Purpose of the Municipal Impact Study on State-Owned Land PILOTs and Solar Taxation

An overview of the goals of this municipal impact study.

Overview

Payments in lieu of taxes, also known as PILOTs, are a key source of revenue to municipalities across Massachusetts. When municipalities forgo property tax collections from exempt properties, local governments seek alternatives to shifting more of the tax burden to homeowners and businesses. Therefore, PILOT programs provide a valuable source of revenue to cities and towns that they would otherwise not receive. Such programs exist for entities such as forested land, municipal utility companies, renewable energy farms, and nonprofit hospitals and universities.

PILOT programs have existed in Massachusetts for over 100 years, and there are currently several under state law.¹ For this report, DLM will focus on two PILOT programs that represent substantial sources of revenue for municipalities and are codified under Massachusetts law: state-owned land (SOL) and solar-power generation facilities. DLM recognizes and shares the concerns raised by stakeholders about the operation of both programs and whether they meet the current needs of municipalities, particularly those in rural areas with demographic challenges resulting in stagnating or declining property values.

While both programs examined in the report provide revenue to municipalities, economic, demographic, and legal complexities in the two programs result in uncertain funding over time. Millions of dollars in reimbursements for SOL are distributed to communities each year, but payments are not consistent, due to fluctuating state budget appropriations and changes in property values. Concerns come particularly from communities in central and western Massachusetts. As a result of declining reimbursements to communities across the state, legislators and municipal officials are calling for a reexamination of the SOL program’s formula.

Solar PILOT agreements allow for more standardized payments between solar developers and municipalities, but issues in property valuations, as well as challenges in negotiating fair contracts, have hindered the ability of municipal officials to effectively administer these programs. Moreover, decisions from the Appellate Tax Board (ATB) over the past six years have created uncertainty and inconsistency regarding the taxation of solar facilities, leading stakeholder groups to call for clarification of state law.

This report will do the following:

1. identify aspects of state law, regulation, and policy that guide PILOT programs for SOL and watershed areas.
2. compare and contrast the components of the SOL PILOT Program with the Watershed PILOT Program managed by the Department of Conservation and Recreation (DCR) and the Massachusetts Water Resources Authority (MWRA);
3. estimate and project cost impacts of relevant state law and policy attributed to the SOL and Watershed PILOT programs;
4. identify aspects of state law, regulation, and policy that guide the practice of taxation of solar installations and solar facility PILOT payments;
5. compare and contrast structural elements of the solar PILOT agreements with those of the State of New York’s solar PILOT program; and
6. make recommendations for changes designed to enhance the Commonwealth’s efforts to support fair PILOT payments to municipalities.

To prepare this report, DLM conducted interviews with stakeholders from the Department of Revenue (DOR), the Massachusetts Municipal Association, the Massachusetts Association of Assessing Officers, independent advocates, and state and local officials and staff. In addition, we reviewed historical reimbursement data, ATB decisions, and proposed legislation, among other resources. A full breakdown of the methodology used for this report is located in the Appendix. Although other PILOT programs exist between municipalities and educational institutions or medical centers, these arrangements will not be discussed in this report.

1. M.G.L. c. 58, § 13-17; St. 1910, c. 607; M.G.L. c. 59 § 5G; M.G.L. c. 59, § 38H(b)

Date published:	December 10, 2020