In 2011, the city of Boston launched a new program to collect voluntary payment in lieu of taxes (PILOT) from the city’s numerous universities, hospitals, and cultural institutions. As 501(c)(3) registered nonprofit organizations, those Boston landowners are exempt from paying property tax to the city. This new PILOT Task Force requested that all of those institutions contribute 25 percent of what they would have paid in property tax to the city with an allowance for half of that to be offset by community benefits credits. For the 2014 fiscal year, most of the colleges did not meet the requested contribution, according to a recent report by The Boston Globe.
This discrepancy has caused some criticism by other tax-paying Boston residents who think that these institutions should contribute more to the city, voluntarily or otherwise. Boston derives the majority of its revenue from property taxes, and these organizations own a substantial amount of the city’s land, effectively blocking the city from collecting revenue that it could otherwise receive. Like for-profit businesses and residents of Boston, these nonprofits benefit from the services that the city offers—the police and fire departments and snow removal, for example.
These arguments, however, miss a crucial point. These organizations are exempt from taxes because, in the view of the government, they provide a valuable service to society and are not trying to make a profit for a group of shareholders. The positive cultural, educational, and social impact that these institutions have on the community justifies their tax-exempt status.
As nonprofits are nonetheless using services that the city provides, it is reasonable for Boston to request voluntary payments—especially as the city is already taxing the rest of Boston. While this specific program began in 2011, Boston has been operating a PILOT-like program for decades. Until 2011, each institution worked out a payment with the city behind closed doors. Although this new program offers a positive increase in transparency, its application of a one-size-fits-all methodology to the voluntary payments is troublesome.
Each of these nonprofit institutions contributes distinctly to the Boston community, and each of them also receives varying levels of services from the city. Boston College, for example, plows its own snow and has its own police department, but it does utilize the city’s fire protection services. The organizations each also have an ability to pay that might not be reflected in the value of property owned. These discrepancies demonstrate that an across-the-board 25 percent request is an illogical method for generating revenue from nonprofits for the city. While keeping the new transparency, the city should incorporate the individual negotiation method of the old system, so that the amount requested of each institution reflects its unique circumstances.
BC owns approximately $500 million worth of land within Boston city limits, according to the Globe, and the city requested $2.3 million from the University. The community benefits credits can account for up to half of the requested amount, which in BC’s case did, leaving $1.15 million that the city requested. In the 2014 fiscal year, BC paid the city $317,888 for fire protection services, a payment that University Spokesman Jack Dunn stated was external to the PILOT program.
BC is one of many universities in the Boston area that does not meet the requested donation amount, attracting public shaming. City Councilor Stephen J. Murphy, who helped devise the new PILOT program in 2011, is one such voice.
“[The universities] were all in the room [when the new program was negotiated], and they all agreed to this,” Murphy told the Globe. “You made commitments; you gave your word. Is your word any good?”
Without knowing what each of these institutions actually provides to the community, however, these criticisms are unwarranted. Any stigmatization is unwarranted because it is impossible to quantify the exact benefit that these organizations bring to the city, whether it is through student volunteers, outreach programs, or community centers, and so it is impossible to know whether BC receives more in services from the city than it gives back.
In its current form, the PILOT program is not the most just method for the city to seek revenues from Boston’s nonprofits. These educational, medical, and cultural nonprofits are an integral part of city life and provide a great public service to its citizens. If it fits within their budgets and long-term plans, they should contribute to the city for the services they receive, but not under the cookie-cutter approach currently used. They should not be shamed if they do not.
Featured Image by Huifeng Qian / Heights Staff