Facing a Pass It or Lose It Deadline, Council Approves New “Payment in Lieu of Taxes” Policy

Published : Tuesday, July 16, 2019 | 4:41 AM

Pasadena City Manager Steve Mermell shown during the discussion of a new "payment in lieu of taxes" policy for nonprofits during the July 15, 2019, Pasadena City Council meeting. Image courtesy of Pasadena Media

[Updated]   Faced with an approval deadline of July 16 which if missed would have surrendered the chance for a series of $50,000 payments to the City from ArtCenter College of Design, the Pasadena City Council on Monday adopted formal policy on a new revenue tool for negotiating payments “in lieu of taxes” from tax-exempt nonprofits.

As a result, these payments, known as PILOTs, can now be arranged with nonprofits by the City Manager if the nonprofit wants to expand and proposes a Master Plan and related Development Agreement with the City.

“Nonprofit entities like ArtCenter, Caltech and others don’t pay property taxes in the city, but they receive all the city benefits of services that tax-paying entities pay. I don’t think it’s unreasonable of us to consider them making some form of in lieu payment,” Councilmember Margaret McAustin explained last week, prior to the vote.

Nonprofits would not be required to enter into Development Agreements but institutions sometimes seek them because the Agreements allow the institution to protect entitlements by guaranteeing City regulations that apply to the project will not change during the term of the agreement.

“I do think there is an equity issue,” said Councilmember Victor Gordo. “Residents are required to pick up the costs of existing services and the cost of additional services. I think it’s unfair to expect residence to pick up the costs of those services. I think picking them up in a Development Agreement is a good start.”

A PILOT can only be negotiated when a nonprofit developer requests a Development Agreement.

In the city’s history only seven Development Agreements have been established. Three of those were with nonprofits: Fuller Seminary, the Norton Simon Museum and the ArtCenter.

City Manager Steve Mermell said he would not go back and try to negotiate payments with the Norton Simon Museum or Fuller Seminary.

Last year the ArtCenter signed a Development Agreement that requires the school to pay the city $50,000 annually upon the issuance of a Certificate of Occupancy for the first of four new buildings approved as part of its Master Plan.

The Development Agreement requires an additional $50,000 per year at the issuance of each Certificate of Occupancy, for a total of $200,000 per year if ArtCenter builds out its Master Plan.

The new policy was opposed by Councilmembers Gene Masuda and Steve Madison.

Madison said he could not find any city in California using that adopted a PILOT program.

“I have concerns about this,” Madison said. “This is not what we agreed to do a year ago. What we agreed to do was come up with a policy that would shed some light when and how and on what basis we would impose these payments. This is dangerous because it gives so much discretion to impose taxes on institutions that are legally exempt from taxes.”

The City Council ordered City Staff to return in September with more details about the policy.