Municipalities across the country are looking to local non-profits to pay for their share of community services. These payments, known as PILOTs, or “payments in lieu of taxes,” are voluntarily contributed by private schools, hospitals and other non-profits as an alternative to paying property taxes. As cities come under more fiscal stress, this will be a growing trend.

The mayor of Providence, Rhode Island, Angel Taveras, is in a wrestling match with Brown University over increasing the school’s annual payments to the city. Taveras is angling to get a bigger sum from Brown, but if he is unsuccessful, then his only option to balance his city’s budget would be to get public unions to agree to concessions. Others, including Robert Flanders, the receiver of nearby Central Falls, believe that Providence’s only option is bankruptcy:

“I don’t see how [Providence] can get out of it without going there,” said Flanders, a former state Supreme Court justice and a partner at Hinckley, Allen & Snyder LLP in Providence. He put Central Falls into bankruptcy in August and has since torn up contracts with city workers and cut pension benefits.

The situation Flanders faced in Central Falls is significantly different from that of Providence. Although Central Falls has some churches and small non-profits in the community, its only major institution, the Wyatt Correctional Facility, refuses to pay the city a monthly $25,000 “impact fee” until its bondholders are paid off. On the other hand, Taveras is hamstrung by a 2003 agreement that requires small payments from the local universities. The best report on PILOTS, from the Lincoln Institute (page 25), describes the arrangement:

In 2003 the City of Providence reached an agreement with its four private colleges for payments in lieu of property taxes totaling $48 million over 20 years. At the time Mayor David Cicilline argued, “With total annual budgets of $750 million, combined endowments of $2 billion, and over 25,000 students – the vast majority of them from outside of Providence – these institutions are thriving in our city. Yet for all the annual police, fire, public-works, and other services these enormous institutions consume, they pay virtually no compensation to the city”