I work for a non-profit, and I certainly understand and appreciate that there are different rules for non-profits than there are for regular businesses. One of the big differences between non-profit and for-profit organizations is that non-profits do not pay any property taxes on land they own, if it is used for a non-profit enterprise. This makes sense, to a degree, in that more often than not these organizations – universities, hospitals, churches – provide something of value to the community. However, one can very easily imagine a scenario in which a city could find itself in the difficult position of being overrun with land-owning tax-exempt institutions.
It’s easy to imagine because it’s happening in Boston.
Now, before anyone’s feather’s get ruffled too much, I’m not calling for a wholesale change in tax-exempt status and demanding every such organization immediately pay the full amount of what would be their property taxes. However, we need to acknowledge that not all tax-exempt institutions are created equally. And what we are trying to do is figure out at what point a non-profit becomes big enough that it needs to start kicking in its fair share.
First, let’s straighten out some facts. (All of the data that follows is taken from reports published by the Boston Municipal Research Bureau which can be accessed here, here, and here) In Boston, 50% of the land is owned by tax-exempt institutions. Of the land that is tax-exempt, 78% is owned by government – the City, the Commonwealth and its authorities like the MBTA and Massport, and the U.S. government. The total value of the tax-exempt land is $36 billion. Of that $36 billion, educational institutions own land valued at $7 billion and medical institutions own land valued at $5.7 billion.
Those numbers are pretty startling. When you do a bit of math, and take an average rate for property tax in Boston, you realize that Boston is missing out on over $788 million in property taxes per year. That’s over $2 million every day and represents nearly 1/3 of the City’s annual budget.
Admittedly, it’s extremely unrealistic to assume that there could ever be a situation where the City would recoup that entire amount. To begin with, the City isn’t going to pay itself for any land it owns, and neither the state nor the federal government will either. State authorities, like the MBTA and Massport, are a bit different, and Massport has actually participated in the PILOT program (more on that later). So let’s focus on educational and medical institutions.
According to the Boston Municipal Research Bureau, education and medical institutions own land valued at $12.7 billion. While government groups own the most land, the private groups seem to have the best land, making up only 22% of the tax-exempt land but 1/3 of the tax-exempt value. Using the same math from above, this represents a loss of over $278 million a year in property taxes.
So does the City recover any money from tax-exempt institutions? Yes, but it’s really a drop in the bucket. In 2009, the Payment In Lieu of Taxes (PILOT) program brought in a total of $32 million to the City. The main problem with PILOT is that it is negotiated on a case-by-case basis. So Harvard and Boston University have different agreements, despite both being large educational institutions. Each and every hospital in the City has their own agreement.
What can be done? Well, to his credit, Mayor Menino has asked City Hall staff to look into ways to address this problem, and try and come up with some standards to determine PILOT payments, and I think that’s an effort we should all get behind.
When it comes to the big players, like Harvard and Boston University among others, I think city officials really need to put their foot down and not be afraid that these institutions are going to pick up and leave. These bigger players are an important part of the City, but they have also been treated exceptionally well. Would BU really be able to find another location where the location transportation network essentially serves them as a campus shuttle? Will Harvard just give up on their continued, albeit trouble and slow-moving, investment in Allston?
We need City Hall and the Mayor to expend some political capital on finding a solution to this problem, which if handled correctly can be beneficial for the City, its residents, and each and every non-profit organization.
So what do you say Harvard and BU, can you spare a dime?
– Nick Downing, Future Boston Program Manager