Tax Break

Tight municipal budgets have led to a “no-rock-left-unturned” approach to taxes, and in due course the tax-exemptions enjoyed by non-profits have come in for close examination.

More U.S. communities are encouraging “payments in lieu of taxes,” (PILOTs) through which non-profits that rely on the same city services as everyone else, can, often on a voluntary basis, throw something into the pot.

Even if it’s not equivalent to the property taxes they would have paid, every little bit helps.

The Lincoln Institute of Land Policy found in a recent study that 218 localities in at least 28 states had embraced some kind of PILOT payment program in the last 12 years, but that even so, the phenomenon remains largely northeastern and largely university-based. Also: it doesn’t generate as much as budget balancers might hope, rarely more than 1 percent of the town’s tax base, and usually far less.

PILOTs can be helpful at the margins financially and improve the paying entity’s community relations, but “PILOTs will never be a panacea for cash-strapped governments—they simply do not generate enough revenue,” concluded the Lincoln Institute authors, Adam H. Langley, Daphne A. Kenyon, and Patricia C. Bailin.

The reason for large universities and hospitals dominating the top spot in PILOTs stems from two things according to the report: first, they have more assets than most non-profits, and can afford to pay, and second, they are sprawling and get much larger property tax breaks than other charities do.

Between 75 and 80 percent of all PILOT payments are made in the Northeast, the authors found, and while at least 420 different non-profits make PILOTs, more than half of all PILOT revenue this year will come from just 10 organizations, according to the Institute:

1. Harvard University, $10.088 million
2. Yale University, $8.100 million
3. Stanford University, $7.100 million
4. Brown University, $6.400 million
5. Boston University, $5.718 million
6. Massachusetts General Hospital, $3.509 million
7. Dartmouth College, $1.900 million
8. Brigham & Women’s Center, $1.823 million
9. Massachusetts Institute of Technology, $1.788 million
10. Princeton University, $1.751 million

In December 2010 Boston, the epicenter of non-profit PILOTs , as the list shows, convened a task force to study their program. 

Like all Massachusetts cities, Boston operates with significant limits on its tax options, and as a result relies heavily on property taxes. Property taxes made up 64 percent of its 2011 budget, compared to 27 percent for the average locality nationwide.

Boston also happens to be home to a lot of colleges, hospital and other non-profits.

According to the city assessor, in 2007,  Boston’s 16 largest colleges and universities and 12 largest hospitals owned  property worth $12.7 billion. If taxed at the commercial rate, they would have paid $345.0 million in property taxes in 2009, the office reported. By comparison, the entire commercial sector generated only a bit more than twice that, $764.5 million in property taxes that year.

The city has set a goal of getting non-profits to pay a quarter of what they would have paid in taxes, but so far the haul is far short of that.  Today, PILOTs bring in around 1 percent of the city’s revenue.