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Nonprofits Don’t Have to Pay Taxes, But Boston Still Hopes They’ll Chip In

Half the city’s land mass is occupied by government entities and other tax-exempt institutions. Some city councilors say nonprofits are not paying their fair share.

Northeastern University sign.
Just because you’re a nonprofit doesn’t mean you’re cash poor. In fact, some of the richest entities in the country are organizations with nonprofit status. Now some government officials in Boston want nonprofits in the city to contribute more to city coffers.

As tax-exempt institutions, nonprofits don’t pay property taxes. That’s a big deal in Boston, where half the city’s relatively modest land mass is not subject to taxation, thanks to the big footprints of government entities, universities, medical centers and other nonprofits. Those enterprises make significant use of roads, transit, utilities and other city services, even though they don’t contribute much to their upkeep.

Back in 2012, the city reached an agreement with four dozen of its largest nonprofits, asking them to contribute 25 percent of what they would otherwise owe in property taxes. Lots of cities and counties depend on such arrangements, known as payments in lieu of taxes, or PILOTs.

By some measures, the program has worked well. Last year, the city collected $33.6 million in PILOTs, according to the Boston Municipal Research Bureau, an independent think tank. That’s more than double what it got in 2011, before the current arrangement started. 

But the nonprofits aren’t kicking in like they used to. They only paid 56.4 percent of what the city requested last year -- down from 90.7 percent in 2012. And only half of the PILOT payments are made in cash. The other half of the contribution is based on benefits the nonprofits say they provide to the community. “People in our city see a direct connection between PILOTs and the lack of funding for education and housing,” says Annissa Essaibi George, a city councilor.

Last year, Harvard gave itself a 20 percent discount, paying 79 percent of its anticipated PILOT, with less than half coming in cash. (Harvard’s main campus is across the Charles River in Cambridge, but the university owns more than $1 billion worth of property in Boston proper.) Harvard has never paid its expected share in the seven years of the program. Northeastern University and Boston College have paid even smaller percentages of their expected payments. 

Essaibi George and other critics note that Harvard has an endowment approaching $40 billion, and pays its investment managers alone several times the amount requested by the city in PILOTs. “Harvard has a long tradition of paying taxes and making voluntary PILOT payments to its host communities,” replies university spokeswoman Brigid O’Rourke. “Community benefits are a meaningful extension of Harvard’s education and research mission.”

Not everyone at city hall thinks nonprofits should be squeezed harder. Mayor Marty Walsh hasn’t joined the chorus of critics, asking whether at some point city demands become unlawful taxation. The entire PILOT program, after all, is voluntary. “It’s a challenge for sure to get any organization that’s not required to pay taxes to pay something equivalent,” says Boston Municipal Research Bureau President Pamela Kocher, “but we do like this standardized approach. Everybody has a better sense of the ground rules.”

Those rules may be shifting. Pressure from Essaibi George and other councilors has led to discussion about putting the city in charge of defining community benefits. As it stands, the nonprofits themselves determine what constitutes a benefit, although the city does perform an audit. “A private high school says because the city isn’t doing a good job educating, that’s their benefit for us,” complains Councilor Lydia Edwards.

It’s also possible, but less likely, that the city will reassess the value of properties held by nonprofits, which hasn’t been done since 2012. Boston has boomed in this decade but not everyone has shared in the wealth. There’s a general push among progressives on the city council to find more money to help address equity issues. “Everything in Boston has grown tremendously in value over the last 10 years,” Essaibi George says. “We’re very interested in what the new values are and what the new PILOT payments would be even without changing the formula.”

The same boom has put a squeeze on some smaller Boston nonprofits. Several have had to move, including a few that have left the city altogether. It is likely that Big Brothers Big Sisters of Massachusetts Bay, facing a 45 percent rent increase, will leave its location in downtown Boston by the end of the year.

This story and headline have been updated to reflect the fact that the figures regarding how much of Boston's land is taken up by tax-exempt institutions include federal, state and local government entities as well as nonprofits. The city, of course, is not seeking any payments from those government properties.

Alan Greenblatt is a senior staff writer for Governing. He can be found on Twitter at @AlanGreenblatt.
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