PILOT Agreements- what are they & what do they do?
June 17th, 2008 . by adminA “PILOT” ( “Payment in Lieu of Taxes”) is used in circumstances where the real property would normally be exempt from paying real property taxes but the owner and City agree on a schedule of tax payments. They create a steady tax revenue to the City through a structured tax payment. The amount paid is generally less than what the project would normally pay if the property were assessed at full value but more than if the property were left in its present condition.
It’s time to change the way we structure these PILOTS.
For many past administrations, PILOTS were proposed by the developers with little to no supporting documentation for the figures or even as to why the PILOT would be needed. There was never a set of criteria or guidelines for the creation of PILOT payments. As a result, outcomes have been mixed, or at the very least, the benefits have been debatable.
PILOTS have been used as a tool to stimulate economic development by providing developers with incentives to create or retain jobs, build or renovate properties that otherwise would be underutilized , revitalize distressed neighbhorhoods and further economic growth.
With many urban projects, there is a gap between the cost to develop the project and its long term sustainability. PILOTs can be used to lessen that burden while still preserving the City’s tax base. On the other hand, some PILOT payments may not cover the increased costs of municipal services which the project requires or may not produce the desired economic results.
In my opinion, if successful economic development in the City of Syracuse necessitates tax abatements in the form of PILOT agreements, then we must develop a uniform policy. A variety of factors must be considered and applied uniformly to each project. Such a strategy would provide developers with a frame work in which to “run their numbers”. It would also provide the City with objective criteria upon which to base any tax incentives.
I have been working with developers, my colleagues on the Common Council and the current administration to design PILOT criteria. Public input is also vital to creating a strong policy which achieves our goals.
I believe that all PILOTs should be based on a negotiated assessed value for the property. The City tax rate would be applied uniformly across the City.
I believe that all PILOTs should have a set time period. If additional years of tax abatement are contemplated, then the developer must present proof of the need for those additional years.
Some of the factors which should be analyzed include the following: Does the project benefit from any other State or local abatement benefits such as the Empire Zone or residential construction abatment. Is the project located in an area targeted for redevelopment and follow the City’s comprehensive plan for that area. Does the project rehabilitate an existing structure; is that structure historically significant; is the area considered a “brownfield”. Will the project create new jobs or maintain existing jobs. Will the project use local labor, minority or women businesses. Does the project meet an existing, identified need or goal (such as residential downtown housing or high tech business opportunities). Does the project include environmental components such as LEED certification. The City must also consider the developers anticipated reasonable return on its investment but also the burden on City resources such as its roads, sewers, fire and police protection and public works.
Each benefit and burden should be quantified and carefully analyzed for each proposal. The public must also be given the opportunity to comment. These factors then support the terms of the PILOT.
Structured tax payments through PILOT agreements can be used successfully to stimulate and promote growth. They must be used prudently and consistently. The City must develop the qualitative and quantitative criteria it will use when entering into PILOT payments.
I will continue to work with developers, tax payers and public officials to create this new PILOT policy.