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Last modified: Monday, April 8, 2013

Survey: Majority of Indiana local officials favor payments in lieu of taxes for nonprofits

April 8, 2013

BLOOMINGTON, Ind. -- A survey shows a majority of Indiana local government officials want some nonprofit organizations to offer payments or services in lieu of property taxes. More than one in four believes churches should make payments. The survey results come as local governments face decreasing revenues and growing budgetary pressures.

Kirsten Grønbjerg

Kirsten Grønbjerg

Print-Quality Photo

The 2010 survey of nearly 1,150 local government officials included mayors, county auditors, county commissioners, county and town council members, school board members and township trustees. It was administered by the Indiana Advisory Commission on Intergovernmental Relations and analyzed by the Indiana Nonprofits: Scope and Community Dimensions project, directed by Kirsten Grønbjerg, and a joint venture of Indiana University's School of Public and Environmental Affairs, Indiana University's Public Policy Institute and the School of Philanthropy at IUPUI.

"The results of our survey send a sobering message to charities that are already seeing their tax status challenged in several states," Grønbjerg said. She is the Efroymson Chair in Philanthropy at the Indiana University School of Philanthropy.

In Indiana, most charities that own real estate are exempt from property taxes because of the public value they create. However, to recoup some of this lost tax revenue, some municipalities use what are known as PILOTs and/or SILOTs.

PILOTs, or "payments in lieu of taxes," are mandatory fees for municipal services that are paid by real-estate-owning organizations that are otherwise exempt from property taxes. Similarly, SILOTs, or "services in lieu of taxes," require community programs or services from organizations with tax-exempt land. For example, a hospital may be required to provide charity care or other community services for residents in need.

The survey found that support for PILOTs and SILOTs varies depending on the type of affected organization. Over half of local government officials think that nonprofit hospitals and education institutions, such as colleges and universities, should be required to make payments or provide services in lieu of taxes. These types of organizations have been targets for PILOTs and SILOTs in Massachusetts, Illinois and other states because their large physical presence results in a greater loss of revenue to municipalities, coupled with a greater use of municipal services.

Meanwhile, more than 30 percent of government officials believed that churches should provide payments or services in lieu of taxes, including 25 percent who favor PILOTs for these groups. Taxing churches and religious property, however, is highly controversial and not a likely option for local elected officials. There was also interest in receiving compensation from government offices: 52 percent of respondents favored PILOTs or SILOTs for state-held property, while 48 percent favored such programs for federal property.

Despite officials' interest in PILOTs and SILOTs, only six Indiana localities have adopted programs of this type. Only 4 percent of respondents had recently enacted such policies in response to tax revenue shortfalls. In contrast, nearly half report having frozen or reduced wages of government employees, and over one-third report imposing increased fees for local services. The reasons that so few agreements are in place are unclear, but setting up PILOT/SILOT programs is likely to present both political and administrative challenges.

This report is the second in a series of reports from the Indiana Nonprofits: Scope and Community Dimensions project that focuses on nonprofit-government relations in Indiana. The first explored local government officials' attitudes toward 2-1-1 telephone information services. More information and the full report are available online.

About the School of Public and Environmental Affairs

SPEA is a world leader in public and environmental affairs and is the largest school of public administration and public policy in the United States. In the 2012 "Best Graduate Schools" by U.S. News & World Report, SPEA ranks second and is the nation's highest-ranked professional graduate program in public affairs at a public institution. Four of its specialty programs are ranked in the top-five listings, including nonprofit management, which ranked first. SPEA's doctoral programs in public affairs and public policy are ranked by the National Academy of Science as among the best in the country.

About the School of Philanthropy

The Indiana University School of Philanthropy is dedicated to improving philanthropy to improve the world by educating and empowering students and professionals to be innovators and leaders who create positive and lasting change. Located at Indiana University-Purdue University Indianapolis, the school offers a comprehensive approach to philanthropy through its academic, research and international programs and through The Fund Raising School, the Lake Institute on Faith & Giving and the Women's Philanthropy Institute.