Findings: State-Owned Land PILOT Program

The program has been consistently underfunded and the funding formula disadvantages communities with slowly growing or declining property values.

1. The SOL PILOT Program has been underfunded for decades.

The SOL PILOT Program relies on a legislative appropriation in order to distribute reimbursements to municipalities. However, in the last twenty years, appropriations for the program have not fully funded its statutory obligation to reimburse cities and towns. When DLM last examined the program in 2001, DLM estimated that fully funding the program would cost at least $30.8 million each year. At the time of DLM’s analysis, however, the program had a $21 million appropriation.⁹⁸ Nineteen years later, the SOL appropriation for FY2020 was $30 million—the highest appropriation since FY2009 ($30.3 million).⁹⁹ While the program’s appropriation remained flat at close to $30 million between the peaks of FY2009 and FY2020 (see Figure 3), property tax collections across the state increased by 57% during the same time period, further illustrating the disadvantages to communities heavily dependent on SOL PILOT payments.¹⁰⁰  As seen by these financial trends, the SOL PILOT Program’s appropriation does not constitute full funding, as discussed below.

In the past, the DOR determined what would constitute a full reimbursement for the SOL PILOT Program by using a three-year aggregate statewide tax rate.¹⁰¹ The DOR calculated this tax rate by dividing the total tax levy of all properties in the state by their total assessed value.¹⁰²

(Total Statewide Tax Levy / Total Statewide Assessed Value) * 1000

Because the DOR stopped calculating an approximation of full funding in FY2019, DLM used the Department’s formula to estimate a full PILOT reimbursement for SOL for FY2020.¹⁰³ Based on the DOR’s formula, we expect that the Legislature would have needed to distribute at least $45,650,194 to fully fund the SOL program in FY2020, using the current calculation of land values multiplied by the aggregate statewide rate. Unfortunately, the appropriation for that fiscal year covered only 65.72% of total funding needed under this approach, or a $15,650,194 shortfall. 

Figure 9—Funding Approaches to the SOL PILOT Program¹⁰⁴

It may be possible to approximate another path to full reimbursement for SOL by looking at the Watershed PILOT Program that is also run by the state. As mentioned earlier, the Watershed PILOT Program calculates reimbursement for a municipality by multiplying the municipality’s watershed land value by its commercial tax rate for that fiscal year.¹⁰⁵ Using this methodology, we estimate the Legislature would have needed to appropriate at least $53,248,850 for the SOL program in FY2020, using the current calculation of land values and municipalities’ FY2020 commercial tax rates. The existing SOL appropriation, however, would cover only 56.34% of needed funding under this approach, or a $23,248,850 shortfall.

Using residential property tax rates to estimate full funding of the SOL PILOT Program would be another option. Residential tax rates were previously recommended by regional planning commissions in central and western Massachusetts in the late 1980s as a basis for reimbursement to communities for SOL.¹⁰⁶ If reimbursements were determined by multiplying each community’s SOL value by its current residential tax rate, we estimate that this approach would have required the Legislature to appropriate at least $42,752,619 in FY2020.¹⁰⁷ The existing appropriation would cover 70.17% of needed funding, or a $12,752,619 shortfall, under this method.

2. The current formula disadvantages communities with slowly increasing or declining property values

Although the SOL formula relied on land values to calculate reimbursements for years, new methods to value SOL from the Municipal Modernization Act, which went into effect in FY2019, have exacerbated the disadvantage to communities with slowly increasing or declining property values Under the provisions of the Act, municipalities received an initial base value for their SOL.¹⁰⁸ The base values are revalued every two years and are adjusted by a ratio representing the growth in a community’s equalized valuation.¹⁰⁹ SOL values will increase in a municipality if the community’s overall property growth has increased, yet property growth varies across cities and towns in the Commonwealth.¹¹⁰ The pace of a municipality’s property growth (or lack thereof) influences how reimbursements are distributed in the SOL formula.

A PILOT reimbursement is based on a ratio of each community’s SOL value to the value of all SOL in the entire state. These changes in reimbursement favor municipalities that experience growth in SOL values that is faster than the statewide average. Municipalities that have stagnant or slowly increasing SOL values receive reductions in funding under the formula. Municipalities that cannot catch up to communities with increasing land values will experience lower reimbursements over time, and the effects will be more profound if the program’s appropriation is reduced or remains level. 

As a result, urban and suburban areas in the eastern part of the state, especially affluent ones, are the largest recipients of the program’s reimbursements. Rural, less affluent areas in central and western Massachusetts receive declining PILOT reimbursements. Figure 10 shows that pockets of central and western Massachusetts, as well as other communities in southeastern and northeastern Massachusetts, received decreased SOL reimbursements over the period between FY2015 and FY2020. At least 56 municipalities in the central and western regions faced lower PILOT payments over the same period, compared to at least 14 communities located in the eastern part of the state.

Figure 10—Net Change in SOL PILOT Reimbursements¹¹¹

We continue to see this east-west divide when we compare communities with similar SOL values and PILOT reimbursements. For example, in Figure 11, the towns of Duxbury, Sheffield, and Warwick had similar SOL values in FY2020. A closer look reveals that Duxbury was the only municipality that received a higher PILOT reimbursement in FY2020, while Sheffield and Warwick lost reimbursements. Duxbury experienced the highest rate of property value growth, which is reflected in the 10.63% increase in SOL value in FY2020. Sheffield experienced declining property values (by 5.38%), which resulted in a lower PILOT reimbursement. Warwick increased its SOL value by 2.93%, but the increase was not large enough to warrant an increased reimbursement under the parameters of the formula.¹¹²

Figure 11—Comparing SOL PILOT Values and Reimbursements¹¹³

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	Duxbury (Plymouth County)	Sheffield (Berkshire County)	Warwick (Franklin County)
FY2019 SOL Value	$9,553,400	$11,068,700	$10,025,600
FY2020 Equalized Valuation Ratio	1.1063	0.9462	1.0293
FY2020 SOL Value	$10,568,900	$10,473,200	$10,319,400
FY2019 PILOT	$89,022	$103,142	$111,218
FY2020 PILOT	$100,779	$99,867	$98,400
Net Change from FY2019 to FY2020 PILOT	13.21%	(3.18%)	(11.53%)

In some instances, communities with declining or slow property value growth will increase their SOL values by accumulating more SOL, but it might not protect them from a reduced PILOT reimbursement. In FY2020, 56 cities and towns acquired additional SOL, but at least 15 of these municipalities had a lower PILOT reimbursement than in the previous year.¹¹⁴ At least 12 of the 15 municipalities were located in central or western Massachusetts. For example, Williamstown accumulated over 363 additional acres of SOL, but lost over $13,863, or 8%, of its PILOT reimbursements between FY2019 and FY2020. In addition, the town of Peru accumulated over 141 additional acres of SOL, yet lost over $19,867, or 29.16%, of its PILOT reimbursements during the same period.¹¹⁵

3. Municipalities receive higher reimbursements for lands in the Watershed PILOT Program

Although the SOL PILOT Program is constrained by its formula and a fixed appropriation, a similar program —the DCR Watershed PILOT Program—does not have these limitations. As previously discussed, the Watershed PILOT Program has reimbursed communities at 100% of the legislative formula each year with a dedicated revenue source (MWRA).¹¹⁶ Officials from DCR and the MWRA have reported no complaints about reimbursement rates under the Watershed PILOT Program, unlike the calls for increased funding under the SOL PILOT Program.¹¹⁷

DLM investigated differences between the SOL and Watershed PILOT programs and identified 26 communities that participate in both programs. Estimates from the communities indicate a range in land values from $12/acre to $1,216/acre in the Watershed PILOT Program and a range of values from $11/acre to $550/acre in the SOL PILOT Program.¹¹⁸ In FY2020, these cities and towns collectively received over $8.3 million in PILOT reimbursements from the watershed program, compared to only $2.2 million in SOL PILOT reimbursements.¹¹⁹

There is also a significant variation in the level of reimbursements communities receive for every $1,000 of value across the two programs.¹²⁰ Although SOL PILOT reimbursements are distributed by the share of a community’s SOL to the state, every city and town is reimbursed at a rate of $9.54 for every $1,000 of value due to a fixed appropriation. The Watershed PILOT Program instead relies on individual communities’ commercial tax rates. Communities are reimbursed for their watershed lands at rates between $14.82 per $1,000 of value and $81 per $1,000 of value, as seen in Appendix B. Figure 12 shows an example of this variation in reimbursements.

Figure 12—PILOT Reimbursement Comparison Sample—FY2020¹²¹

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Municipality	County	FY2020 Watershed and Annexed Land Value	FY2020 SOL Value	FY2020 Watershed PILOT	FY2020 SOL PILOT	FY2020 Watershed PILOT Reimbursement (Per $1,000)	FY2020 SOL PILOT Reimbursement (Per $1,000)
Barre	Worcester	$6,586,200	$7,197,900	$186,169	$68,636	$28.27	$9.54
Belchertown	Hampshire	$14,296,300	$16,416,600	$307,699	$156,541	$21.52	$9.54

The towns of Barre and Belchertown had similar land values in both the SOL and the Watershed PILOT program in FY2020. Despite similar values, the towns receive a more generous reimbursement through the Watershed PILOT Program because its rate of reimbursement (over $20 per $1,000 of value) is higher than the flat rate set for SOL ($9.54 per $1,000 of value). Barre’s SOL is more valuable, but its SOL PILOT reimbursement is much less than what it receives in the watershed program (by $117,533). The same applies for Belchertown, which receives $151,158 more in Watershed PILOT reimbursements than SOL reimbursements. 

It is worth pointing out that the Watershed PILOT reimbursement rates are slightly different from the commercial tax rates of participating communities because the program contains a “hold harmless” provision that protects reimbursements from decreasing over time. The provision was included in the state laws creating the watershed program, meaning communities have not seen a decline in reimbursements since the program’s inception in 1984.¹²² The SOL PILOT Program does not have this component, although hold-harmless funding was used as a one-time supplement to the program’s appropriation in FY2019. In that fiscal year, the Legislature allocated $26,770,000 to the program and included an additional $1,708,131 to prevent any declines in municipalities’ PILOT reimbursements.¹²³ If the hold harmless provision were included in the FY2020 appropriation for the SOL program, we estimate that at least $971,820 more would be needed to supplement current funding.¹²⁴

4. Not all state agencies’ properties are eligible for SOL PILOT reimbursements

State law explicitly specifies what agencies are eligible for SOL reimbursements, excluding a number of departments from participating in the program. Staff members from the DOR indicated that program eligibility was based on historical precedent.¹²⁵ State agencies and properties eligible for the program have been mostly unchanged in the law governing SOL since 1974, with the exception of a few amendments and clarifications.¹²⁶

Some of the properties of state agencies that are not included in this list are the following:

• major government properties owned by DCAMM and associated agencies;
• barracks for the Massachusetts State Police;
• National Guard armories under the Commonwealth’s Military Division;
• DFS firefighting academies;
• buildings and land for the Massachusetts court system;
• land and property attributed to county sheriffs; and
• other properties from state agencies that were tax-exempt under previous owners.¹²⁷

The SOL statute creates an artificial demarcation among state agencies, so that some land is not included in the program due to the agency in control of the land parcels.¹²⁸ For example, the Camp Curtis Guild and the Camp Edwards Air Force Base are eligible for SOL reimbursements because they qualify as state military campgrounds, but other state military facilities, such as ”Readiness Centers” that recruit members for the National Guard, are not eligible. Likewise, correctional facilities belonging to the DOC are eligible for SOL reimbursements. Houses of correction belonging to county sheriffs are not eligible, however, because these facilities and county jails were explicitly excluded in the original iteration of the SOL PILOT Program.¹²⁹

The SOL statute also excludes previously tax-exempt properties from being eligible to receive a PILOT reimbursement. For example, the Wompatuck State Park in Hingham was built on former federal property that once served as a military installation.¹³⁰ Although the land was acquired by the Commonwealth to create the park, the town cannot receive any SOL reimbursements due to the statute’s exclusion of land that was previously held by a tax-exempt entity.

5. PILOT reimbursements do not capture value that results from significant improvements on land.

The Commonwealth’s responsibility to reimburse municipalities for lost tax revenues is limited to land values, which do not capture the value of buildings and other improvements to properties. For example, public colleges and universities, correctional institutions, and former state hospitals are all tax-exempt properties owned by the Commonwealth. While their land values are eligible for PILOT reimbursements, their fixed improvements do not count.¹³¹ Municipalities hosting highly developed state-owned properties thus face a dual burden because the facilities create an increased demand for municipal services.

Including buildings and improvements in SOL valuations could, however, create adverse effects on the SOL program. Reimbursements would be skewed to communities with valuable improvements and would lower payments in communities that have large amounts of protected land that does not allow for improvements. Including improvements to land will also make the SOL program costlier to finance, which exacerbates funding issues that currently exist in the program.

6. Dissatisfaction with SOL program has led officials to oppose further acquisitions of state land.

Communities across Massachusetts, particularly smaller towns in the western part of the state, have dealt with low SOL reimbursements for years, some of which are related to undervalued land acquisitions.¹³² To some of these towns, SOL represents a large share of their property value and they have raised concerns that the Commonwealth is not adequately compensating them for acquisitions of SOL. A financial administrator for one of these towns stated in correspondence: “Personally, I am not aware of any small towns in Western Massachusetts who would encourage more state acquisitions.”¹³³

One municipality that has expressed opposition to additional state acquisitions in recent years is the Town of Hawley, in which over 40% of the land mass is owned by the state.¹³⁴ In June 2017, the state purchased a plot of 90 acres in the town to add to the Dubuque State Forest.¹³⁵ In 2016, before the sale was finalized, the Hawley Select Board sent a letter to state officials, opposing the purchase by the state of the additional land.¹³⁶ Their concerns focused not just on the drop in revenue from a state land acquisition, but also on the inability of the state to maintain the roads and public infrastructure in the Dubuque State Forest.¹³⁷ The letter points to serious public safety issues caused by the lack of maintenance on forest roads and the closure of roads that has extended over several years.¹³⁸

The purchase was reflected in the SOL program as of FY2020. At the time, the land had an assessed value of $77,000 and was under private ownership.¹³⁹ The tax payment on the plot of land while in private hands was $1,248.94, which is based on the town’s single tax rate of $16.22.¹⁴⁰ Once purchased by the state, the assessed value of the land was changed to reflect the SOL program’s methodology of valuing acquired land, as displayed in Figure 13.

In FY2020, the state valued all land in Hawley in the SOL program at a rate of $748 per acre and had a reimbursement rate of $9.54 per $1,000 of value.¹⁴¹ As a result, the land parcel had a value of $67,334 in the SOL program and a PILOT of $642 per year.¹⁴² The tax receipts to the town for this parcel fell by almost half as a result of the state purchase. This is significant because, in FY2020, Hawley’s PILOT reimbursement was $57,635, which represented 52.8% of its total aid from the state.¹⁴³

Figure 13—Breakdown of Land Acquisitions of Hawley in FY2020: Before and After¹⁴⁴

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Town of Hawley		SOL PILOT
Number of Acres	90	Acquired Acres	90
Assessed Land Value	$77,000	Acquired Land Value	$67,334
Town Rate Per Acre	$855.55	Equalized Valuation Per Acre	$748.15
Town Single Tax Rate	$16.22 per $1,000	Reimbursement Rate	$9.54 per $1,000
Tax Payment	$1,249	PILOT Reimbursement	$642

The example in Figure 13 illustrates a case where land values in the SOL program fall below those of the assessments done by communities when the land was in private hands. Since the current formula is based on assigning a community’s average value per acre to new acquisitions, there will also be cases where certain SOL parcels may be valued higher than before state acquisition. This is particularly true where the acquired land is primarily “unbuildable” acreage, such as protected salt marshes.¹⁴⁵

98. Massachusetts Office of the State Auditor, Division of Local Mandates. (2001, June). Payments in lieu of taxes (PILOT) for state owned land: Chapter 58 of the Massachusetts General Laws – a report to the FY 2002 budget conference committee. https://www.mass.gov/doc/payment-in-lieu-of-taxes-pilot-june-2001/download

99. Note: At time of this report’s publishing, the FY2021 budget has not been signed into law. However, the Conference Committee budget (H.5164), the final recommendation of the Legislature to the Governor before possible gubernatorial approval or veto, funded the SOL line item at $31,000,000. This represents a $1,000,000 increase over the FY2020 final budget appropriation. See Figure 3 for historical appropriation data of the SOL PILOT Program.

100. Massachusetts Department of Revenue, Division of Local Services. (2020). Tax levy by class. https://dlsgateway.dor.state.ma.us/reports/rdPage.aspx?rdReport=PropertyTaxInformation.TaxLevies.LeviesByClass

101. Note: DLM, in an earlier analysis from 2001, referred to DOR’s aggregate statewide tax rate as an “equalized statewide property tax rate.” See Massachusetts Office of the State Auditor, Division of Local Mandates. (2001, June). Payments in lieu of taxes (PILOT) for state owned land: Chapter 58 of the Massachusetts General Laws – a report to the FY 2002 budget conference committee, at 4.

102. M.G.L. c. 58 § 17, effective to December 31, 2017; M.G.L. c. 63 § 58.

103, Note: For FY2020, DLM retrieved total values and tax levies for FY2016, FY2017, and FY2018 to calculate the three-year aggregate tax rate while using DOR’s methodology. See Appendix B for detailed methodology.

104, Note: Model was constructed using data from DLS and projecting estimates based on various funding approaches. See methodology in Appendix B for further detail. Data from: Data from: Massachusetts Department of Revenue, Division of Local Services. (2020). State-owned land values – FY2020 [Data set]; Massachusetts Department of Revenue, Division of Local Services. (2020). DCR water supply protection land values – FY2020 [Data set]; Massachusetts Department of Revenue, Division of Local Services. (2020). DCR water supply protection annexed land values – FY2020 [Data set]; Massachusetts Department of Revenue, Division of Local Services. (2020). Average single family tax bill [Data set].

105. Note: see “Case Study: DCR Watershed PILOT Program (M.G.L. c. 59 § 5G)” on p. 18 for more information.

106. Berkshire County Regional Planning Commission, Central Massachusetts Regional Planning Commission, Franklin County Planning District, & Pioneer Valley Planning Commission. (1987, June). The impact of state-owned land and facilities on local governments. Report prepared for the Executive Office of Communities and Development. On file with DLM.

107. Note: based on using current calculation of land values and municipalities’ FY2020 residential tax rate.

108, Note: FY2019 PILOT reimbursements were determined from the base value of a municipality’s SOL on January 1, 2017. See “Valuing SOL”, at 8.

109. See textbox “How SOL is Revalued”, at p. 12.

110. Note: Staff members from the Department of Revenue (email correspondence, 10/2/2020) have indicated that increases to a municipality’s SOL value can be attributed to various variables, such as the number and size of prime lots, a difference in the land prices in a particular location, and the acreage of excess and unbuildable land.

111. Note: East Bridgewater was excluded for this analysis due to the town being an extreme outlier in the map. See Appendix B for further methodology. See also Massachusetts Department of Revenue, Division of Local Services. (2020). State-owned land values – FY2020 [Data set]; Massachusetts Department of Revenue, Division of Local Services. (2020). Municipal cherry sheet, receipts, & charges [Data set]. https://dlsgateway.dor.state.ma.us/reports/rdPage.aspx?rdReport=CherrySheets.CSbyProgMunis.cs_prog_munis

112. Massachusetts Department of Revenue, Division of Local Services. (2020). State-owned land values – FY2020 [Data set].

113. Id.; Massachusetts Department of Revenue, Division of Local Services. (2020). Municipal cherry sheet, receipts, & charges [Data set].

114. Massachusetts Department of Revenue, Division of Local Services. (2020). State-owned land values – FY2020 [Data set].

115. It may be possible that some of the largest reductions in PILOT reimbursements are attributed to the hold harmless provision that was put in place for the program in FY2019. For more information, see SOL Finding 3.

116. Note: see “Case Study: DCR Watershed PILOT Program (M.G.L. c. 59 § 5G)” and SOL Finding 1 for more information.

117. Meeting with DCR Division of Water Supply Staff Members, 4/30/20. On file with DLM; Meeting with MRWA Staff Members, 8/7/2020. On file with DLM.

118. Massachusetts Department of Revenue, Division of Local Services. (2020). DCR water supply protection land values – FY2020 [Data set].; Massachusetts Department of Revenue, Division of Local Services. (2020). DCR water supply protection annexed land values – FY2020 [Data set].

119. Id.; Massachusetts Department of Revenue, Division of Local Services. (2020). State-owned land values – FY2020 [Data set].

120. Note: the formula to calculate a community’s PILOT reimbursement per $1,000 of value is as follows: (FY2020 PILOT Reimbursement/FY2020 SOL or Watershed Land Value) * 1,000. Further explanation of the formula can be found in Appendix B.

121. A full comparison containing all 29 municipalities in the Watershed PILOT Program can be found in Appendix B. See also Massachusetts Department of Revenue, Division of Local Services. (2020). State-owned land values – FY2020 [Data set]; Massachusetts Department of Revenue, Division of Local Services. (2020). DCR water supply protection land values – FY2020 [Data set]; Massachusetts Department of Revenue, Division of Local Services. (2020). DCR water supply protection annexed land values – FY2020 [Data set].

122. Note: An exception is for any land that is removed from the Watershed PILOT Program. Discussions with MWRA and DCR officials indicate that this has rarely happened in recent years. See M.G.L. c. 59 § 5G; Meeting with DCR Division of Water Supply Staff Members, 4/30/20. On file with DLM; Meeting with MWRA Staff Members; 8/7/20. On file with DLM.

123. Commonwealth of Massachusetts. (2018). FY 2019 final budget. https://malegislature.gov/Budget/FY2019/FinalBudget

124. Note: Additional funding based on subtracting municipalities’ 2020 SOL PILOT reimbursements from their 2019 reimbursements. At least 75 municipalities would require hold harmless protection under this report.

125. Meeting with Department of Revenue Staff Members, 2/27/20. On file with DLM.

126. St.1974, c. 492, § 6.

127. Commonwealth of Massachusetts, Executive Office of Administration and Finance. (2020, February 14). Report on the real property owned and leased by the Commonwealth of Massachusetts. Report prepared by the Division of Capital Asset Management & Maintenance.

128. M.G.L. c. 58 § 13.

129. St. 1910, c. 607.

130. Knox, R. (2011, July 17). Fires down below. The Boston Globe. http://archive.boston.com/news/local/articles/2011/07/17/at_wompatuck_park_a_blast_from_the_past/?page=full

131. M.G.L. c. 58 § 13.

132. Schoenberg, S. (2019, May 14). “There’s not enough of us out here”: Falling revenue from state-owned land brews tension in rural Massachusetts towns. The Republican. https://www.masslive.com/news/2019/02/rural-massachusetts-towns-say-government-shirks-payments-for-state-owned-land.html

133. Email correspondence with Hawley Financial Administrator, 9/22/20. On file with DLM.

134. Massachusetts Department of Revenue, Division of Local Services. (2020). State-owned land values – FY2020 [Data set].

135. Email correspondence with Hawley Financial Administrator, 9/22/20. On file with DLM.

136. Hawley Select Board. (2016, April 5). Re: Proposed state purchase of land in Hawley [letter to the Governor]. On file with DLM; Broncaccio, D. (2016, April 18). Hawley to state: Stop buying town land. Greenfield Recorder. https://www.recorder.com/News/Local/Hawley-to-state-Stop-buying-town-land-1610224 

137, Id.

138. Id.

139. Email correspondence with Hawley Financial Administrator, 9/22/20. On file with DLM.

140. Email correspondence with Hawley Financial Administrator, 9/22/20. On file with DLM.

141. Massachusetts Department of Revenue, Division of Local Services. (2020). State-owned land values – FY2020 [Data set].

142. Id.

143. Note: Remaining state aid to Hawley includes $45,954 in Unrestricted General Government Assistance. See also Massachusetts Department of Revenue, Division of Local Services. (2020). Municipal cherry sheet, receipts, & charges [Data set].

144. Email correspondence with Hawley Financial Administrator, 9/22/20. On file with DLM.; Massachusetts Department of Revenue, Division of Local Services. (2020). State-owned land values – FY2020 [Data set].

145. Email correspondence with staff members from the Department of Revenue, 10/2/2020. On file with DLM.

Date published:	December 10, 2020