As recession-racked cities struggle to balance their budgets with everything short of feeling behind sofa cushions for loose change, a growing number are seeking more money — just don’t use the word taxes — from nonprofit institutions that occupy valuable land but by law do not pay property taxes.
Boston has been sending letters to its largest nonprofit institutions this year, telling them the value of their land and asking them to begin making annual payments that would eventually rise to a quarter of what they would owe if they paid property taxes. Mayor-elect Rahm Emanuel of Chicago wants the city to begin charging water fees to nonprofits, which have been spared them in the past. And the mayor of Providence, R.I., Angel Taveras, cited Boston’s example this month when he called on nonprofits to pay more money to the city.
“Every citizen, every city worker, every taxpayer, every business and every organization — including tax-exempt institutions — must share part of the burden of saving our city,” Mr. Taveras said in his budget address. He proposed closing Providence’s $109 million budget gap by shutting schools, laying off workers, cutting the Police and Fire Department budgets and raising taxes on homeowners as well as seeking larger payments from the city’s prestigious universities and other nonprofit institutions.
There is no question that nonprofit universities and hospitals — eds and meds, as they are known to planners — have played a central role in helping cities weather the Great Recession and its aftermath. They provide high-paying jobs, draw visitors and keep downtowns vibrant. But for cities that rely heavily on property taxes, those benefits have a cost. As nonprofits grow in size and importance in many cities, manufacturing has disappeared and development has moved to the suburbs, leaving much of the best land in some cities off the tax rolls.
So as the fiscal crisis lingers, some cities are weighing new fees on nonprofits for things like water service, street drainage and streetlights. Others, including New Orleans, want to tighten the rules establishing how tax-exempt status is granted. And many are seeking new or larger voluntary payments — known as payments in lieu of taxes, or Pilots — from nonprofit institutions.
But the effort to get nonprofit institutions to contribute more comes as many nonprofits are feeling the same pinch as cities: their endowments shrank as their investments lost money, contributions from donors and governments dried up and demand for their services remained the same or rose. David L. Thompson, the vice president for public policy at the National Council of Nonprofits, said increasing calls for nonprofits to pay more money to governments have left many tax-exempt nonprofit groups feeling demonized.
“Very simply, the social compact between nonprofits and governments exists to serve the public good,” Mr. Thompson said. “Changing the rules undermines the work of the institutions, takes money out the community and out of the services provided to constituents.”
The question of the payments has become a new wrinkle in the often-contentious relationship between town and gown.
Princeton University, for example, pays $1.2 million voluntarily to the Borough of Princeton, and $500,000 to the township. But when the university met resistance from local officials this year to some zoning changes it is seeking to build a new $300 million arts complex — especially to its proposal to move a train station a little farther from downtown — university officials said that they might rethink those voluntary payments.
“It would be difficult to justify continuing contributions at existing levels to local officials who not only refuse to help the university achieve a key educational objective, but in some cases have sought to prevent the project from going forward,” Robert K. Durkee, the university’s vice president and secretary, said in an e-mail, adding that the university already pays taxes on some properties that could qualify for exemptions, including housing for graduate students.
Boston is trying to avoid those kinds of negotiations by making its payments more systematic — an approach other cities are watching closely.
Boston is sometimes known as the Athens of America for its universities, and its hospitals and museums draw visitors from around the world. As the capital of Massachusetts, it is home to many government buildings, from the golden-domed State House atop Beacon Hill to the most obscure agencies. But there is a downside to all that activity, which is so central to the city’s character: it leaves more than half of Boston’s land exempt from property taxes, said Ronald W. Rakow, the city’s commissioner of assessing.
While Boston has long collected voluntary payments from its nonprofit institutions, it has done so haphazardly, with some universities paying millions of dollars, while their peers paid little or nothing. So Boston’s mayor, Thomas M. Menino, convened a task force that studied the issue for much of last year and decided to try to establish guidelines for the voluntary payments. This year the city is trying to collect voluntary payments from all nonprofits with property worth more than $15 million. The payments will eventually rise to a quarter of what the nonprofits would pay in property taxes if they were taxable, with the provision that they can get credit for up to half of the money they owe by providing quantifiable “community benefits” that directly help city residents. By the time the system is phased in, the city hopes its annual payments from nonprofits will rise to $48 million from $15 million.
“There are some institutions that have already signed on to the program,” Mr. Rakow said. “Others are taking a wait-and-see approach.”
A study last year by the Lincoln Institute of Land Policy, a research institute in Cambridge, found that the voluntary payments had already been made in at least 117 municipalities in at least 18 states. But Daphne A. Kenyon, a visiting fellow at the institute who was an author of the report, said more cities were expressing interest in such payments as the fiscal crisis had continued, views of nonprofits had evolved and the antitax climate had grown more pronounced in many places.
“I think the most important conclusion is that this should be a collaborative process,” Ms. Kenyon said. “Because if you don’t make it collaborative — if it’s highly contentious, you could end up with no increase in revenue for the municipalities, a lot of legal bills and a lot of ill will.”