A community is thankful for the job creation, consumer spending and indirect economic benefits of hosting a tax-exempt entity, but wants to protect taxpayers from having to pick up too many costs.
Lowell is not the first city to want to commit a college, hospital or other nonprofit to making voluntary payments to make up for a lack of property tax revenue.
From Amherst to Boston, more communities that host large tax-exempt colleges or hospitals are solidifying voluntary payments in contracts or formal programs.
With tax revenue and state aid not keeping up with perenially rising costs, communities have been more proactive in trying to bring in volunteer payments from nonprofits.
“It’s an issue that’s been around for a long time. It’s certainly not new,” said John Robertson, legislative director for the Massachusetts Municipal Association, which works with the state’s 351 cities and towns.
“It’s just a bigger issue than it was before,” he added.
David L. Thompson, vice president of public policy for the National Council of Nonprofits, has seen many legislative efforts over the years for states or municipalities to extract money from nonprofits and other tax-exempt entities.
A “vast majority” of nonprofits work with less than 60 days’ worth of money in reserve, and “any extra money (in payments) means something gets cut,” he said. The council argues that municipalities have no right to tax or require fees from nonprofits.
When states or communities try adding taxes or fees onto tax-exempt properties, Thompson argues, they are also unfairly putting a burden on a certain subset of property owners. He rattled through a list of cities that have given various arguments for adding taxes or fees to nonprofit entities.
“From our perspective, what you call it doesn’t really matter,” he said.
A recent report from Lowell’s chief financial officer, Conor Baldwin, brought urgency to Lowell’s push for more revenue through PILOT (payment in lieu of taxes) agreements. And that was even before UMass Lowell announced in June it would buy the Perkins Park residential mill development, which was giving the city more than $300,000 in tax revenue annually.
Baldwin’s report found that Lowell was only 23rd among Massachusetts communities in PILOT revenue, despite being the fourth-largest city. One-fourth of Lowell’s land value is owned by tax-exempt entities, according to the city.
Lowell has traditionally sent contribution requests to nonprofits, detailing what they would pay if not for their tax-exempt status.
But few give. Only six did so in fiscal 2015, for a total of less than $17,000.
City Manager Kevin Murphy recently met with the city’s 10 largest tax-exempt entities to make a case for why they should make voluntary payments to offset services from the city. Nonprofits have argued that their benefit to the community is greater than what they use in city services, but Murphy remained confident that the city can bring in more in revenue from those organizations.
“We’ll continue the talks and see if there’s something that can come to fruition,” he said.
The city’s proposal for a new agreement with UMass Lowell would, among other things, require the university to continue paying a share of taxes on any new property it buys. That would protect the city from sudden drops in property tax revenue, such as was the case with Perkins Park, which spurred the recent drive to capture revenue from nonprofits.
UMass Lowell announced in June it would purchase the Perkins Park residential mill development on its east campus and turn it into a dormitory.
PILOT agreements have been most common nationally in Massachusetts and Pennsylvania, but are in place in more than half of states, according to a 2012 report by the Cambridge-based Lincoln Institute of Land Policy.
The institute looked at voluntary payments only, excluding fees, finding that they contributed at least $92 million a year to communities, with 90 percent of that money coming from colleges and hospitals — eds and meds, as they’re often called in the industry.
On the largest scale in Massachusetts, Boston has had mixed, but improving, success in getting voluntary payments from its large colleges and hospitals.
The city implemented a payment-in-lieu-of-taxes program in 2012 that compels nonprofits such as private colleges, hospitals and museums to participate if they own $15 million or more in property. They are asked to contribute 25 percent of what they would pay if they were not tax-exempt.
It is a more structured and aggressive version of similar programs the city has had going back to the 1970s, said Ron Rakow, the city’s commissioner of assessing.
Boston is “uniquely impacted” by nonprofits, Rakow said, with about half of the city’s land value taken by tax-exempt entities. “It creates a lot of fiscal stress for the city,” he said.
A total of 49 institutions were included in the PILOT program that last budget year brought in $32 million in cash contributions. The nonprofits are also able to count in-kind or similar contributions to the community for up to half of their payment.
With a participation rate of around 70 percent for a voluntary program, Rakow said, the program has been “very successful.” The city’s larger colleges, including Boston University, Harvard University and Northeastern University, all gave several million dollars in cash.
But very few paid what Boston requested. Of colleges, only Tufts University met that amount. Many of the largest hospitals met the requested amount, including Massachusetts General Hospital, and Beth Israel Deaconess Medical Center.
Robertson of the Massachusetts Municipal Association called Boston’s PILOT program “probably the best program around the country.”
Two larger Massachusetts cities, Springfield and Worcester, have even more at stake than Lowell with tax-exempt properties.
Springfield is home to Springfield College, Western New England University, American International College and Springfield Technical Community College. It also has a small UMass satellite campus.
Worcester has even more colleges, including Worcester Polytechnic Institute, College of the Holy Cross and Clark University. The central Massachusetts city has had success signing deals with nine different entities, including most of its colleges.
WPI, for example, signed a 25-year agreement with Worcester in 2009, committing to pay an average of $360,000 per year.
Worcester City Hall put the income to good use, taking revenue from the first year to increasing hours at the Worcester Public Library and helping to cover a master plan for the city’s Institute Park, just off campus from WPI.
Even a small health care center, Christopher’s House, has paid the city $75,000 a year since 1994.
In Springfield, Baystate Medical Center pays the city about $210,000 per year. Baystate and the city reached a 10-year agreement soon after the hospital bought several new properties in the city, though the hospital had made payments in prior years.
Cambridge has PILOT agreements with both Harvard University and Massachusetts Institute of Technology.
The MIT agreement began much like how Lowell’s might, after the college bought the large Technology Square building in 2001. Then-city manager Robert Healy, now a part-time financial adviser in Lowell City Hall, was worried about the site being taken off the tax rolls.
MIT agreed to have a formal payment agreement for the first time, signing a 40-year deal. The process took about three years — and then-president of MIT Charles Vest didn’t sign it until his last day in office.
Harvard started a similar agreement in 1990. The university agreed to pay revenue on eight properties, plus a voluntary $500,000 annually, adding by 3 percent each year. The deal has been extended through the year 2054.
Other communities have had varying success in signing agreements with tax-exempt entities they host.
UMass Amherst recently signed a multiyear deal with Amherst following more than a year of negotiations. The agreement spells out many of the details that UMass Lowell and Lowell are seeking to put in writing: how often the two sides should meet, contributions from the university for fire and ambulance service, and educational services UMass gives to the Amherst school district.
The university agreed to pay $120,000 a year to cover town services. The Amherst agreement also provides a framework that could help steer Lowell and UMass Lowell toward a new settlement on the university-owned Inn & Conference Center on Warren Street.
UMass Amherst does not contribute lodging taxes on its hotel, saying the hotel is part of the university’s nonprofit mission. But it has agreed to pay an amount equal to a 6-percent lodging tax. In a roughly 18-month period leading up to the agreement, that amount came to more than $257,000, according to the university.
UMass Lowell and Lowell General Hospital aren’t alone in operating without formal PILOT agreements.
Framingham State University, with an enrollment of more than 6,000 students, says it has no such agreement with its host town. Fitchburg State University does not make PILOT payments, but a spokesman, Matthew Bruun, emphasized an estimated $135 million economic impact from the city’s largest employer, along with infrastructure investments and programs that benefit city students.
In Lawrence, Lawrence General Hospital doesn’t make PILOT payments. A spokeswoman, Jill McDonald Halsey, said the hospital donates “millions of dollars in unreimbursed health care” to area residents.
“Our margins are very slim these days and any imposed payment in lieu of taxes would threaten our ability to deliver our mission,” she said.
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