“PILOT” PAYMENTS – Ever Increasing Amounts for Higher Ed and Non-Profits
Payments made in lieu of taxes (PILOTS) by non-profits and colleges and universities has been an issue that has been around for a long time. Currently they are in the spotlight now as more and more cities and towns seek ways to balance their budgets.
PILOT agreements have been most common, and are believed to have been originated, in Massachusetts and Pennsylvania. However, they are in place in more than half of the states according to a 2012 report by the Cambridge based Lincoln Institute of Land Policy. This report found that $92 million a year was contributed to communities with 90 percent of that coming from colleges and hospitals -or ‘eds’ and ‘meds’ as they are sometimes called.
There are valid points on both side of the issue. Cities cite the costs of providing services on behalf of the university. Universities cite the benefit to the community is greater than the use of city services. Yet, Pittsburgh is estimated to have approximately 35% of land within city limits classified as tax-exempt The whole issue reveals an excellent example of the need and value of ‘town and gown’ relations.
Let’s look a little closer and review some of the PILOT arrangements in Massachusetts communities.
|PILOT Agreements in Massachusetts Communities|
|Boston||6.9 million||Mass. General Hospital|
|Boston||6.1 million||Boston University|
|Boston||3.1 million||Beth Israel Deaconess Medical Center|
|Boston||3 million||Brigham & Women’s Hospital|
|Cambridge||2.5 million||M I T|
|Boston||2.3 million||Harvard University|
|Cambridge||1.3 million||Harvard University|
|Boston||1.1 million||Northeastern University|
|Boston||1.1 million||Tufts Medical Center|
|Salem||$600,000.00||Salem State University|
|Burlington||$550,000.00||Lahey Hospital & Medical Center|
|Worcester||$360,000.00||W P I (total for a 25 yr agreement)|
|Worcester||$315,000.00||UMass Memorial Medical Center|
|Springfield||$210,000.00||Baystate Medical Center|
|Salem||$125,000.00||North Shore Medical Center|
|Worcester||$80,000.00||College of the Holy Cross|
|Sources: Cities of Boston, Cambridge, Springfield, and Worcester, Salem State University, North Shore Medical Center, Lahey Hospital & Medical Center, UMass Amherst
Note: Some amounts are the expected amount over the life of the agreement. Some amounts are in addition to the hotel room tax and one amount is in addition to the real estate tax on the Chancellor’s residence
PILOT agreements are often structured in different ways. For instance, Boston has a program that requests nonprofits, such as private colleges, hospitals and museums to participate if they own $15 million or more in property. Other agreements have been made for a declining payment of 100% of the normal tax payment in the first year of acquisition by the non-profit and then declines 25% a year for the next four years with a residual amount being paid every year following. Boston’s PILOT program brought in 32 million dollars to the city last year (2015) with a participation rate of approximately 70% of all eligible institutions.
Yet there are some nonprofits/universities that operate without a PILOT agreement. Framingham State University claims it has no such PILOT agreement with its host town and Fitchburg State does not make PILOT payments. When combined, the universities estimate a $135 million dollar impact from being the largest employer along with infrastructure investments and programs that benefit city students. Further, the Lawrence General Hospital doesn’t make PILOT payments citing the millions of dollars in unreimbursed health care to area residents.
Non-profits in general and colleges and universities in general have been under increasing pressure to make more payments in lieu of taxes. But does this violate the intent of the law providing tax exempt status to these organizations? Does it increase the costs of attendance at colleges and universities or the costs of services provided by hospital and medical centers? One way these questions might be settled is to have one central, federal agency to oversee non-profits. The non-profit ‘industry’ provides approximately 10% of the work force in the United States and holds trillions of dollars in assets. Yet there is not national oversight of this ‘industry’. Many federal agencies have individual impact on non-profits resulting in ever increasing costs of compliance to the non-profits. The IRS has been placed in this role of monitoring non-profits through requiring more transparency on the redesigned federal tax forms non-profits are required to file. This new form is now much more than only a tax return as it requires much more data than ever before.
States are joining in the act of increasing focus on non-profits. Regulation of non-profits varies from state to state. Some states have proposed placing a limit on the salary of top executives of non-profits and penalizing those that exceed this limit. Others require a copy of the federal form in addition to state forms.
Until there is some general uniformity there will continue to be widespread differences in amounts paid by the ‘eds’ and ‘meds’ and town and cities will continue to be plagued with uncertainty in their budgets.