state, 74.29 mills, and Mayor Bronin is loathe to raise it.
Lack of an adequate tax base is a characteristic of several distressed cities. Central Falls, for example, has 19,000 people on an astoundingly small 1.2 square miles. One of the efforts to revive the city has been a task force aimed at getting foreclosed properties back on the tax rolls, said principal planner Trey Scott.
With less taxable property than some of its suburbs, but with the bills for many of its region’s social ills, Hartford can only raise about half the money it spends, and must rely heavily on state assistance.
I do think that might be too severe a reaction, because many organizations are producing public benefits which are valuable and deserving of tax relief.
Plus, many of these organizations don't have robust revenue streams--nonprofits tend to be less well off--so ability to pay "market rates" is an issue, especially when properties are valued at what they could sell for, rather than what there value is for the ongoing economic activity.
PILOTs, or payments in lieu of (property) taxes are usually voluntary payments by nonprofits to cities, to cover some--usually not most--of the costs their properties "impose" on the city.
Why not make PILOTs mandatory, based on the typical costs resulting for the city, based on demands created by various uses--office, hospital, school, etc.?
The idea would be (1) to assess PILOT fees in a mandatory fashion; (2) at a rate less than the typical for profit property tax rate.
Note too that there are other ways to provide tax and other support to cities to better cover the costs and benefits that center cities provide to a metropolitan area and/or states. See "The real lesson from Flint Michigan is about municipal finance."