APPENDIX F: Best Practices for PILOT Programs – An Evaluation of the Memphis Downtown Property PILOT

The Downtown Property PILOT was instituted to support large scale development in the Central Business Improvement District of downtown Memphis. The program allowed developers within the district to pay a fee equivalent to their pre-development taxes plus 25% of the incremental increase in their property taxes from the improvement. After the implementation of the program, a study was commissioned to conduct an impact analysis. The results showed that the program had a positive impact on the tax revenues and on the surrounding areas in the form of increased appraisal values as well as on other indicators such as increased population growth, lower vacancy rates, lower unemployment, and decreased blight. The study also produced four Best Practice Policy Principles for effective implementation of a PILOT program:

1. “Ensure Property Eligibility for PILOT Program”

The eligibility requirements for the PILOT program should correspond to the goals of the city. This will allow the city to target specific types of properties or owners that are in greatest need of the support. This includes creating a standardized process for application that includes an indicator of the degree of need, which may include a “but for” test or other measures of financial health. This process should also be underpinned by a fiscal impact analysis for each project to understand the trade-off between the costs the city will incur and the benefit received from the project.

2. “Determine Appropriate Project Award”

The amount of the tax benefit provided, the timeline, and other parts of the program’s structure should be determined based on both the program’s goals and the financial need of the recipient. The award can be given as a percentage of revenue or a flat amount of tax revenue, and the timeline should be at least 10-years to match the common debt maturity. Additional components such as a step-down or a reallocation should be considered to ensure that projects are able to transition out of the program smoothly and that program funding is used effectively. The program should also include a renewal process that assesses any changes to the level of need and ensures compliance with program requirements.

3. “Provide Transparency of Program Function and Impact”

The structure and requirements of the program should be presented clearly so that potential applicants can understand what benefits they can receive, determine whether or not they are eligible, and decide whether or not they want to participate. Transparency may also include providing a pro forma with instructions to help inexperienced developers accurately represent their financial need. Transparency also includes the public. There should be a consistent timeline of reports on program updates and impacts so that the public can evaluate the efficiency of the program. This also places a higher degree of accountability on the program managers.

4. “Increase Accountability for Award Recipients”

For both compliance checks and public reporting, individual recipients should be frequently monitored and evaluated. Consistent compliance checks ensure that the program funds are used effectively, and data collection will aid future evaluation and reporting. The criteria for evaluation as well as how compliance is enforced should be made clear for recipients, and the process for determining compliance should be standardized.

(Downtown Memphis Commission, 2020)