I’m going to do something a little out of my comfort zone and go back to that Politico piece on Bernie Sanders that I cited in my last piece. According to that reporting, one of the things that Sanders campaigned on in his first run for mayor of Burlington was opposition to raising residential property taxes. Instead, he wanted to get money out of commercial properties and well-to-do non-profits. In Burlington, the latter would be the University of Vermont and the hospital.
Sanders had campaigned against the incumbent mayor’s plans to raise residential property taxes, and proposed raising taxes on commercial property instead…
…Later in his tenure, Sanders went after the University of Vermont and a local hospital, non-profit institutions that owned large swathes of valuable land in the city but were exempt from paying taxes and cut deals for them for them to contribute “Payments in Lieu of Taxes.”
Sanders didn’t invent PILOTs in Burlington. That other people’s republic, Cambridge, Mass, had been receiving them from Harvard since the 1920s, as had other cities since. But he did anticipate an approach that’s become increasingly popular in the Northeast in recent decades as tax-exempt hospitals and universities have swallowed up more and more land and local governments have put the screws on them to pony up more money for city services.
I’ve never been thrilled with the PILOT way of doing business. Certainly, some kind of revenue is better than nothing, but there are principles that are compromised along the way. Take what’s happened in Chester, Pennsylvania. In order to lure a Major League Soccer team to their dilapidated waterfront, the city and Delaware County struck a deal with the ownership of the Philadelphia Union. The Union would make “payments in lieu of taxes.”
When Nick Sakiewicz envisioned a home for the team, he looked at locations across the country. He settled on Chester, bypassing cities including Philadelphia and Portland, Ore., because he “saw this was a great place to be.”
“Revitalizing the city isn’t what we ever promised,” said Sakiewicz, the team’s chief executive and operating partner. “One business doesn’t fix decades of economic mismanagement in a city.”
To sweeten the deal, the state kicked in $47 million, the Delaware River Port Authority gave $10 million, and Delaware County committed $30 million in the form of a bond.
For Chester’s benefit, a 30-year lease was arranged, which stipulated that in lieu of property taxes, PPL Park would pay the city $500,000 a year through 2014. After that, payments would drop to $150,000 through 2040.
[Mayor] Linder said those payments – in a financially distressed city with $5 million in debt – are not sufficient. He said Chester owes the county more than $400,000 annually to pay off the $30 million bond. Chester is responsible for paying one-fourth of the bond, said John McBlain of the Delaware County Council.
Apparently, there was some issue with the Union making their annual $500,000 payment in a timely manner, but the real trauma is that the salad days are over. This year, the payment is down to $150,000, which doesn’t even come close to covering the cost of the city’s bond payment. And this arrangement is supposed to persist for the next quarter century.
Yes, having a MLS franchise is great for Chester’s blighted image, and the organization does employ a lot of Chester residents. They create significant economic activity, both legitimate and black market. They are doing commendable things in the community on a number of fronts, from simple charity to organizing youth soccer leagues to setting up mentoring programs for troubled youth. There’s no doubt that there are tangible benefits to having the Union in Chester, but it probably doesn’t make up for having a significant structural deficit for the foreseeable future.
Given the choice of having a franchise or not having a franchise, Chester would probably prefer to have the franchise, but it’s not an ideal situation by any means, and it’s a not a clear-cut win for the city or the county. That’s why both the outgoing and the incoming mayor are complaining about the arrangement and begging the Union to give more.
And this is what I don’t like about PILOT programs. The Union aren’t bad citizens, and they’re not responsible for single-handedly fixing one of the most awful cities in the region. But they got a sweetheart deal, and now it causes problems and resentments. Wouldn’t it be better if they just paid commercial property taxes that the city could set at a reasonable level and rely upon when they do their budget?
Again, getting something is better than getting nothing, and Sanders was able to get something in Burlington that improved the city for all its residents. That’s commendable, and a mayor has to get results within the system that exists. I just think it’s a bad system.
