massachusetts communities lead the nation in reaping revenues from tax-exempt properties, but the payments represent pennies on the dollar compared to what municipalities would bring in if the land were on the tax rolls.
Some 84 cities and towns in Massachusetts have instituted PILOT (payments in-lieu of taxes) programs where a nonprofit—mostly hospitals and colleges or universities —agrees to voluntarily contribute a set amount each year.
According to a report released in December by the Cambridge-based Lincoln Institute of Land Policy, Massachusetts cities and towns operate 72 percent of the 117 PILOT programs in the nation.
Boston, for instance, collects $31.5 million from owners of tax-exempt properties, some $14.5 million in voluntary payments from hospitals and universities and the rest from the Massachusetts Port Authority, museums, and foundations. Another $26 million flows to the city from the state and various state authorities as compensation for tax-exempt land owned in Boston.
“We are the PILOT leader, Boston and Cambridge,” says Anthony Flint, a fellow and director of communications at the Lincoln Institute. “Massachusetts has some of the oldest programs. You could argue the rest of the country is looking to us.”
The legal basis for exemptions from property taxes varies from state to state, according to the Lincoln Institute report. In 17 states, the constitution mandates it for charitable organizations. In Massachusetts and 24 other states, the constitution authorizes the legislature to grant exemptions. The Massachusetts Legislature enacted the current exemption more than a century ago, and theoretically could reverse that process.
Even though the Lincoln Institute report said the Massachusetts PILOT programs lead the nation, that doesn’t mean everyone is satisfied with them. The biggest concern is that the programs don’t bring in enough revenue. In Boston, for example, all tax-exempt properties would bring in $944.5 million annually if they were taxed regularly.
Boston Mayor Thomas Menino formed a task force two years ago, including members of the nonprofit community, to explore new methods of collecting money from tax-exempt property owners. The group released its report just before Christmas, in which it called for keeping PILOT agreements voluntary; expanding the agreements to all nonprofits, not just hospitals and universities; exempting the first $15 million in assessed values; and allowing up to 50 percent of contributions to be in the form of community benefits.
The Legislature sets reimbursement rates for certain land in municipalities, but many of those rates haven’t been updated in years. In Rochester, for example, the privately owned SEMASS waste incinerator pays the town most of the $3.3 million it collects under its PILOT program. Richard LaCamera, Rochester’s town administrator, says the SEMASS payments haven’t changed since they were put in place in 1984 by the Legislature, which granted SEMASS a tax exemption.
LaCamera says the city of New Bedford also owns property in Rochester that is used to protect its water supply. New Bedford is required under state law to make payments to Rochester as compensation—as are all towns that own such properties in another community—but the state has rarely increased the size of those payments. LaCamera said Rochester officials should probably talk with New Bedford about making higher voluntary payments.
“We’re protecting a lot of land and they’re counting on us to protect their water supply,” says LaCamera.
The tiny western Massachusetts town of Huntington has the highest percent of tax-exempt land of any municipality. The regional school system, state-owned property, and land protecting the water supply for the city of Pittsfield represent nearly 40 percent of Huntington’s land, yet the community receives just $20,000 in PILOT revenues.
Some municipal officials say they should use their control over permitting and other town regulatory functions to squeeze nonprofits for higher payments in lieu of taxes. But the Lincoln Institute report urges cities and towns to avoid confrontations and enter into agreements that are beneficial to both sides.
“We’re suggesting, to avoid that kind of contentious dynamic, there be some town-gown collaborative effort,” says Flint. “The nonprofit recognizes they want to live in a city that is well-functioning and isn’t broke. It’s sort of to the mutual benefit of both to have these agreements.”