Submission Date:
Question:
I am looking for general information on the possible impact of Payment in Lieu of Taxes (PILOT) agreements on library tax levies. I believe that in some instances public libraries are parties to PILOT agreements. In other cases, library levies are stated or implied exceptions to PILOT agreements; and the company with the PILOT agreement pays the library levy like any other taxpayer; as a separate payment based on the property’s assessed value. Are there differences based on the type of public library? Or differences based on the taxing entity: special district, town or school district? Are there provisions in the legislation authorizing PILOT agreements or in Real Property Tax Law that impact library taxes and PILOT agreements?
Answer:
A firm principle of this service is "don't reinvent the wheel" so here at the start of the answer, I must refer readers to Jerry Nichols' 2005 article, "PILOT Payments--a potential revenue source for public libraries."[1] The article is an excellent primer on what a PILOT agreement is, and how libraries should cultivate the awareness and use of them (and verify they are getting their fair share of PILOT money!).
The question above asks about the impact of a library's "type" on the ability to benefit from a PILOT; that issue is not addressed by the 2005 article. So, with the understanding that there is already some good foundational information out there on PILOTS and libraries, this answer will explore that angle.
So, to start: what is a PILOT?
A "PILOT" agreement is a formal arrangement to pay money "in lieu of taxes" by an entity not subject to real estate taxes (such as a new business park, recreational project, or educational facility). The acronym "PILOT" is used formally (and properly) in connection with regional "Industrial Development Agencies" (or "IDA"'s) who are authorized by law to create them.[2]
The term "PILOT" is also informally (and improperly) used to refer to other types of payments by tax-exempt entities who are trying to cultivate a good relationship with their local municipality.[3] This answer only addresses the "real" type of PILOT.
When functioning as intended, a PILOT for a development project can ensure that a municipality or school district that uses real property taxes to fund critical services (such as local roads to a new business park, recreational project, or educational facility) has revenue to maintain the critical services, even as some large users don't pay for them in the same way.[4]
Done properly, a PILOT Agreement creates conditions favorable for economic development (exemption from real property taxes while an initiative creates a benefit to its community), but creates and enforces a fair, reliable, and fiscally sound way to replace critical funds.
So, a PILOT is all about the money--money for a town or village, money for a school district, and money of other things powered by real property taxes. And as Mr. Nichols' article points out, when they are being negotiated, sometimes the "powers that be" can leave out the local library.
Which brings us to the member's insightful questions:
- Are there differences based on the type of public library?
- Or differences based on the taxing entity: special district, town or school district?
- Are there provisions in the legislation authorizing PILOT agreements or in Real Property Tax Law that impact library taxes and PILOT agreements?
When it comes to formal PILOTs, the answers to the member's three questions are:
Yes, but...
Yes, but...
Yes, but...
We'll address those three "buts" all together.[5]
To not get overly technical[6], projects that qualify for exemption from real estate taxes and a PILOT gain their exemption from the Industrial Development Agency (the "IDA") sponsoring the project. So it is the IDA's tax status, not a particular project's, that creates the exemption from real property taxes.
When it comes to library revenue derived from real property taxes (which IDA's are exempt from) different type of libraries have different types of ways to get tax revenue. Some municipal libraries simply have a budget in their tax-funded village/town/city budget. Others have their own municipal levy (a "414"). Still others have a separate budget line on their school district tax bill (a "259").
There are any number of permutations of this, but the important take-away here is: a project exempt under GML 854 is immune to real property taxes under any of these approaches.
This is where things can get tricky (and, I suspect, is the genesis of our astute member's questions).
GML 854 authorizes PILOT using the following definitions:
(1) “Agency”—shall mean an Industrial Development Agency created pursuant to this act.
(16) “Affected tax jurisdiction”—shall mean any municipality or school district, in which a project is located, which will fail to receive real property tax payments, or other tax payments which would otherwise be due, except for the tax exempt status of an agency involved in a project.
(17) “Payments in lieu of taxes”—shall mean any payment made to an agency, or affected tax jurisdiction equal to the amount, or a portion of, real property taxes, or other taxes, which would have been levied by or on behalf of an affected tax jurisdiction if the project was not tax exempt by reason of agency involvement.
A plain reading of the definition of "affected tax jurisdiction" could inspire someone to say "This means PILOT only applies to a 'municipality or school district', not the library, or a special library district."
A library-aligned, thoughtful reading of the definitions could inspire someone to point out: "Payments in lieu of taxes can go to not only a 'municipality or school district', but to an "agency" to replace taxes "which would have been levied by or on behalf of an affected tax jurisdiction. Meaning: an IDA can require, accept, and distribute money to other entities deprived of revenue due to the exemption, if that tax would have been levied by a municipality or school district.
This is borne out when one reviews the NY Comptroller's audits of IDA PILOTs. For instance, in a 2021 audit of Glen Cove's IDA[7], it was found that PILOT payments that should have been directed to a school district public library were not properly channeled to the library.
While the rules of PILOTS will vary between IDAs, I would that argue the law positions ANY type of library (even an association library) that benefits from a real property tax levy to benefit from PILOT.
Which brings me to the tricky part.[8]
Not too shockingly, dealing with a local IDA can be...improvisational.
Don't take my word for it. Here is what the New York Comptroller has to say:
"IDAs have a substantial degree of discretion over how PILOT agreements are negotiated, and the criteria used to determine PILOTs differs among IDAs. Such inconsistencies, according to critics, can cause IDAs to compete against each other for business.
In addition, due to unclear PILOT agreements negotiated by IDAs, poor communication with assessing bodies and a lack of monitoring, projects often fail to pay the full amount of PILOTs and thus deprive taxing jurisdictions of needed revenues.
...
Although they are required to adopt a uniform tax exemption policy, IDAs are allowed to deviate from that policy. In these cases, an IDA must explain in writing why there is a need for deviation and notify the affected taxing jurisdictions."
They key is to learn your local IDA's approach, local policy (if any), and to get in line early and regularly as the PILOT is negotiated, formalized, and complied with (this means: get ready to have coffee with your local public and IDA officials).
Because a PILOT can be a significant source of revenue for a local library, this is one where local legal counsel--well versed in the local IDA's way of doing things, or willing to "go deep" and develop that knowledge on the fly--can be worth budgeting for and retaining.
As I have written in another ATL[9], any use of legal counsel--even if pro bono--should be per a written retainer agreement that confirms the scope of the work.
In the case of an attorney working to help a library negotiate PILOT, a sample scope is:
To represent the Library before the [INSERT NAMES] IDA(s); and
To assist the Library in monitoring when opportunities for inclusion in PILOT agreements arise; and
To identify and develop timely strategy for securing payments via PILOT in agreements; and
To represent the Library in finalizing benefits under PILOT agreements; and
To assist the board of trustees in monitoring compliance with PILOT payments owed to the Library, and include a summary of such monitoring in the library's annual financial report.
This type of scope for any attorney should not "break the bank;" while there is no way to truly project the hours such work would take, 15 attorney hours per negotiated agreement is not unreasonable, and 3 hours per year to assess compliance is not out of line, either.
This is an area where any attorney experienced in municipal law--and willing to do their homework on your particular library--should be able to help. Further, and more critically, as the Comptroller's commentary shows, there is a high degree of subjectivity and flexibility in IDA PILOT agreements, which means a local attorney may have a significant advantage for timely inserting a library into an ongoing PILOT negotiation process. The right lawyer will know the folks at the relevant IDA, or be willing to get to know them, and will consider (among other things) the following:
- As a result of State legislation passed in 1993 amending section 874 of the General Municipal Law, each IDA is required to establish a “uniform tax exemption policy with input from affected tax jurisdictions … and shall provide guidelines for the claiming of real property, mortgage recording, and sales tax exemptions.”
- The guidelines must include: the period of exemptions; percentage of exemptions; types of projects for which exemptions can be claimed; procedures for payments-in-lieu-of-taxes and circumstances under which real property appraisals are required.
- Although they are required to adopt a uniform tax exemption policy, IDAs are allowed to deviate from that policy. In these cases, an IDA must explain in writing why there is a need for deviation and notify the affected taxing jurisdictions. While approval by these local governments is not required, the IDA is obliged to review and respond to any issues raised by them.
Thank you for an excellent question! I wish you good fortune in working with your local IDA.
[1] Found in many places, but I used the copy at https://www.nyla.org/images/nyla/files/JLAMSspring07wg.pdf.
[2] (General Municipal Law § 854), which defines “Payments in lieu of taxes" as "any payment made to an agency, or affected tax jurisdiction equal to the amount, or a portion of, real property taxes, or other taxes, which would have been levied by or on behalf of an affected tax jurisdiction if the project was not tax exempt by reason of agency involvement."
[3] Because the term is used more broadly "in the real world" than as defined by law, we'll differentiate the formal from the informal as needed here by using (i) for "informal".
[4] I am picking somewhat neutral examples here. Here in Buffalo where I am typing this up, PILOT is one of the many issues at stake as the region develops the terms for a new football stadium. If you ever want to sow discord on a mythic level, put fifty people in a room and have them develop the "community benefit agreement" (which will include PILOT or at least (i)PILOT payments) for a member of the National Football League.
[5] No snickering.
[6] If you want to get overly technical, check out the excellent summary of how the state's Industrial Development Agencies work (and don't work) at https://www.osc.state.ny.us/files/local-government/publications/pdf/idabackground.pdf
[7] https://www.osc.state.ny.us/files/local-government/audits/2021/pdf/glen-cove-ida-2020-139.pdf
[8] That's right. Up ‘til now, this answer has been a model of simplicity and clarity!
[9] See Legal Requirements for Selling Library Building, which discusses how to retain local legal counsel.
