Pasadena Nonprofits Could Face New City "Public Benefit Payment" Fees

Published : Monday, July 15, 2019 | 4:45 AM

A significant change in the operating costs structure of some Pasadena nonprofits could be in the wind if Pasadena’s City Council approves a new Public Benefit Payment Policy tonight.

The Council will vote on a proposed policy Monday that would allow the City Manager to negotiate a so-called “payment in lieu of taxes,” referred to a PILOT, with local nonprofits when a Master Plan and Development Agreement is proposed by the institution, which often happens during expansion.

Nonprofits are exempt from property taxes. Property taxes are the largest single revenue source in the city’s General Fund. Property taxes accounted for approximately 36 percent of total General Fund revenues, or roughly $82.5 million in the fiscal year 2019.

The City uses revenue from property taxes to pay for vital services, including police, fire fighting and infrastructure upgrades.

Pasadena is home to scores of larger nonprofit organizations including private universities, museums, and other institutions which bring employees, students, and visitors to Pasadena, who also benefit from the services provided by the City.

“Nonprofit entities like ArtCernter, 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,” said Councilmember Margaret McAustin.

If the Council passes the policy, the ArtCenter would be required 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.

As an alternative to a strict PILOT program or policy, it is proposed that a more flexible policy be adopted that authorizes the City Manager to negotiate a Public Benefit Payment as part of a Development Agreement, when such an agreement is requested by a tax-exempt institution in conjunction with a new or amended Master Plan. The City Council would still retain approval authority for all Development Agreements and would have the final say on any Public Benefit Payment included in a proposed Development Agreement.

While it is true that Development Agreements are voluntary, they are frequently sought by nonprofits as protection assuring the nonprofit that the City’s regulations that apply to the project will not change during the term of the agreement.

Mayor Terry Tornek said last week that ArtCenter agreed to the Public Benefit Payment as part of the Development Agreement, and he didn’t believe such a new policy would chase nonprofits out of town.

“Nonprofits have their own budgetary problems,” Tornek said. “We’re not trying to make their lives more challenging or difficult. We’ve always viewed our relationship with our nonprofits and education which as being partnerships and, we’ve always done things in a cooperative way.”

Baltimore, Boston, Philadelphia, and Pittsburgh have similar plans.

“Boston has one of the longest standing and the

most revenue-productive PILOT program in the United States,” City Manager Steve Mermell’s staff report tells the Council.

The negotiation of a Public Benefit Payment would specify the amount and duration of any such payment to be customized to the institution, the services they provide the community, and the services they consume.

The timing of payment of the Public Benefit Payment could be tied to specific milestones in the development process and could either be made in perpetuity or for discrete period of time.

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