Newport officials are taking preliminary steps to examine whether instituting a payment-in-lieu-oftaxes (PILOT) program could help the city to recoup a portion of revenues currently lost through property tax exemptions.
Mayor Jeanne-Marie Napolitano and at-large Councilor John Florez confirmed in conversations with Newport This Week that a committee will be organized later in February to examine the feasibility of developing a program, similar to ones established in Providence and Boston, where tax-exempt entities agree to make payments or provide in-kind services to their municipalities to at least partially offset what their commercial tax bill would otherwise be.
The PILOT recommendation is one of many that emanated from the Finance Review Committee (FRC) last May, when it issued its report outlining ideas to increase municipal revenues and reduce expenditures. At the time, the FRC wrote to councilors that “of all the assessed property value (land and buildings) in Newport, 27 percent is tax exempt, with about one-third of that being federal property.” The report continued on to describe other land belonging to various tax exempt institutions, such as Salve Regina University, the Preservation Society, Newport Hospital, and the Newport Housing Authority, along with other low-income housing groups and more than 100 smaller organizations including schools, churches, and cemeteries.
By applying the commercial tax rate to the value of all these properties, the FRC calculated a total of $30.5 million in lost annual income to Newport. “As municipalities across the nation struggle with their budgets, the PILOT concept has expanded to encourage taxexempt organizations to ‘voluntarily’ make payments to their municipalities to offset infrastructure and services [such as public safety and public works] which benefit [those] institutions,” the report explained.
For example, in 2012 Providence received an estimated $23 million through PILOT, almost a quarter of what it would have received if the tax advantages did not exist.
Beyond cash outlays to Newport, some ideas suggested by the FRC for incorporation into a PILOT program could provide additional benefits to the contributing nonprofits. An example is the leasing of city roads to Salve Regina. “This arrangement would: (i) provide cash flow to the city; (ii) make the streets safer for SRU students; and (iii) improve SRU by eliminating traffic through the campus and offering the opportunity to beautify the area with a more walkable campus.”
The FRC also suggested working with Middletown and Portsmouth to examine the costs and benefits related to Navy and Coast Guard properties. “A military PILOT payment, possibly using a formula similar to … the payment to Warwick related to T.F. Green Airport, should be considered,” it said, estimating that Newport by itself would reap approximately $3 million from such an agreement. “The funds generated by these special military PILOT payments could be funneled into transportation funding to support local roadways – a key element in Base Realignment Commission (BRAC) evaluations.”
Last May, the FRC hinted at the challenges involved in implementing a successful PILOT program. “This issue is complex and will require time, involvement and effort. Input from the council, city officials, and representatives of tax-exempt organizations is crucial to create fair and equitable agreements, [which] must include a mechanism for inkind offerings to offset some of the cash payments to the city and must also include some form of ‘ability to pay’ provisions.”
Commenting on moving forward with a committee, Napolitano said, “These are very preliminary steps, but it’s certainly worthy of discussion. It’s an informationgathering stage where we can hopefully formulate some sort of design that would work for everyone. It’s early in the process and we won’t depend on any potential revenue for next year’s budget.”
Florez, who served as vice chair of the FRC, agreed that nothing is imminent. “The PILOT committee would not wrap up its examination of all the issues in less than six or eight months, so things wouldn’t begin to take shape until later this year,” he said. “When the group is formed, it will work with all stakeholders, including the subject organizations, to collectively come up with a formula to determine appropriate payments.”
He emphasized that there would be no specific targets. “Any plan would apply across the board to similarly-situated institutions. That assumption would be part of the process in coming up with an equitable system.” Florez said that monies received would be used for projects relevant to the various contributors, such as repairing streets or sidewalks in the nonprofits’ neighborhoods.
Newport is already the recipient of some PILOT funds. Since the General Assembly makes taxexempt classifications with little input from municipalities, and because officials realize that such designations put a dent in local tax collections, the state has established a program to “reimburse” towns for lost revenues from properties belonging to nonprofit educational and hospital facilities, such as Salve Regina and Newport Hospital. In 2013, the boost to the city’s income from this source totaled $1.1 million, or 24 percent of foregone taxes. This state benefit varies from year to year, but maxes out at a 27 percent contribution.
Adding to the complicated picture is that fact that the university and hospital and some other exempt entities do pay city taxes on some of their real estate holdings.
“And obviously, there are certain nonprofits that I wouldn’t think of including, such as the Salvation Army and churches,” Napolitano said. “But we can structure a type of system to account for differences in scope. We just need to get people to the table to begin the discussion.”