May a municipality include a tax equivalency charge (aka, payment in lieu of taxes (PILOT)) in its charges for sewer system services?

No. While municipal water and electric utilities are expressly authorized to make annual PILOTs into the municipality’s general fund, no similar authority exists allowing communities to add a tax equivalency charge to sewer service fees. Wisconsin Stat. § 66.0811(2) provides that the income of municipal water and electric utilities may be used to make local and school tax equivalents. A Public Service Commission (PSC) administrative rule provides further guidance. Wisconsin Admin. Code § PSC 109.02 states that the maximum tax equivalent for a municipal water or electric utility shall be determined by applying the local and school tax rates to the gross book value of the plant plus materials and supplies multiplied by the assessment ratio for the municipality. According to data provided by the PSC, in 2019, 514 municipal water utilities made PILOT payments totaling $112,669,383 and 82 municipal electric utilities made PILOT payments totaling $23,590,770. Municipalities typically retain the entire PILOT and do not share any of it with the school district even though the payment is calculated by using both the municipal and school tax rates.  

No similar statutory language exists authorizing sewer service systems to make a PILOT. The statute authorizing municipalities to establish sewer service charges to cover the cost of constructing and operating a sewer system makes no mention of also including a tax equivalency or a PILOT in those charges. See Wis. Stat. § 66.0821(4). In 1980, the Wisconsin Court of Appeals relied on the absence of specific authority in the predecessor to Wis. Stat. § 66.0821(4) to conclude that the City of Fond du Lac common council could not include a PILOT charge as part of its sewer service rates. Fred Rueping Leather Co. v. City of Fond du Lac, 298 N.W.2d 227 (1980).   

The League has sought without success legislation authorizing municipal sewer service systems to make PILOTs to municipalities. (new 11/20)