Springfield audit shows no policy for collecting in-lieu-of-tax payments from nonprofit groups

SPRINGFIELD — An audit of Springfield's payment in lieu of tax system shows there is no formal policy to collect money from the city's many nonprofit agencies, and the few agreements that do exist are inconsistent.

"Without a structured approach, the city may be foregoing revenues. There is also a lack of transparency," said Yong No, city auditor.

As part of its efforts to boost revenue by pushing tax-exempt entities to contribute, the City Council asked for an audit of the program. Results show that tax-exempt groups own a collective $4.8 billion in property, with 40%, or $1.9 billion, owned by the city; the latter includes schools, parks and fire stations, he said.

The remaining properties are broken down by categories. Some of the largest are $878 million owned by colleges and other private educational companies, $785 million owned by a range of charitable organizations, $262 million owned by churches and $199 million owned by the Springfield Housing Authority, the audit said.

Although Springfield ranks sixth for having the largest percentage of tax-exempt property in the state, it only has 15 payment-in-lieu-of-tax agreements, and a dozen of those are with the Mental Health Association Inc. The remaining three are with Baystate Medical Center, the Center for Ecological Technology and Springfield Technical Community College, No said.

The audit shows one of the problems that city councilors face when trying to convince nonprofit groups to enter into agreements is there is no formal policy that oversees creating or managing the payments in lieu of taxes, also known as PILOTS.

"There is a lack of a formal or consistent methodology," No said.

Terms of the agreements and amount of payments vary dramatically. Agreement terms range from 10 years to indefinite. The amounts are also inconsistent, with one calling for a $500 annual payment, another based on a percentage of the city's annual tax rate and yet another that sets the first payment at $199,670 for its first year with a 2.5% increase annually, No said.

"Inconsistent PILOT arrangements could potentially lead to perceived favoritism," he said.

The audit recommended the City Council work with other departments to create a policy that creates a standard application process, explains eligibility criteria and defines a consistent way to calculate the agreements, he said.

The audit also shows there are no formal bills issued to nonprofit agencies that have agreements. Instead, assessors simply rely on the four agencies that do have pacts to pay those agreed-upon amounts.

"What you have here is a risk for missed payments or delayed payments or potential for over- or underpayments," No said.

The audit shows that the city received about $307,000 in total payments for fiscal 2024. In the final accounting, it found three underpayments, totaling $3,652, and two overpayments, totaling $2,961, all from the same agency. There were similar discrepancies found in fiscal 2025, the audit said.

"I feel vindicated by the audit report. We need to have a clean policy, and it will allow us to approach nonprofits fairly and equally for us to get the money we so desperately need," said City Councilor Victor Davila, who has been working on expanding the agreements with nonprofit organizations for months.

Davila heads a committee that is made up of residents and councilors who are looking for ways to expand the agreements, arguing that colleges, hospitals and others use city services, as well.

The city has appealed to nonprofit groups before, such as when a finance control board took over when Springfield was near bankruptcy, but had little luck having anyone sign on to an agreement, said Cathy Buono, the chief finance and administrative officer for the city.

"I agree we have to have a consistent policy, because it is voluntary," she said.

She said one of the benefits of having a policy is that the city can go to any new nonprofit agencies when they move into the city and approach them, which might be easier than getting the existing businesses and colleges to enter into agreements.

Read the original article on MassLive .