January 10, 2017, Lowell Sun
NPQ has written repeatedly over the past decade about the issue of payments in lieu of taxes, or PILOTS. Some of these articles have tracked the oft-referenced PILOT program in the City of Boston, where a great deal of work went into designing a system aimed at the big “eds and meds” in particular. The system had input from those institutions, but for some reason a subset of the eds have steadfastly annoyed the media—and, presumably, the public—by not paying fully.
This problem is by no means confined to the city of Boston. Less well-heeled areas would prefer a system that is more inclusive and less mandatory. A Democrat from Lowell, Massachusetts, State Representative David Nangle has proposed House Bill No. 2639, requiring certain nonprofit organizations to pay a portion of the property tax from which they are currently exempt. The bill was proposed very shortly before the end of the last legislative session and failed to pass before the session expired.
Nangle says he is trying to “require nonprofits that have substantial assets and large real estate holdings to come to the table and help these cities and towns, which are in dire need of their real estate tax revenue.”
Municipalities that have large research, medical, and other nonprofit institutions miss out on millions of dollars in property tax each year. Potsdam, New York, for example, can only tax 31 percent of its properties. In Boston, over 50 percent of property is tax-exempt, but Massachusetts municipalities suffer particularly from property tax exemptions because they do not levy income, payroll, sales, or other tax, so property taxes make up about two-thirds of Boston revenue, even without the nonprofit tax base.
Cities and towns in Massachusetts are each responsible for determining the tax-exempt status of organizations in their jurisdiction. The rule states that property held by “a religious organization of any denomination for religious or charitable purposes” or “a corporation or trust, established for literary, benevolent, charitable, or temperance purposes” is eligible for exemption.
Part of the controversy around nonprofit tax exemptions stems from the ever-more-enormous wealth held by some of the entities that have them and the strain placed on taxpayers when a good portion of local land generates no tax revenue. Harvard University is the poster child for this argument, with a $35B endowment and thousands of acres of Massachusetts property. If its property tax exemption status were lost, the university would owe Massachusetts $80M a year in taxes, or nearly 6 percent of the state’s total tax levy. Still, it is one of the institutions that consistently underpays. Massachusetts is home to nine colleges and universities with endowments over $1B, which is the threshold for tax contribution under Nangle’s proposed legislation.
Other areas have recently given their PILOTs a rethinking. For instance, a new agreement is in the process of being crafted in Pennsylvania. Readers may also recall the “eds and meds” in New Jersey successfully sued by local municipalities over the last few years in order to get larger, more consistent, and locally determined payments. Since that decision, there have been a rash of other similar suits in that state, primarily against hospitals. The Massachusetts Hospital Association is frantically seeking a consistent state bill that would make payment structures more predictable and less potentially onerous. These ideas and mechanisms continue to circulate actively around the country.—Erin Rubin and Ruth McCambridge