DATELINE: May 1, 2009, Chicago
Everyone knows that in these tough economic times state and local governments are struggling to balance their budgets. Many governors, legislators, and mayors look hungrily at the property occupied by nonprofit hospitals, educational institutions, cultural institutions, and large social service agencies. Although these institutions and their stakeholders generate employment, sales taxes, and important services, our elective representatives see lost property tax revenue when they gaze upon green college campuses and the concrete fortresses housing large urban hospital systems.
The City of Boston just...
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Jack Siegel's new book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good, has quickly become the go-to guide for nonprofit executives and advisors. So what are people saying about the Guide? In the October 2007 edition of the The Federal Lawyer, New York lawyer George W. Gowen and nonprofit authority, wrote:
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published an exempt property analysis for educational and medical institutions within the city’s boundaries. One of the report’s primary objectives was to arrive at the value of the property that is exempt from property taxation. Notably, the City of Boston gave the exempt organizations the opportunity to question the valuations. Based on comments that the city received from these institutions, adjustments were made to the valuations. For 2007, the property held by the educational institutions included in the study was valued at $7 billion. Had that property been taxable, it would have generated $190.2 million in taxes. The survey included 16 colleges and universities, including Boston University and Harvard. It appears that the survey only includes property located on the Boston side of the Charles River. That is not surprising given the fact that Cambridge-based MIT is not listed at all.
The property owned by hospitals was valued at $5.7 billion. This property would have generated $154.8 million in 2007 property taxes. The survey included 12 medical institutions, including Massachusetts General Hospital. According to the report, nearly 53% of Boston’s land is exempt from property taxes.
The report also focused on payments in lieu of taxes (PILOTs), which are voluntary payments made by tax-exempt institutions to cover the cost of some city services that directly benefit the institutions despite the fact that they don’t pay property taxes. The total PILOTs from the included educational institutions for fiscal year 2009 was $8,658,793, which amounts to just 4.55% of the $190.2 million in foregone property tax revenue. Boston University is the most generous. It made $4.9 million in PILOTS, or 8.53% of what it would otherwise have owed in taxes. Harvard University covered just $4.99% of what it would otherwise have owed in property taxes ($40.048 million). All of the included medical institutions cover just 3.76% of what they would otherwise owe in property taxes.
We find the report deficient in one respect. It would have been interesting to know what portion of each property tax dollar went to finance police, fire, and other direct services. That information would have given us a better sense of whether the average PILOTs in relation to the foregone property taxes covered services that directly benefited the exempt institution.
The report strikes us as the product produced by a group of strange bedfellows. It was prepared by the city assessor’s office to assist Mayor Menino’s PILOT Task Force, which is comprised of leaders from Boston’s colleges and universities, hospitals, non-profit community organizations, and government. The task force is charged with:
Setting a standard level of contributions – in programs and payments – to be met by all major nonprofit land holders in Boston.
Developing a standard methodology for valuing the community partnerships made by tax-exempt institutions.
Proposing a structure for a consolidated program and payment negotiation system, which will allow the City and its tax-exempt institutions to structure longer term, sustainable partnerships focused on improving services for Boston’s residents.
Clarifying the costs associated with providing City services to tax-exempt institutions.
Providing recommendations on legislative changes needed at the City of state level, if necessary.
We suspect that college and hospital officials are participating to head off any attempts to make life miserable for their institutions or to eliminate property tax exemptions altogether. One senses that the task force members must have had input into the report because the report goes out of its way to describe how these institutions collectively contribute to the City of Boston in ways that can’t be measured by foregone property tax dollars. Typically local government officials focus on the services that local government provides to tax-exempt institutions and why the institution's should help cover the costs.
No doubt there will be subsequent developments, but we suspect those will take sometime. It will be interesting to see whether those who are engaged in what strikes us a zero-sum game will continue to work together or whether budget realities on both sides of the fence will divide the parties. Excuse us for being so cynical, but we have watched Northwestern University and the City of Evanston, Illinois go at it for years.
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