College payments to City examined
Northeastern University is a tax-exempt nonprofit organization. But in return for all the city services it consumes, Northeastern—like many other Boston nonprofit institutions—makes a voluntary payment in lieu of taxes (PILOT) every year.
Its total PILOT for Fiscal Year 2008: $30,571.
That roughly equals the total property tax on seven houses like the one owned by City Councilor Steve Murphy, who is vowing to reform the PILOT system.
“It’s just outrageous,” Murphy told the Gazette.
Northeastern’s PILOT was lower than that of Wentworth Institute of Technology (WIT), which has less than one-seventh of Northeastern’s student population on a campus half the size.
Boston is a city unusually dependent on property tax revenue, and has an unusually high percentage of land occupied by tax-exempt nonprofits. As residential property taxes go up and universities expand, it is no surprise the Boston City Council is criticizing PILOTs such as Northeastern’s as shockingly low.
But the controversy is not just about the PILOT amounts. It is also about the mysterious, secretive way they are calculated in private negotiations with the city’s Assessing Department. It appears that a basic formula is 25 percent of assessed property value, but much is open to negotiation and it is not even clear that formula is always used.
“There’s no real rhyme or reason to how they’re calculated now,” Murphy said.
The Gazette has learned that very different PILOT calculations are applied to different institutions. The Gazette has also learned that the PILOT amounts reported as revenue in the city budget may be inaccurate, because the Assessing Department reportedly allows at least part of some PILOTs to be made in the form of non-cash benefits such as scholarships or donations to non-municipal individuals and organizations.
Meanwhile, the exact details of any PILOT calculation remain unclear and unpublicized, as Murphy and fellow City Councilor John Tobin complained to the Gazette. The Assessing Department referred questions about current PILOT deals to the city’s press office, which did not respond to Gazette questions.
“It should be public record,” said Tobin, who has requested PILOT details from the Assessing Department. “The only problem [with revealing the details] is some payments in lieu of taxes would be so embarrassing.”
The Gazette last month filed a Freedom of Information Act request with the Assessing Department seeking all records describing Fiscal Year 2008 PILOTs and their calculation methods. The Assessing Department has not yet responded.
Meanwhile, the City of Cambridge freely revealed to the Gazette its complete PILOT contracts with Harvard University and Massachusetts Institute of Technology (MIT). It turns out that Harvard and MIT for years have agreed to PILOT plans in Cambridge that include PILOT reforms Murphy is proposing for Boston. Murphy told the Gazette he was unaware of the Cambridge PILOT details.
Murphy led a June 23 City Council hearing about PILOTs. He told the Gazette he expects to see the council pass at least one PILOT reform after another hearing this fall. That reform would be creating a standard formula for calculating PILOTs that would be written into city code.
“We’re going to implement something,” he said.
A tale of two PILOTs
Two Boston colleges—WIT and Jamaica Plain’s Showa Boston Institute
for Language and Culture—discussed their PILOT deals in detail with the Gazette, and told two different stories.
WIT and Showa have campuses that are about the same size. WIT’s full-time student population of 3,100 is almost four times that of the Showa campus, which also includes the British School of Boston. But Showa’s PILOT is almost three times that of WIT.
The PILOT paid by both colleges is there in black-and-white in the city’s budget as tax revenue figures. In Fiscal ’08, WIT paid $37,975.43. Showa paid $110,521.81.
The budget says nothing about how those PILOTs were calculated. It turns out that Showa pays all cash, while WIT has the option of alternative payment methods. WIT’s PILOT is based on individual new buildings, while Showa just pays an overall institutional total.
And neither school could say exactly how the PILOT amount was calculated in the first place, beyond saying they agreed to the figure in private negotiations with the Assessing Department. Like most PILOTs, the deal includes a small annual increase.
“The assessor has a formula. It’s based on the square-footage of the buildings,” said Sandra Pascal, WIT’s associate vice president of business and finance.
Pascal said WIT is allowed to make roughly 25 percent of its PILOT in the form of some non-cash donation or community contribution.
“The way I understand it [is]…you cannot take credit for community stuff you’re already doing. But they will let you put a percentage of your PILOT toward new community benefits in the neighborhood,” Pascal said.
She said WIT paid straight cash in Fiscal 2008, but will use the alternative method in Fiscal 2009 by working with Mission Hill Main Streets to pay for solar-powered trash cans.
Seth McCoy, Murphy’s chief of staff, said some other institutions reportedly are allowed to make these alternative PILOT contributions. McCoy said it appears that those contributions are not necessarily deducted from the PILOT amounts reported in the city budget. That would mean that some PILOT revenue reported in the budget is not actually revenue.
Showa president Ron Provost said he had not heard of the alternative PILOT contribution option before the Gazette told him about it. “It’s cash. It’s real money,” he said of Showa’s PILOT.
WIT has several separate PILOT agreements, each negotiated for a specific new building at the time of its construction, Pascal said. Because of that method, Pascal complained that it is unfair to compare the total PILOTs of different colleges.
“I think [the comparison] gets a little distorted,” Pascal said. “[PILOT] only reflects new construction. It’s not looking at your entire campus.”
But Showa’s PILOT does cover its entire campus. Provost said he had not heard of building-specific PILOT deals, even though Showa constructed a large new building a few years ago. He said Showa’s PILOT was established when Showa bought its campus about 20 years ago.
Pascal and Provost both said they think their institutions’ PILOTs are fairly calculated—even if they couldn’t fully explain the math.
“There’s a lot of confusion in the city about how [PILOT] works or doesn’t work,” Provost said.
Part of the current concern about nonprofits’ PILOTs is simply because they are easy targets in a bigger and harder war for city revenue. As a Boston Foundation report last year explained, Massachusetts has an old-fashioned political structure that leaves cities overly reliant on property taxes for revenue. Boston—unlike virtually every other major city in the country—needs state permission to create just about any other kind of tax, and that permission is rarely forthcoming.
At the same time, Boston has an unusual amount of nonprofit institutions and state-owned or state-controlled land. More than half of the city’s deeded land is tax-exempt. That leaves residential and commercial taxpayers shouldering the load.
And that tax-exempt land costs the city, too. “After all, it is our police and fire department and DPW [Department of Public Works] that cleans up,” Tobin noted.
Wherever the City of Boston has political leverage, it requests or negotiates various kinds of voluntary PILOTs. Last year, the city reported $30.75 million in PILOT revenue.
The state, which owns or controls more than a quarter of the city, paid more than half of that. That is better than Fiscal 2000 and 2001, when the state paid nothing at all, according to a 2002 Boston Redevelopment Authority (BRA) report.
Another big source of PILOT revenue is redevelopment conducted under the 121A zoning code, which allows for tax breaks to encourage particular projects. PILOTs are negotiated on individual projects.
PILOTs paid by nonprofit institutions such as schools and museums are currently the smallest category. About 40 institutions make PILOT payments. The largest nonprofit PILOT in the city in Fiscal 2008 was more than $4 million, paid by Boston University (BU). No other institution came close to that amount. Some large nonprofits pay no PILOT at all. [See sidebar for list of local PILOTs.]
The total PILOT revenue is a sliver of the city’s budget and a fraction of what the land’s assessed value would be.
The BRA oversees 121A redevelopment deals. BRA review of large projects is also clearly used as the leverage to negotiate some PILOTs with nonprofits when they propose new buildings, as in the case of WIT. BRA planners at the regular Longwood Medical Area (LMA) Forum meetings have frequently described joining in private negotiation sessions with developers and Assessing Department officials about PILOTs.
At a 2006 LMA Forum about a Children’s Hospital Boston project, BRA planner Sonal Gandhi even gave an outline of the Assessing Department’s PILOT formula: 25 percent of the property’s assessed value, negotiated downward in exchange for unspecified “community benefits.”
Mayor Thomas Menino is known for using the BRA’s extraordinary leverage over development projects to privately negotiate a variety of deals, such as redevelopment of the South Boston Waterfront.
However, it remains unclear what direct input, if any, BRA officials have in PILOT deals. BRA planners at LMA Forums have generally described themselves as simply sometimes attending the negotiations. And BRA officials have regularly also criticized PILOTs as too low, including in the 2002 city report.
BRA spokesperson Jessica Shumaker did not respond to a Gazette phone call for this article. The Gazette also filed a Freedom of Information Act request for PILOT deal records with the BRA. BRA Executive Director Harry Collings in a response letter referred the request to the Assessing Department, implying but not stating that the BRA does not have any such records.
Murphy said that when the city began negotiating PILOTs about 40 years ago, there was a basic formula: 25 percent of assessed value. His main PILOT reform idea is making that the standard, openly declared in city code, rather than the private negotiations over other “community benefits” the BRA planner once referred to.
“It would raise an additional $18 million,” Murphy said.
He said he has already requested the land value information from the Assessing Department and intends to have it in time for a “factual showdown” at a council hearing this fall.
Murphy is also proposing that when a large nonprofit purchases taxable property, that property should remain on the tax rolls for at least a number of years.
The Gazette has learned that Harvard and MIT have already agreed to such a deal for years in Cambridge. MIT’s deal keeps the property on the tax rolls for 40 years. Both institutions also make annual basic PILOTs of about $1.5 million each.
Louis DePasquale, Cambridge’s assistant city manager for finance, told the Gazette that those two institutions make up about 90 percent of the city’s PILOT revenue. A few other institutions are covered by a flat-rate PILOT formula of about 20 cents per square foot, apparently based on a percentage of average property tax, he said.
Tobin said he is seeking simple, basic information about PILOTs and other benefits institutions offer the community—what he called a “white sheet.”
“I don’t think it’s clear to anybody,” he said, adding he would file to make it a legal requirement if the information isn’t forthcoming.
Murphy said that BU and Berklee College of Music provided such information at the council hearing, and Harvard and Northeastern promised to follow suit.
Harvard and Northeastern did not respond to Gazette requests for comment for this article.
In another proposal, Tobin is calling for higher education institutions to “adopt” city schools, sharing resources with them, in a non-cash form of PILOT that would directly benefit one of most resource-starved parts of city government. “It seems like the best payment in lieu of taxes college and universities could pay is reaching out to students in Boston Public Schools,” he said.
Reviving yet another PILOT-related idea from last year, Tobin also proposes that the state redirect a portion of the income tax paid by employees at nonprofits back to the specific cities where they work.
Tobin acknowledged to the Gazette that the proposal is basically just a way to publicize the PILOT issue. Asked if he has seen such a system elsewhere, he said, “No, and being a realist, I don’t think that we’ll be the first.”
“They’re not happy about it, obviously,” Murphy said of institutions’ reaction to his proposals. But, he said, he believes institutions can afford to pay higher PILOTs under a more fair system without threatening Boston’s cultural reputation.
“Harvard isn’t picking up and moving to Chicago,” he said.