Taking a MAD look at PILOTs and other loopholes
Loopholes aren’t just for billionaires anymore. They’re also a mainstay of local government and a key reason why Big Government, even at the local level, pads its payroll with so many employees whose main jobs, like the jobs of billionaires’ minions, are to find loopholes.
Years ago, I used to make fun of the rural Wisconsin community in which I lived. My township, which surrounded a small incorporated village, decided to incorporate in its own right and create both a police force and a municipal court.
It wasn’t because of crime. Rather, the township was located where the speed limit on an interstate highway ratcheted down in preparation for entering metropolitan Milwaukee. A loophole allowed local communities to retain traffic fines if they had their own police and court systems. Thus was born a speed trap — and a self-supporting profit center for local government.
It’s not as if such things don’t happen here. There’s a reason why police in Marion and Peabody sometimes seem to spend so much effort checking motorists who skirt through their communities on state highways. There’s an especially big bonanza if they can find drugs in those vehicles. They can seize the vehicle and everything in it, and either keep the items or sell them, using the proceeds for pretty much whatever they want.
Modern loopholes aren’t just about speed traps and checks for lights on license plate tags, however. They’re also about big projects like wind farms.
Laws have long allowed for something called payments in lieu of taxes. They originally were intended to compensate local governments if the federal government came in and took a large chunk of land off the tax roll, as happened when Marion Reservoir was created.
Originally, payments were earmarked for services required by the projects — like extra sheriff patrols at the reservoir. But then came a push to give all manner of tax exemptions to private projects like factories, pipelines, and wind farms. To secure zoning approval, developers would agree to make payments in lieu of taxes.
State law is pretty clear on PILOT agreements. Payments generally are to be treated exactly as if the money had come from actual tax payments. But there are loopholes.
Hillsboro’s school board used one earlier this month in treating the first of many payments from Diamond Vista wind farm as if it were a gift instead of the tax revenue it was in lieu of.
Many perfectly valid reasons for doing this exist, and no one can fault anyone for taking advantage of whatever loopholes exist. Treating the money as a gift probably helped preserve the district’s state aid, for example — something the Centre school district has done a masterful job of doing with its loophole for online education.
But in Hillsboro’s case it also means the money will provide no relief to Joe Taxpayer in picking up the tab for the district’s primary functions. The money can buy icing, but Joe still has to pay for the cake.
We don’t expect Hillsboro schools to do so, but it’s entirely possible for any school district treating PILOT funds as gifts to plead financial shortfall in tax funds, insist on a tax increase or reduced services, then blow the money in its PILOT slush fund on extravagances.
That’s not the kind of accountability we want or need in our political system, and the accompanying swamp that only grows with each attempt to drain it leads to all manner of other situations that hurt Joe Taxpayer.
One locally is how both Marion and Hillsboro profit from electric service. Yes, they say they use the profit to reduce property taxes. But the electric surcharge is a more insidious tax in its own right. Less affluent taxpayers typically have less energy-efficient homes and thus pay more than their share when the burden of paying for government is shifted from property tax to utility surcharges.
The loophole game has other inefficiencies as well. Local governments pad their payrolls with multiple disaster coordinators. It’s not because they need these people to coordinate relief. In fact, volunteer public safety workers often contend such officials only get in the way. The main reason government hires them is to try to get more grants.
But grants may not be the answer. Take the Elm St. bank collapse in Marion. Delaying any response for months while seeking a grant, the city finally found one, but it won’t pay for correcting the cause. Essentially it is money pounded down a rathole — or, more to the point, down broken curbs and gutters.
Yes, it’s federal money. But guess where federal money comes from: the same Joe who pays property taxes. The notion that federal money is “free” is based on a perverse sense that we somehow will be better at getting it than will some other community. And that means we have to further pad local government payrolls with yet more people to do a better job seeking grants. It’s a vicious circle not unlike addiction.
Loopholes also impact government purchasing by allowing current elected officials to commit future officials to spending money on often more costly rent-to-own equipment merely to avoid the need for voter approval.
And when taxpayers try to limit all of this by imposing caps on tax rates and spending, what happens is spending never goes down, everything possible is shifted into a public safety loophole in the tax lid law, and even more costly consultants are hired to accomplish this.
Lawyers, accountants, and bankers, who unlike other businesses are guaranteed not to face competing bidders from outside the county when it comes to lease-purchase agreements, encourage this on an almost daily basis.
Meanwhile, the paying public is lulled to sleep by continually keeping the focus on property tax rates, even though they reflect only a small portion of what local governments actually spend.
Loopholes are like a fiscal arms race, and the only people the system doesn’t seem to benefit are the poor slobs like us who pay for it in the end. Call it what it is: mutually assured destruction, which no one is willing to step away from.
— ERIC MEYER