Payments in lieu of taxes: a significant revenue source?

• Position: Panel Discussion

History and local custom have helped determine the features of local government revenue structures in the various regions of the country. While reliance on the real property tax as the basic building block is the common denominator from shore to shore, treatment of off-the-tax-rolls properties is far from uniform. In some jurisdictions, revenues from these properties are captured to some extent through payments in lieu of taxes (PILOTs). To sample some cross-country perspectives on PILOTs and exempt properties, several GFOA members were asked to comment on the problems and practices associated with PILOTs in their jurisdictions. The following are their replies.

PILOTs Are Pivotal in Milwaukee

Anne S. Kinney, director, department of administration, City of Milwaukee, Wisconsin; member of the Committee on Governmental Budgeting and Management

Payments in lieu of taxes play an important role in enabling the City of Milwaukee to provide a broad range of high-quality municipal services. Since 1988, preserving and enhancing PILOTs has been a city priority. In 1995, Milwaukee will receive PILOTs totaling more than $12 million. This is nearly 29 percent higher than the amount received in 1988. PILOTs this year equal approximately 27 percent of the property tax levy used for general city purposes.

The largest PILOT, comprising 62 percent of the total, is paid by the Milwaukee Water Works, a city-owned utility. The State of Wisconsin will pay nearly $2 million (16 percent of the PILOT total) for municipal services provided to state-owned property. City-owned parking facilities and public housing together contribute another 20 percent of PILOT revenue.

Since 1988, Milwaukee has focused on reducing reliance on the property tax for funding government operations. The primary motivation is to build the local economy by keeping more wealth in private hands, but the need to reduce property taxes also stems from property-owner frustration with high tax rates. In 1987, the city tax rate was $13.09 per $1,000 value. (Property in Wisconsin is assessed at 100 percent of true market value.) The total Milwaukee tax levy from all overlapping governments was $36.01 per $1,000. The city's efforts to reduce property taxes lowered the city rate in 1994 to $10.86, and we anticipate a further reduction this year. Unfortunately, the total rate paid by Milwaukee taxpayers remains high at $36.66 per $1,000.

PILOTs are important to the property tax reduction effort because the city has very few non-property tax revenue options. Cities in Wisconsin are not able to levy sales or income taxes. In fact, Milwaukee does not want to use these taxes: whatever revenue they would generate, their primary impact would be to diminish the competitive position in the region.

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