Nonprofits won’t fund roads

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      Sixth in a series

 

Asking nonprofits for payments in lieu of taxes is a legal option to generate road-funds but not advisable, according to Hillsdale Attorney Kevin Shirk.

A payment in lieu of taxes or PILOT is a voluntary contract a tax-exempt nonprofit may agree to pay a city to assist with the cost of tax-funded roads and services.

Because the city of Hillsdale’s major employers are tax-exempt, city council asked Shirk to weigh in on the legality of PILOT agreements and the potential revenue they could generate for street repair.

In Shirk’s opinion released March 27, he said PILOT agreements are legal and could be used to offset road costs; however, they are not legally enforceable and would be a gift on the part of any nonprofit.

“Payments in lieu of taxes, from whatever source, are in most circumstances not a legally enforceable obligation, and therefore are not a viable funding source for long-term projects such as street repairs or improvements,” Shirk said.

Council specifically asked Shirk to examine an increased payment from the Hillsdale Public Board of Utilities. The BPU pays 3 percent of its gross revenue to the city each year. It also evaluates its profits annually to determine any other monetary transfers to the city. However, Shirk said that BPU’s payments are different in nature than a PILOT agreement.

Councilman Patrick Flannery pointed out that the BPU is technically part of the city already; therefore, it’s payments are more like inter-fund transfers.

“It is my opinion that the determination of whether the Board of Public Utilities should increase its payment in lieu of taxes is a determination to be made by the Board of Public Utilities,” Shirk said.

Each nonprofit would negotiate its own terms of payment. Therefore, it is not a reliable source for long-term revenue because a nonprofit could stop or change its payment at any time.

The BPU is not the only tax-exempt entity PILOT agreements could apply to in the city. Hillsdale College — like most educational institutions — is also a large tax-exempt nonprofit using tax-paid city roads and services.

Hillsdale College Chief Administrative Officer Rich Péwé said while a PILOT agreement is not something the college would consider, it does try to accommodate the city with projects or services the college directly benefits from.

The college significantly helps fund road and sidewalk repairs surrounding its campus, such as parts of West, College, and Galloway Streets.

Péwé said that a PILOT agreement would change the nature of the relationship between the college and the city. He said that if payments were made to the city, it would require the college to pay attention to where that money is spent. That is not part of the college mission, he said.

“While we have a big interest in the success of the community, we need our top focus to be on our students and education,” Péwé said. “If we commit money on a fixed purpose outside our mission, it could harm us.”

Péwé said he would look at paying directly for services the college uses, such as the runs the Hillsdale County Fire department makes to the college. Péwé said he has requested that data from the fire department in the past.

“That’s a true service we really appreciate. They are protecting important assets of the community. These are beautiful historical buildings,” he said.

“We might look into the data and see how much it costs the fire department to make runs to the college. It’s easier to quantify that. There is data. It directly supports a service we are using. A PILOT would not directly correlate to a service being used.”