Boston Plans to Raise Taxes on Nonprofits

BOSTON—As cities and towns across the nation face increasing budget shortfalls, many are frantically searching for alternative sources of revenue to avoid facing cuts and layoffs. Real estate taxes, however, remain the predominant revenue base for many municipalities.

Two new developments have heightened interest in Payment in Lieu of Taxes (PILOT), a program with the goal of coaxing local nonprofit institutions to pay their fair share for basic services such as police, fire, and public works, to defray some of the revenue pressure. Boston’s PILOT Task Force released a 128-page recommendation after a two-year review of its existing PILOT program. The Policy Focus Report by the Lincoln Institute of Land Policy reviewed PILOT on a national scope.

According to the Lincoln study, “at least 117 municipalities in 18 states” have used PILOT in the last decade. The largest cities included, “Baltimore, Boston, Philadelphia, and Pittsburgh. Boston has one of the longest standing and the most revenue productive PILOT programs in the country.”

Boston brims with prestigious universities and hospitals. All of them are 501(c)(3) entities, which means they are exempt from property taxes. Many of them also have over the years amassed more prime real estate in their expansion and have thus removed that land from the city’s property tax base.

In Boston, 52 percent of land is tax exempt but 64 percent of its revenue comes from property taxes. Boston’s total levy is $1.4 billion with a budget deficit of $140 million. If all the tax-exempt properties were to pay taxes it would generate an additional $347 million. Instead, the city collected $31.6 million from its fiscal 2009 PILOT program, with $16.2 million from Massport (Massachusetts Port Authority), $8.6 million from educational institutions, and $5.5 million from medical institutions.

The necessity to revamp Boston’s PILOT program, instituted in 1985, comes from the inequity and disparities in the program. Harvard, with properties valued at $1.5 billion, contributed about $2 million. While Boston University and Berklee School of Music are top contributors that topped 8 percent, Northeastern University, which has $1.3 billion worth of property, contributed only $30,000—less than 1 percent. Some pay nothing. This imbalance happens for medical institutions as well.

In January 2009, Mayor Menino appointed a nine-member task force that tried to best represent a cross-section of the city. It included representatives from government, nonprofit executives, university presidents, and organized labor. The intent was to make an independent review and to make recommendations for a program that is fair and consistent, and to strengthen long-term, sustainable partnerships between Boston and its tax-exempt institutions to improve services for Boston’s residents.

After two years and numerous public meetings they made a final report and unanimous recommendations, the core of which were that the program should remain voluntary.

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