Big nonprofits get ‘tax’ bills

May 27, 2011
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But not all pay
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Major colleges and a hospital that own large chunks of Jamaica Plain are being asked to make larger payments in lieu of taxes (PILOT) under a longstanding tax-like system that was recently reformed by a city task force assembled by Mayor Thomas Menino. The payments eventually could add up to $45 million a year to city coffers.

Showa Boston Institute of Language and Culture in Jamaica Hills already sent in its increased payment, according to President Ron Provost, who said the school is “satisfied” with the new system.

But Partners HealthCare, which operates JP’s Faulkner Hospital, told the Gazette that it won’t boost the voluntary payment until some other institution of similar size goes first. Partners had a seat on the mayor’s PILOT task force, which unanimously approved the new system last year.

The third major PILOT-paying institution in JP is Harvard University, which owns the Arnold Arboretum. Harvard could not immediately comment on its response to the new PILOT system.

It remains unclear how the system will define other “community benefits” that institutions can deduct from the cash PILOT payment. Vague community benefits were one of the problems with the former PILOT system.

The mayor’s press office could not provide further information or details.

“I think the process was an excellent process…that will standardize and equalize the formula,” said Boston City Council President Steve Murphy, a longtime PILOT system critic who sat on the task force. But, he added, “There’s still a reticence on behalf of some major players. Before we pull the cork on the champagne, let’s see what the compliance is.”

Many large, private, nonprofit institutions—mostly hospitals, colleges and museums—already make a PILOT payment to the city in exchange for basic city services they receive. PILOT is important because Boston is unusually reliant on property taxes for revenue, and over of half of its land is untaxable because it is owned by nonprofits or the government.

Educational and medical institutions have property valued at about $244 million in the JP area, according to a 2009 City of Boston assessment.

The former PILOT system was informal, with payment deals negotiated by the city’s Assessing Department and typically based on particular construction projects undertaken by a large nonprofit. PILOT payments were widely criticized as shockingly low—the total now paid to the city is about $15 million a year—and for being negotiated in secret meetings by unknown formulas with few records, as a Gazette investigation discovered.

Some institutions paid large amounts; some paid little or nothing at all.

Faulkner Hospital, valued at over $180 million by the city, has no specific PILOT agreement, but Partners currently makes a $4.3 million on other facilities it owns, including Brigham and Women’s Hospital in the Longwood Medical Area.

Under the new system, every college or hospital with property valued at $15 million or more will be asked to make a PILOT payment equivalent to 25 percent of the normal commercial tax rate. The actual request this year is only one-fifth of that amount, a percentage that will steadily increase over the next five years to the full 25 percent rate.

In his 2009 re-election campaign, Menino defended the former PILOT system as the best in the nation. But he then reformed the system, which may truly become a national model—if institutions play along with the entirely voluntary payments.

“There’s no force in the thing,” said Murphy, who intends to add a reporting requirement to the city code. “The only way we can enforce it is a ‘Scarlet Letter’ kind of campaign.”

Showa Boston, a residential exchange program of a Japanese women’s university, is on board with the new system. Its PILOT was already close to the new formula, said Provost, the school’s president. It will increase from about $130,000 to about $139,000, he said.

“We’ve already sent the payment in,” said Provost. “Our feeling is, it’s not an unreasonable request.”

“Many hospitals and universities were paying little or nothing,” Provost said of the former PILOT system. “Now it’s all above the table. There’s a uniform formula now. So we’re very satisfied with it.”

Meanwhile, Partners HealthCare wants someone else to blink first.

“We clearly recognize the need for payment in lieu of taxes,” said Rich Copp, a spokesperson for Partners, which currently makes a $4.3 million total PILOT payment. That PILOT does not specifically include Faulkner Hospital, which has expanded in recent years and has been valued at over $180 million.

But, Copp added, “matters of fairness and consistency must be addressed…before we consider increasing the [PILOT] amount.”

Fairness and consistency are the intent of the new PILOT system. Partners’ concern is that the system “will still be voluntary,” and other institutions might not boost their payments while Partners pays a large amount, Copp said.

Asked whether Partners essentially wants to see other institutions pay more before boosting its own payment, Copp said, “Correct.”

Showa Boston’s payment doesn’t influence Partners’ position, Copp said. Partners wants to see action from “organizations of similar size and scope” to itself, he said.

Whatever their eagerness to pay, it seems that most institutions are interested in deducting as many “community benefits” from the cash total as possible. Copp noted that Partners, by its own estimation, provides about $185 million in community-oriented programs statewide.

Under the old system, some institutions got credit for a wide range of benefits, from public health programs to donating solar-powered trash cans to the city. Some institutions were never even given the community benefits deduction option.

Under the new system, it appears that up to 50 percent of the PILOT payment can be made in the form of community benefits.

Murphy said that the community benefits still need to be defined. He said some institutions in the task force process sought credit for such actions as paying building permit fees. “We said, ‘Hit the road, Jack,’” he said.

Murphy has his own idea for a new benefit: allowing colleges to deduct a tuition break offered to their students in exchange for mentoring Boston Public Schools students.

The city should have an official overseeing the new PILOT system, especially the community benefits section, Murphy suggested.

PILOT is crucial in Boston, where 67 percent of the Fiscal 2012 budget revenue comes from property tax, Murphy noted. That is up from 52 percent 10 years ago. Meanwhile, state aid has dropped by nearly half.

Nonprofit colleges and hospitals own about 7 percent of the city’s land, but are being targeted for their heavy use of city resources, Murphy said. The PILOT rate of 25 percent of normal property tax is based on the fact that about 25 percent of the city budget is devoted to basic city services. The idea is that nonprofits pay towards that quarter of the budget, even though PILOT revenue is not actually earmarked for that.

Other institutions also make some PILOT payments. Massport paid $11 million to the city in Fiscal 2011, Murphy said.

The five-year ramp-up to fully boosting the PILOT rate to 25 percent is a technique to get acceptance of the new system. “Frankly, it was a psychological blocker” for institutions to get hit with a much larger PILOT bill, Murphy said. “It’s like sticker shock.”

PILOT is not the only answer to Boston’s revenue problems, which involve unusual state restrictions on other forms of municipal taxation. Menino has long battled for more taxation authority.

“The issue that really has to be addressed is, how do you get Beacon Hill to acknowledge that we’re overly dependent on property tax here?” said Murphy.

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