Handbook for Library Trustees of New York State (2023 Edition)

New York State law, similar to most other states, provides a variety of mechanisms for taxing jurisdictions such as counties, towns, and school districts  to receive payments for government services from otherwise tax-exempt entities. These payments in lieu of taxes - commonly referred to as "PILOTS" - are often the result of individual negotiations between the lead taxing jurisdiction and the tax-exempt organization. Such arrangements may vary greatly in detail from one situation and region to the next. Quite often public libraries have been overlooked in such negotiations or, in some cases, do not receive funds meant to be passed through to them by another taxing jurisdiction. 

One of the most common types of PILOT programs is between the federal government and local governments to lessen the impact of the cost of services provided to a federal institution. Ironically, state institutions, such as SUNY, often make little or no payments to local jurisdictions, though they may require significant services such as fire protection and educational services for the families living in on-campus graduate housing. 

Several special types of facilities are also exempt from real estate taxes, including airports, nuclear generating facilities and other public service facilities governed by governmentally established authorities. However, the owner or public authority holding title to these facilities is required to make PILOTs to local jurisdictions based on the taxable value of the property prior to the granting of the tax exemption. Likewise, businesses located on these properties, particularly within an airport, are also liable for such payments. Although these properties are no longer considered on the tax rolls, such PILOTs can make up a substantial revenue stream for the local taxing jurisdictions.

PILOT payments negotiated through Industrial Development Agencies (IDAs) in New York are particularly troublesome for libraries. The practice of enticing new businesses or encouraging the expansion of existing corporate or industrial facilities to a locality through tax incentives is widespread throughout the country. Authorization for PILOT agreements by NYS IDAs is found in NYS General Municipal Law Section 874.

There are a variety of tax abatement strategies used by local governments to reduce the tax impact of the construction or expansion of corporate or industrial facilities. The theory behind this strategy is that the jobs created by this business' expansion will more than offset the loss of additional real estate taxes in the short term. A common methodology is the establishment of tax-exempt Industrial Development Agencies (IDAs) by local governments. These IDAs are permitted to sell tax-exempt municipal bonds on behalf of commercial enterprises within the area they serve.

In effect, the IDA then becomes the mortgage holder for the improved property and, as a governmental authority, is exempt from real property taxes on the improvements. This law allows a local IDA to finance eligible projects and determine a schedule of payments "in lieu” of the exempted taxes to the various taxing jurisdictions affected by the exemption. The business is required to pay a percentage of the true tax burden with a set increase each year until the tax levy is met and the bonds are repaid. The increased value of the property in question is not reflected on the tax rolls during this period. Typically, such exemptions may last for ten years, with the tax exemption decreasing each year while the PILOT payments "make up" the loss in tax revenue to the various districts. At that point, the property becomes fully assessed and taxable and PILOT payments cease. Public library districts with a tax levy in place when the exemption is first granted would generally be eligible for such payments.

The additional payments made during this period of tax abatement to public entities are considered PILOTs and are paid outside the normal tax revenue stream to the eligible institutions. The receipt of PILOT payments is calculated within the library’s annual tax cap formula.

Although many public libraries in New York State derive their primary funding from local real estate taxes, many of them are not aware of, nor fully share, in the benefit of PILOT payments. This appears to be especially true in the case of economic development initiatives provided to corporations by IDAs. This, in spite of the fact that such PILOTs may, indeed, have been collected on the library’s behalf. Even though library taxes are normally considered in the calculation of PILOT payments, the payment procedure varies by each IDA. Some IDAs send the appropriate payments directly to the affected libraries. Many, however, send the “library" payments to the local school district or municipality and leave it to the taxing jurisdiction to pass along the payment. Historically this has resulted in significant inconsistency regarding the receipt of PILOT payments by public and association libraries throughout the state.

School and Special District/Consolidated Public Libraries are clearly eligible by law for their appropriate PILOT payments within their taxing jurisdiction. They are advised to become aware of any and all such agreements in their service area.

Association Libraries are treated differently by region. They are not “taxing jurisdictions” as specified in law, yet commonly the “library tax” as assessed by the school district or municipality is used to determine the amount of the PILOT payment. The recognition of this fact varies throughout the state.

Municipal Libraries are generally treated as a department within the Village, Town, or County and, with some exceptions, do not receive PILOT payments.

All public libraries should investigate the economic development tax incentive programs at work in their region. If library officials were not included in the process for tax abatements regarding these initiatives, they would be well advised to determine their legal standing and seek to become an active participant. Every effort should also be made to track any PILOT agreements in the region to determine the library's rights to such funding and to insist that library services are an essential public service worthy of consideration in the negotiation of PILOT agreements.

If you believe you Library may be eligible for PILOT payments in your service area:

• Research state and local laws regarding tax exemption incentives for industrial and commercial development.
• Determine the existence of any state or federal institution within the library’s service boundaries and request information from the appropriate taxing jurisdiction regarding PILOT payment agreements.
• Contact county, town, and other regional municipalities for information on economic development programs.  
• Request information from regional municipalities on economic development tax exemption programs in your Library's jurisdiction. It may be necessary to file Freedom of Information (FOIL) requests to obtain this information. Be certain to request historical information on such programs. IDAs are now required to provide current project information on their website.
• If it is determined that other taxing authorities (schools, villages, towns, etc.) in the library’s jurisdiction are receiving PILOT payments, request a copy of the contract agreement to determine if the library’s tax appropriation has been considered in the PILOT payment calculations.
• If it is determined that the library should have been eligible for past PILOT payments contact knowledgeable legal counsel and attempt to negotiate a reasonable settlement for all parties.
• Make every effort to ensure the library is included in all future PILOT agreements.

Excerpts from: “PILOT Payments: a potential revenue source for public libraries.” Jerry Nichols. Bottom Line: Managing Library Finances; Volume 18, Number 4, 2005.