Councilors: City breaking nonprofit tax reporting law

August 15, 2008
By

John Ruch

New institutional land database coming

The City of Boston appears to be violating its own law mandating the reporting of voluntary payments in lieu of taxes (PILOTs) made by nonprofit institutions, according to City Councilor John Tobin’s office.

Ronald Rakow, commissioner of the city’s Assessing Department, acknowledged in a Gazette interview that the city has not been reporting some PILOT information because it could not collect it. Now the city is working on a massive, public database of college and hospital property in the city that should provide all the required information, he said.

The 1982 city ordinance says the city treasurer must report twice a year to the public and the Boston City Council about various PILOT details, including the assessed value of property covered by PILOT agreements.

Rakow acknowledged that information is not available. “We didn’t have accurate values before [the new database effort],” he said. “That’s been a big issue for years and years. We don’t have the resources to get accurate valuation on all these properties.”

“They’re still in violation,” said David Isberg, Tobin’s chief of staff. “Why would they just get around to [compiling the database] now?” He said that Rakow should have been “telling the council twice a year for the last 20 years that we don’t have that info.”

Rakow said the city actually has always had legal leverage to get the valuation information.

“There is a filing requirement…a local tax return, basically. They’re supposed to declare the valuation [of their property],” Rakow said of nonprofits. The requirement is part of filing for nonprofit status. “They weren’t necessarily reporting it,” he said.

The law also requires that PILOT contracts between the city and nonprofits be made available to the public somewhere in City Hall. Today, PILOT contracts are available at the City Clerk’s Office. But a Gazette review last month found that they appeared to be incomplete, with some current agreements and at least one entire institutional file—that of Harvard University—unavailable.

Isberg and Seth McCoy, chief of staff for City Councilor Steve Murphy, said their own reviews of the PILOT files also found them to be incomplete.

“We did have similar findings where not all the nonprofits were submitting information,” McCoy told the Gazette.

Rakow noted that there are basic reports made about the PILOT amounts paid by each institution.

“In the last 12 months, I’ve personally given [data] to City Council at least 20 times about what PILOT payments are,” Rakow said. “Councilors are well aware what each institution’s PILOT is.”

But property values and contract details are key to understanding how PILOT amounts are calculated. As the Gazette previously reported, PILOT amounts vary widely among institutions. And where the numbers come from is unclear, except that it is done through private negotiations with the city’s Assessing Department.

Rakow indicated that his department attempts to base PILOTs on property value—if the institution provides enough information to make such an evaluation. Not all of them do, he said, indicating that the city often just makes a guess.

Institutions make PILOT payments to make up for city services they consume. PILOT amounts are increasingly controversial, especially as colleges expand, because more than half of the deeded land in Boston is exempt from property taxes. Mayor Thomas Menino regularly complains about some institutions’ PILOT amounts, and the Boston City Council is moving to enact various reforms.

Under that recent political pressure, the Assessing Department has convinced every private college, university and hospital in the city to provide extensive information on every property they own. The Assessing Department will make a public database—including an interactive web site—out of the information, as it already does for residential and commercial property. Future PILOT agreements will be informed by the database, which should be ready this fall.

“To the extent we have good information, that really helps everyone,” Rakow said of the database project, which began in earnest last year. “I think it will make that whole [PILOT] process more transparent.”

McCoy and Isberg praised the database effort, though Isberg added a note of frustration over the recent decades of unclear information.

“It is a huge thing,” Isberg said of the database effort. “But if you are the director of assessing, isn’t it your responsibility [already]?”

Meanwhile, the councilors are still seeking enforcement of the 1982 PILOT reporting law. Tobin’s aides rediscovered the law after coming up with a similar idea themselves.

“We were going to file this [as legislation] and [legislative aides] came back and said, ‘It’s already on the books,’” Isberg said.

The law—Chapter 10, Section 6.8 of the city’s Municipal Code—requires biannual reports that show the PILOT amounts paid “for each assessable parcel, the fair market value of such properties and the percentage of value received in lieu of taxes.”

The Assessing Department is supposed to provide that data to the Collector-Treasurer’s Office, which then reports it in the city’s official record and to the City Council.

Tobin recently sent a letter, also signed by Murphy, to the Collector-Treasurer’s Office reminding it of the law.

Isberg said Tobin and Rakow have already directly discussed the law. From Tobin’s side, Isberg said, “The gist of the conversation [was], provide us with what’s supposed to be provided.”
Inside the PILOT files

A Gazette review of some PILOT contracts last month found many more unusual details, but still no explanation of how basic PILOT amounts are calculated.

Rakow said that a rule of thumb is requesting 25 percent of assessed property value—though that information is not always available, and in any case was not described in any PILOT contracts the Gazette reviewed. It appears that in many cases, the city and the institution haggle over a relatively abstract number that seems acceptable to both parties.

Rakow said that the 25 percent comes from an old Boston Municipal Research Bureau report that estimated 25 percent of the city’s budget is spent on basic services: police, firefighting, street maintenance. The idea is that if large nonprofits pay 25 percent of their property value, they are covering their consumption of those basics.

Murphy, in a reform supported by Tobin, has called for all PILOT agreements to be simply based on that 25 percent rule.

Wentworth Institute of Technology (WIT) and Jamaica Plain’s Showa Boston Institute of Language and Culture previously discussed their PILOTs with the Gazette, describing almost completely different payments and systems.

Their actual PILOT contracts fail to explain the differences, while adding detail.

WIT’s 2005 contract is specific to its property at 555 Huntington Ave. The contract sets a basic annual PILOT of $31,200, plus increases for inflation. There is no explanation of how that amount was decided.

WIT is allowed to make 25 percent of that PILOT in the form of “community services” rather than cash. “The services must be over-and-above what Wentworth was providing prior to signing this agreement,” the contract says. This “community service credit,” usually 25 percent of the total PILOT, is common in recent PILOT contracts.

Showa’s 1990 contract covers not only its entire current campus, but also off-campus properties and any property it might buy in the future.

The contract sets a basic annual PILOT of $60,000, plus inflation increases, on Showa’s main property at 420 Pond St. Again, there is no explanation of that number.

But all other Showa properties, current and future, fall under a PILOT formula described as “VxRx.25.”

“V” is the assessed value in the year of the property’s purchase. “R” is the normal property tax that would be applied. The “.25” means 25 percent of the property tax.

Showa’s contract makes no mention of “community service credits,” and school president Ron Provost previously told the Gazette he had never even heard of the option.

The Gazette found similar variation among PILOT contracts for about a dozen colleges, hospitals and other nonprofits. In 1989, the Boston Architectural Center agreed to a PILOT that consisted solely of providing a full-ride scholarship to a Boston Public Schools student. Suffolk University has agreed in various PILOT contracts to pay a certain dollar amount per enrolled student.

Some variations are based on the nature of the property. PILOT contracts related to parking garage and residential housing projects sometimes demand a percentage of their gross revenue.

Some PILOT files, such as that of Northeastern University, appeared to be incomplete because the PILOT amounts do not match currently reported figures. It is unclear whether information was missing or existed in a secondary file.

PILOT contracts reviewed by the Gazette dated as far back as the 1970s. It is unclear which ones are still active. In general, older contracts were more detailed. Modern contracts typically just state a PILOT amount.

Community service credits have been around for a long time, but appear more frequently in recent contracts. It is now almost always 25 percent, though sometimes that is just an abstract figure and other times must be spent on specific programs.

About 30 percent of institutional PILOTs in 2007 included community service credits, according data Rakow provided to the Gazette.

The contracts typically require institutions to prove the value of their community services if they take the credit. The reason the institutions are granted tax-exempt status in the first place is that they serve the “public good,” as the Assessing Department web site puts it.

“A lot of institutions prefer doing something more visible in the community,” Rakow said of the reasons some institutions are allowed to take the community service credits. “The city wants these services. The community wants these services. But we need a balance to be struck.”

Is has been unclear whether the community service credits have been reported in the city budget as cash revenue. Rakow and McCoy agreed in recent Gazette interviews that only cash PILOT payments are reported as revenue.

The PILOT contracts are agreements between the institutions and the Assessing Department.

But a 1979 PILOT contract with New England Medical Center listed the Boston Redevelopment Authority (BRA) as the city party.

BRA spokesperson Jessica Shumaker told the Gazette that the BRA has no involvement in modern PILOT negotiations and contracts. She could not immediately explain the BRA’s involvement in the 1979 contract. Rakow said a BRA official used to be one of the signatories to PILOT agreements many years ago.

BRA and other city review of new construction projects are often the leverage for getting institutions to agree to a PILOT. In some cases, the BRA strikes its own deal with the institution for money or community benefits in a contract known as a “cooperation agreement.” A PILOT is specifically intended to contribute to the city services a large institution consumes. A cooperation agreement is intended as general mitigation for a major development project.

The two kinds of agreements can look similar. Confusingly, a BRA cooperation agreement was inserted in at least one PILOT file—that of Boston College—at the City Clerk’s Office.

The PILOT contracts were mildly difficult to examine. Most City Clerk’s Office employees were unfamiliar with the PILOT files and did not know where they were located. The Gazette had to make a return trip on a day when a knowledgeable employee was working.

Most of the PILOT files include copies of contracts stamped as received by the City Clerk’s Office on Nov. 20, 2006, regardless of the actual contract date. It is unclear why those copies were made and processed on that date.

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