Payments in lieu of taxes typically occur when which of the following situations arises?

Payments in lieu of taxes (PILOT) typically occur when jurisdictions contain substantial facilities of other governments. This situation arises because certain properties, such as government buildings, schools, or non-profit organizations, may be exempt from traditional property tax obligations. However, local governments still need funding for public services, and those facilities might utilize infrastructure or services (like police, fire, and sanitation) provided by the local government without contributing to its tax revenue.

As a result, local authorities might negotiate PILOT agreements where these facilities make payments that help offset the costs of the services they use, creating a fair financial arrangement that recognizes the impact of these tax-exempt facilities on the local budget. This mechanism helps local governments maintain fiscal stability while acknowledging the unique challenges posed by having significant portions of their land owned by entities that are not required to pay standard property taxes.