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City Council probes tax-exempt status for nonprofits

Universities seen shorting PILOT program

Catherine McGloin
City Council probes tax-exempt status for nonprofits
Northeastern University

Boston’s prestigious nonprofits underpaid the city by $77 million over the last seven years, under terms of a property tax exemption program, it was revealed in a public hearing at City Hall last Thursday.

The Committee on Ways and Means, chaired by Councilor Mark Ciommo, met with Boston residents and representatives from PILOT Action Group, a coalition concerned with the terms of the Payment in Lieu of Taxes (PILOT) program, which gives educational, medical and cultural nonprofits tax-exempt status, but asks they voluntarily contribute 25 percent of the value of their real estate.

“This is about a good neighbor policy,” said Councilor Lydia Edwards, a sponsor of the discussion, along with Councilor Annissa Essaibi-George.

More than 200 people attended the hearing, which ran for four hours and included testimony from three panels of city officials, nonprofit representatives and  action group advocates, and 19 members of the public. The hearing, intended to evaluate and discuss strengthening the program, comes at a crucial moment, when 70 percent of the city’s $3.2 billion budget for 2019 will come from property tax.

“In a time of decreasing federal and state aid to our schools and city services, the city must act to make sure all are paying their fair share,” said Johnny McInnis, political director of the Boston Teachers Union, who testified on the second panel during deliberations last Thursday afternoon.

In 2017, the city anticipated almost $50 million in PILOT payments, yet less than 66 percent of this expected sum was paid. Northeastern University and Harvard University were among those who failed to contribute: the former underpaid by $17 million, while payment from the latter fell $13 million short of the amount requested by the city.

This fiscal year, educational nonprofits met 61 percent of their PILOT payment goal, while medical institutions showed most willing to meet their target, contributing 94 percent of the total requested from them. 

Under current terms of the PILOT program, institutions cannot be compelled to make payments that are meant to cover the cost of city services, including police services and snow removal. They can choose to pay in cash or through in-kind programs that benefit the community.

Praise for nonprofits

Throughout the hearing, Boston’s nonprofit organizations were lauded repeatedly for their economic, social and cultural impact.

In written testimony, submitted to the committee prior to the hearing, Harvard officials called attention to the $73 million in property taxes the university paid over the last 10 years on land owned by them but not used for tax-exempt purposes. They also highlighted the pro bono legal services offered by their law school clinic and the millions of dollars spent running one of Boston’s largest public green spaces, the Arnold Arboretum.

Despite continuing to miss the 100 percent payment target, Robert McCarron, senior vice president for the Association of Independent Colleges and Universities in Massachusetts (AICUM), said last week that he believes colleges are paying their fair share.

McCarron defended the performance of the 18 colleges participating in the PILOT program, emphasizing the $58 million in financial aid they offer to students, and the $2 billion in federal research funding these institutions garner for the city each year.

But missed payments were not the only concern raised by action group representatives on the hearing’s panel last week.

PILOT payments are assessed according to real estate values set in 2009, when Boston’s then-mayor, Thomas Menino, established the task force whose recommendations formed the program’s guidelines. The payment assessments have been little altered since. Real estate values have soared over the last nine years and between 2009 and 2017, the total value of Boston property has increased by 55 percent.

“It’s very hard to talk about the success [of PILOT] and pat ourselves on the back when we’re not talking about 2018 property values,” said Edwards.

When asked if the city would be open to having these targets realigned with up-to-date property prices, Emme Handy, the city’s chief financial officer, said this would be a substantial undertaking and has not been a priority, but could be looked into.

Another element of the program debated at length was the option for institutions to designate funds spent on community initiatives as part of their PILOT payment. These outreach activities can range from free medical services and community music lessons, to scholarships and financial aid for students.

However, there are few standards by which they are classified, and action groups would like to see a framework established to enable meaningful community engagement to determine what programs would best serve residents.

Councilor Kim Janey, present at the hearing, asked Handy how the success of community programs is assessed and how institutions decide which ones to facilitate.

“Boston is a world-class city,” said Janey, “but the question still remains for whom, who has access to these benefits? I’m interested in making sure the community has a say.”

Handy said the institutions themselves largely dictate which community programs to invest in.

“The people of Boston need mechanisms for actual transparency and accountability within PILOT so that universities can’t hide behind opaque ‘community benefits’ that they supposedly provide,” said Queen Arsem-O’Malley, a Northeastern graduate student and Jamaica Plain resident, in her written testimony to the committee.

Janey pressed representatives from the city and nonprofit organizations to provide data that supports their claims that community initiatives benefit a diverse group of Boston residents. A breakdown by race, gender or locale of those receiving financial aid or employed by these institutions could not be provided at the time of the hearing, but promises were made to deliver this information to the committee at a later date.

Nonprofit footprint

Councilors and members of the public offering testimony were particularly concerned with the growing footprint of nonprofit institutions.

“There’s a feeling of creep across our neighborhoods,” said Essaibi-George, describing how some communities are facing displacement and rising rents due in part to development in neighborhoods by educational institutions.

“President Aoun, and countless other members of the administration, constantly made vague statements about their commitment to being an engaged and connected institution,” said Nadav David, an alumnus of Northeastern. “These promises … were and are baseless when they are accompanied by irresponsible development in Roxbury and the South End.”

Forty-seven nonprofits own almost 50 percent of Boston’s land, according to data from the Boston Municipal research Bureau, but are exempt from paying tax on property used for nonprofit work.

AICUM’s McCarron called the feeling of “creep” a “misperception,” stating the footprint of educational institutions has remained “stable and consistent.” But many people shared experiences that spoke to the contrary.

In an emotional testimony, one woman, a mother of three and state employee for more than 30 years, told the chamber she was homeless, unable to afford rent due to gentrification in her neighborhood, and was now living in her car.

Potential solutions and ways to develop the PILOT program were discussed, with Janey suggesting the city use missed payments as leverage in land sale negotiations with nonprofits who have historically not met their PILOT payment target.

Enid Eckstein, spokesperson for the PILOT Action Group, explained that a PILOT commission could be established to ensure greater scrutiny of PILOT payments, a higher level of accountability and improved engagement with communities.

Edwards discussed the need for “bold steps and pressure points,” one of which she saw as increasing public pressure on these institutions. She said the city could make more information publicly available, specifically how much institutions contribute and how much is spent on services for them.

The overwhelming sentiment from those who testified was that the nonprofits need to do more to support the communities in which they’re sited, rather than expanding at their expense.

“We ask respectfully that our wealthiest institutions grow with us and not on us,” said McInnis of the Boston Teachers Union.

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