Need for tax revenue leads local government officials to look to churches, hospitals, schools

  • May 11, 2016


BLOOMINGTON, Ind. -- Charities usually do not pay local property taxes, but a new Indiana University report finds that many Indiana local government officials would consider collecting payments in lieu of taxes from churches, private schools, hospitals and other local charities. The support varies by the type of charity involved.

Using data from a 2010 survey of local government officials, the authors found that about two-fifths of officials (41 percent) said they were in favor of requiring payments in lieu of taxes, known as PILOTs, from private universities or schools, compared to about a third (34 percent) who said nonprofit hospitals should pay and a quarter (27 percent) who said churches should make PILOTs.

“Given the importance of property taxes for local government finances -- about 23 percent of total local government revenue in the state and 80 percent of all tax revenues under local government control -- many local governments face major budgetary challenges as a result of the property tax cap implemented by Indiana in 2010,“ said Kirsten Grønbjerg, associate dean for faculty affairs at the Indiana University Bloomington School of Public and Environmental Affairs and the Efroymson Chair in Philanthropy at the Indiana University Lilly Family School of Philanthropy in Indianapolis. “It is not surprising that local government officials may look to PILOT requirements from charities as a way to help cover the cost of important services, such as police, fire, sanitation and local schools.”

The report also explores why local officials may support such PILOT policies. They are more likely to support PILOTs if their communities are undergoing economic distress, are urban areas or are politically active as measured by high voter turnout. Personal attitudes and experiences also play a role. Officials who believe local government should exert some control over nonprofits and who are involved with a large number of nonprofit areas support PILOTs more than their counterparts.

When asked about the importance of 10 specific considerations for requiring PILOT policies, government officials gave considerable weight to the need for tax revenues (considered at least fairly important by 60 percent, including very important by 42 percent). However, they gave almost as much weight to the idea that PILOTS should not be required if nonprofits provide valuable services (considered at least fairly important by 59 percent and very important by 37 percent).

The authors conclude that nonprofit leaders and philanthropic policy makers should pay careful attention to budget constraints faced by units of local government. Equally important, they should be ready to document the valuable services charities provide to local communities, since this appears to be an argument policy makers are ready to consider. Finally, they should be able to demonstrate how PILOTs would hinder their ability to provide such services and explain how the exemption from property (and other) taxes is an important way in which government helps nonprofits provide important services.

“In the final analysis,” Grønbjerg said, “it is important to remember that there are other, less damaging avenues for addressing the very legitimate fiscal concerns of local government than imposing PILOTs on local charities. As noted by the Indiana Commission on Local Government Reform in 2007, Indiana’s system of local government is highly inefficient, and streamlining the system would result in significant cost savings.”

An in-depth article about the briefing will be published in a forthcoming edition of Public Administration Review.

About the briefing

This briefing is the fifth in a series by the Indiana Nonprofits: Scope and Community Dimensions project, used to inform local community leaders and policymakers. The analysis is a joint effort of the Indiana University Public Policy Institute, the School of Public and Environmental Affairs, and the Lilly Family School of Philanthropy. The briefing’s co-authors are project director Kirsten Grønbjerg; Ph.D. candidates Kellie McGiverin-Bohan and Lauren Dula; and Master of Public Affairs alumna Rachel Miller.

Data for the briefing come from two surveys of local government officials conducted by the Indiana Advisory Commission on Intergovernmental Relations in fall 2010 and 2014. The complete briefing, "Indiana Local Government Officials and Support for PILOTs (Payments in Lieu of Taxes)," is available online.

For more information or to speak with Grønbjerg, contact Jim Hanchett at the School of Public and Environmental Affairs, 812-856-5490 or; or Adriene Davis Kalugyer at the Lilly Family School of Philanthropy, 317-278-8972 or

About the Indiana University Public Policy Institute

The IU Public Policy Institute was created by Indiana University as an institute within the School of Public and Environmental Affairs to provide unbiased research and expert analysis. The institute was officially established in 2008 as an umbrella organization for the Center for Urban Policy and the Environment and the Center for Criminal Justice Research. Today, the institute delivers expertise in research areas including criminal justice, public safety, housing and community development, land use and the environment, and economic development.

About the School of Public and Environmental Affairs

SPEA is a world leader in public and environmental affairs and is the largest school of public administration and public policy in the United States. In the 2016 "Best Graduate Schools" by U.S. News & World Report, SPEA Bloomington ranks first. Three of its specialty programs, including nonprofit management, are also ranked first, and another program is in the top three. SPEA's doctoral programs in public affairs and public policy are ranked by the National Academy of Science as among the best in the country.

About the Lilly Family School of Philanthropy

The Indiana University Lilly Family School of Philanthropy is dedicated to improving philanthropy to improve the world by training and empowering students and professionals to be innovators and leaders who create positive and lasting change. The school offers a comprehensive approach to philanthropy -- voluntary action for the public good -- through its academic, research and international programs and through The Fund Raising School, Lake Institute on Faith and Giving and the Women’s Philanthropy Institute.

Kirsten Grønbjerg

Kirsten Grønbjerg

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Jim Hanchett
Adriene Davis Kalugyer