The Commonwealth’s payments-in-lieu-of-taxes program for state-owned lands is underfunded and disproportionately disadvantages smaller, rural communities, according to a report issued by State Auditor Suzanne Bump today.

The report also finds that state laws governing taxes paid to cities and towns by solar power generators are outdated, confusing for both municipalities and the solar operators, and may slow the adoption of solar technologies.

PILOT programs help municipal governments replace some or all of the revenue lost due to certain state property tax exemptions, such as those associated with nonprofit organizations, recreational areas and properties owned by the state.

“These PILOT programs were designed to help communities with significant state-owned land holdings and to promote solar development,” Bump said, “but chronic underfunding of the former and rulings from the Appellate Tax Board on the latter have blunted their impact. There are simple steps lawmakers can take to get these programs back on track: provide adequate funding, implement provisions to protect communities with declining property values, and clarify that solar tax exemptions are designed for residential and small commercial installations.

“At a time when municipalities are facing historic financial challenges, I encourage the Legislature to act quickly on these recommendations.”

The report is the first from the state auditor’s office in 19 years to look at PILOTs for state-owned land, and the first ever to review the solar energy facility PILOT program.

The report was produced by the auditor’s Division of Local Mandates. The auditor’s municipal impact study of the state-owned land PILOT and solar taxation policies is also available online.

State-owned land PILOT underfunded
The state-owned-land PILOT program provides reimbursement payments to municipalities for tax-exempt land owned by the Commonwealth. In the last 20 years, the program’s funding has not met statutory obligations to reimburse municipalities.

Since fiscal 2009, the program’s appropriation has remained flat, at close to $30 million, while property tax collections across the state have increased by approximately 57% over the same period.

Bump’s study estimates that the Legislature would need to increase the state-owned-land PILOT appropriation to at least $45.6 million in order to fully fund the program.

“The state-owned land PILOT program represents a pact,” said Linda Dunlavy, executive director of the Franklin Regional Council of Governments. “Cities and towns will house and provide critical services for untaxed properties that benefit the public, such as universities, recreational lands and government buildings, and in exchange, the state government will ensure they are fairly compensated.

“But years of underfunding of this critical program have strained this agreement and local budgets. With COVID-19 challenging local government budgets like never before, now is the time for the Commonwealth to finally fully fund this important program.”

Under the state-owned land PILOT program’s funding formula, reimbursements are partly based on each municipality’s state-owned land value. Bump’s study notes that communities with decreasing, stagnant or slowly increasing property values have seen reductions in their PILOT payments. As a result, communities in the eastern part of the state, where property values have consistently risen, have seen their PILOT reimbursements increase, while reimbursements to communities in the western part of the state have generally decreased.

Bump is urging the Legislature to add a hold-harmless provision to the PILOT program to ensure that communities with property values that are declining or growing at below average rates do not see their reimbursements reduced.

PILOT confusion stymies solar development
Under state law, municipalities can enter into PILOT agreements with energy generation companies, including solar energy producers. Such agreements provide predictable revenue for the communities and security to generation facilities by allowing them to anticipate future tax payments.

Decisions by the Appellate Tax Board, however, have allowed large commercial solar facilities to avoid paying personal property taxes on their equipment by taking advantage of an exemption on solar equipment that was designed to promote residential and small commercial solar installations, according to the auditor’s report. These rulings have created confusion for local officials and may result in slower rates of solar development in the future, the report states.

Bump is calling on the Legislature to clarify the solar property tax exemption and the tax status of solar facilities that may be eligible to enter into a PILOT agreement.

Sen. Michael Rodrigues and Rep. Jeffrey Roy have brought forward bills to address these problems by clarifying the solar tax exemption and resolving issues resulting from the ATB rulings.

Concord Assessor Lane Partridge, past president of the Massachusetts Association of Assessing Officers, said the auditor’s report “confirms the challenges local officials and municipalities have been having administering the solar property tax exemption law, and the need for legislative change. These provisions were enacted many decades ago and are outdated in terms of technology or current municipal practices.”

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