Students, councilors turn up heat over broken payment promises by nonprofits
On a cool, Friday afternoon in mid-October, about 100 elementary, middle, and high school students descended upon Northeastern University’s campus.
The crowd, most of which was brought there by the St. Stephen’s Youth Programs, drew their ideal classrooms or schools in chalk and wrote notes to the Northeastern administration demanding that the university fulfill its decade-old promise to make payments in lieu of taxes (PILOT) to the city.
As a nonprofit institution of higher learning, Northeastern isn’t required to pay property taxes to Boston, which generates most of its revenue through property taxes. Because the university benefits from city-funded resources, like trash collection and the fire department, in 2012 the school agreed to make such payments, but has never fully paid the amount of its original promise.
“It’s not confusing to young people,” Sarah O’Connor of St. Stephen’s said. “It’s unfair that wealthy institutions like Northeastern get to choose to not pay taxes.”
The student-led direct action on campus was just the latest in a growing campaign to pressure major universities and nonprofits to honor their PILOT agreements. Northeastern is one of 23 schools, 16 medical institutions, and 10 cultural institutions that signed onto the city’s PILOT program in 2012. The agreement would be generating north of $50 million in annual revenue for the city, with an equal amount of community benefits if those institutions all lived up to their agreements, but at the end of Fiscal Year 2018 (June 30), the city had collected a mere $33.6 million.
The universities, which account for over half of the PILOT pie, paid less than half of what the city requested. Medical institutions paid about 80 percent, while cultural institutions, which account for about 4 percent of the total, only paid about 25 percent of their overall pledge.
All of which means less money for things like potholes, parks, and public schools.
In their effort to shed light on this issue and spur change, the students from St. Stephen’s are working with the PILOT Action Group, which is a coalition of unions, housing and education activist groups, and faith-based organizations that was formed about a year ago to combat the deficiencies of Boston’s PILOT program. The coalition seeks to pressure nonprofits into paying their full share of the promised allotments while also seeking to push city leaders to do a better job of collecting and holding the payers accountable.
“Our economy is totally an Eds and Meds economy,” said Enid Eckstein, while testifying before the City Council on behalf of the PILOT Action Group. “At the same time, it creates challenges for us, since these institutions do not pay property taxes.”
Universities and the medical institutions are significant components of the Hub economy, to be sure, but both can cut into the city’s ability to generate tax revenue.
Eckstein was just one of many representatives from various organizations who spoke before the City Council back in August at a hearing on the issue sponsored by councilors Annissa Essaibi-George and Lydia Edwards. Their goal: find more ways that the city can encourage compliance.
For decades, nonprofits made individual agreements with the city regarding annual payments to offset their burdens on services. In 2010, then-Mayor Tom Menino appointed a task force, including representatives for both the city and the institutions, to organize a more official PILOT program.
“We asked all of the nonprofits to come in and sit down and work with us over an 18-month period to develop a fair framework,” said Stephen Murphy, who represented the city on the task force as a city councilor. According to Murphy, the first step the city took in getting the nonprofits to the table was to have the assessor calculate how much the tax-exempt property would be valued as taxable.
“We presented it to them and then we told them what their tax bill would be, and their eyes bugged out,” Murphy said. “It was like a telephone number, it was huge. Then, we began negotiating with them.”
By the end of the 18-month process, each of the 49 organizations had agreed on a formula by which they would owe 25 percent of what their tax bill would be if they were not exempt. Half of that would be cash, while the other half would be in the form of community benefits.
“The city is handcuffed by state tax code, because the only thing we can really guarantee is revenue from property taxes,” Murphy added. “We could fight the fight at the federal or state level to take away tax exemptions, but there’s no guarantee we could win that fight.”
Each year, federal regulations mandate that the city must produce a comprehensive financial statement. According to the FY17 edition of that report, which was released last December, the entire value of taxable property in the city had reached $143.94 billion.
Meanwhile, the city still uses FY10 values to calculate PILOT contributions; in FY10, taxable property in Boston was only valued at $87.25 Billion.
Assessing the effectiveness of the city’s PILOT program since it was formalized in 2011 is tricky; for starters, the city has multiple sources for the accounting of PILOT, and they don’t match up. According to its FY17 financial statement, the city collected $80.5 million in PILOT, but according to a seperate PILOT report, Boston only received $32.4 million in cash payments and the equivalent of $52.2 million in community benefit credits.
When contacted for clarification on why the payment-in-lieu-of-tax amount in the annual PILOT report doesn’t match the amount in the financial statement, a spokesperson from the mayor’s press office emailed a PDF of the FY18 PILOT report. As it turns out, from 2012 to 2017, the amount of uncollected PILOT funds jumped from about $2 million in 2012 to $17 million in 2017—partially due to the nonprofits having agreed to slowly increase the payments over a five-year span.
“Every institution agreed that after five years they would get to the level where they needed to be,” Murphy said.
The nonprofits agreed to this gradual increase, but failed to keep up with it, resulting in the city losing out on an estimated $60 million over five years.
What’s even murkier than the cash payments, it seems, are the community benefits. In FY18, 39 of the 49 nonprofits submitted community benefits reports—a record number following FY17’s 27 reports. Despite this, all 49 organizations claim the credit.
In their reports, some organizations cite their offering the free use of facilities as a community benefit, while others—Boston College High School, for example—claim their community benefit is that the students who enroll in its private school are not burdening the coffers of Boston Public Schools. Other nonprofits in the program continue to charge the city for the use of their facilities for sports programs or graduations, which does not sit well with Councilor Essaibi-George.
“Right now PILOT is out of date and we have not reassessed the property values in years,” Essaibi-George said.
While the Council considers an update to the PILOT formula, the precedent shows that won’t likely be enough to motivate giant nonprofits to dig deep in their pockets. For that to happen, it will take a coalition of students and residents to pressure institutions to live up to their promise to support Boston beyond their tax-free buildings and campuses.
This article was produced in collaboration with the Boston Institute for Nonprofit Journalism. To see more reporting like this please consider making a contribution at givetobinj.org.