Boston’s PILOT program lagging

three years after the city of Boston launched a concerted effort to convince 49 of its largest nonprofit landholders to voluntarily make payments to the city in lieu of taxes, the program appears to be losing steam.

The amount of money the city is collecting continues to rise, but the increase is due primarily to the escalating payment schedule and not greater compliance. Overall, the nonprofits are paying a smaller percentage of what the city is asking them to pay and the number of nonprofits paying nothing at all is rising.

More than half of Boston’s land is owned by either nonprofit institutions or government bodies, both of which are exempt from municipal property taxes. With property taxes accounting for two-thirds of the city’s revenue, the so-called payment in lieu of taxes, or PILOT, program has become a mechanism for Boston to help pay for the services it provides.

Until fairly recently, the city tended to separately negotiate PILOT arrangements with individual nonprofits. In 2011, following a report from a task force, the city asked every nonprofit owning property valued at more than $15 million to make standardized payments based on a formula using the assessed value of their property and the cost of providing city services to them. A deduction is allowed for the community services provided by an institution.

The city’s PILOT collections shot up nearly 30 percent in fiscal 2012, and should continue to grow, although at a slower pace, through 2016 as the program is phased in. As the amounts being sought have increased, the participation by nonprofits has actually declined.

In fiscal 2014, the city took in $24.9 million from its PILOT program. That amount was up compared to 2013 ($23.2 million) and 2012 ($19.5 million), but as a percentage of the amount the city was seeking it was down. The city collected 72 percent of what it was asking for in 2014, 82 percent in 2013, and 91 percent in 2012.

The number of nonprofits paying the full amount sought by the city has also declined. This year, 20 nonprofits are fully complying and 16 are paying nothing, compared to 22 making the full payment and 13 paying nothing a year ago. The number paying a portion of what municipal officials say they should has held relatively steady at 14.

The city’s nonprofit medical institutions as a group have tended to pay nearly all of what the city says they owe (95 percent), but compliance by educational and cultural institutions has fallen over the last three years. Educational institutions paid 89 percent of what the city said they owed in 2012, but that percentage fell to 56 percent in 2014. For cultural institutions, the percentage has fallen from 54 percent to 30 percent.

In 2014, Boston University was billed a little over $6 million – far more than any other single institution – and paid 92 percent of it. BU President Robert Brown is up front on why he does it. “It’s enlightened self-interest,” he says. “Boston University thrives only if the city thrives. It’s clearly a win-win situation.”

Harvard University, the nation’s wealthiest educational institution with a $36 billion endowment, paid 51 percent of its $4.3 million PILOT bill, or $2.2 million. Kevin Casey, a university spokesman, says Boston’s PILOT calculation doesn’t count all of the university’s financial contributions to the city.

“Harvard has been among the highest contributors of voluntary PILOT over many decades,” he says. “Harvard’s level of maintenance for the Arnold Arboretum, a public jewel, is over $9 million a year that otherwise would have to be borne by the city’s parks and recreation department. That alone greatly offsets the entire PILOT request.”

Partners HealthCare’s four Boston hospitals (Massachusetts General, Brigham and Women’s, Faulkner, and Spaulding Rehabilitation) contributed their full combined PILOT total of $8.2 million.

“The city’s ability to thrive makes it a much better place for our institutions to be able to grow and to be strong,” says Gary Gottlieb, president and CEO of Partners. “The city deserves credit for having developed a standardized process that works well, and the not-for-profits deserve credit as well for working in partnership with the city.”

The cultural institutions in Boston are the lowest payers in the PILOT program. The Museum of Fine Arts, for example, was billed $646,000, but paid only 9 percent of that amount, or $60,000.

“We’re the only encyclopedic museum that we know of in the country that’s making a payment to the city,” says Mark Kerwin, deputy director and chief financial officer at the museum. He notes that the reverse is actually true in other cities — peer museums elsewhere actually get money from their cities. “Unquestionably, if we had to pay the full amount, it would have a substantial negative effect on our mission,” he says.

Northeastern University, after making payments for many years, dropped out of the PILOT program this year and did not pay any of its $2.5 million bill. “A new administration is a reset moment,” explains university spokeswoman Renata Nyul.

Wheelock College, which didn’t pay any of its $92,000 PILOT bill, says making the payment would jeopardize the school’s educational mission. “We do not plan to divert or reallocate resources in a way that would jeopardize our students, many of whom have increased financial aid needs,” spokesperson Beth Kaplan says.

In addition to Northeastern and Wheelock, 14 other nonprofits are not complying with the city’s PILOT requests. They include Emmanuel College (billed $367,000), Shriners Hospital ($212,000), Joslin Diabetes Center ($166,000), the New England Aquarium ($128,000), Franciscan Hospital ($82,000), the Institute of Contemporary Art ($52,000), the Museum of Science ($46,000), and the Children’s Museum ($37,000).

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Samuel Tyler, the president of the Boston Municipal Research Bureau, a business-backed group that monitors city finances, says officials need to move cautiously in trying to collect the unpaid funds, noting that nonprofits contribute enormously to the city’s economic and cultural life. “The last thing we want to do is kill the goose that laid the golden egg,” he says.

Boston Mayor Martin Walsh seems to agree. “While the PILOT program remains a priority for my administration, it is a voluntary payment,” he says in a statement. “The city maintains an ongoing dialogue with these institutions on a range of topics, including PILOT. We will continue to work with these community partners and review their commitments as the program moves forward.”