City of Largo, Florida v. Ahf-Bay Fund, LLC.
2017 Fla. LEXIS 425
Fla.2017Background
- RHF (a 501(c)(3) nonprofit) obtained property to build affordable housing; §196.1978 provides tax exemption for such projects if requirements are met.
- RHF agreed with the City to have the City issue tax-exempt bonds; in return RHF signed a PILOT requiring annual payments equal to the ad valorem taxes that would be due but for the exemption.
- The PILOT tied payments to assessed value × millage, stated the City would provide services, and was recorded only via a memorandum referencing covenants running with the land; the PILOT itself was not recorded.
- RHF paid under the PILOT from 2001–2005; AHF (another nonprofit) bought the property in 2005 and later refused to make PILOT payments, denying knowledge of the agreement.
- The City sued and obtained judgment for unpaid PILOTs; the Second District reversed, holding the PILOT void as contrary to the affordable-housing tax exemption and the Florida Constitution.
- The Florida Supreme Court granted review, considered whether the PILOT conflicts with §196.1978 or Art. VII, §9(a), and quashed the Second District.
Issues
| Issue | Plaintiff's Argument (City) | Defendant's Argument (AHF) | Held |
|---|---|---|---|
| Whether PILOT violates §196.1978 (statutory tax exemption) | PILOT is a tax-equivalent that undermines the statute’s exemption for nonprofit affordable housing | PILOT is a voluntary contractual payment; exemptions can be waived; statute does not prohibit waivers | Court: No violation — exemptions are waivable; statute provides an exemption but not an absolute prohibition on payments in lieu of taxes |
| Whether PILOT violates Art. VII, §9(a) (constitutional limitation on taxation) | Payments are disguised ad valorem taxes imposed in circumvention of constitutional limits | Payments were negotiated proprietary consideration for City services and bond authorization, not unilateral sovereign taxes | Court: No violation — City acted in proprietary capacity; obligations were contractual, not sovereign taxation |
| Public-policy defense (void as contrary to affordable-housing policy) | PILOT undermines public policy promoting affordable housing by effectively taxing exempt projects | PILOT enabled financing that produced the affordable housing; freedom of contract should be upheld absent exceptional public harm | Court: Contract valid — freedom of contract and the public benefit of enabling the project outweigh policy argument |
| Whether PILOT is a covenant running with the land (title issue) | City relied on recorded memorandum showing covenants running with the land | AHF argued lack of record notice and no covenant in the deed/title insurance exceptions | Court: Not reached — issue beyond certified question |
Key Cases Cited
- Jackson-Shaw Co. v. Jacksonville Aviation Auth., 8 So. 3d 1076 (Fla. 2008) (de novo review of legal questions from undisputed facts)
- State v. City of Port Orange, 650 So. 2d 1 (Fla. 1994) (distinguishes taxes from user fees; tax defined as sovereign, unilateral exaction for government support)
- Housing Auth. of Poplar Bluff v. Eastwood, 736 S.W.2d 46 (Mo. 1987) (PILOTs enforcing payments by tax-exempt entities held enforceable; tax exemptions can be waived)
- Pan-Am Tobacco Corp. v. Dep’t of Corr., 471 So. 2d 4 (Fla. 1984) (cities waive sovereign immunity when entering express contracts)
- Banfield v. Louis, 589 So. 2d 441 (Fla. 4th DCA 1991) (contracts are not lightly voided on public-policy grounds; extreme caution required)