In Massachusetts, local governments have been able to rely less and less on state money to pay their bills. That’s one of the findings of a report out this month from the state auditor.
For many communities, this means much of their funds for road repair, fire departments and police is coming from property taxes. This is a problem in college towns where a lot of valuable property is owned by nonprofits that are tax-exempt. Northampton, Massachusetts, is the latest community to try out one possible solution, but it’s controversial.
Who Has To Pay?
I sat down with the city’s mayor, David Narkewicz. Before our interview, he carefully ran over some numbers on the city’s new “payment-in-lieu-of-taxes” program, which is a terribly boring name for something Narkewicz says is all about fairness.
Basically this program imagines a fictional world where big tax-exempt institutions, such as colleges and hospitals, do pay local property taxes. It calculates how much each organization would owe, and then asks them (politely) to pay some of those imaginary taxes.
In Northampton, the big nonprofits are Smith College, a women’s liberal arts school, and Cooley Dickinson Hospital. Mayor Narkewicz says it’s great to have these well-regarded institutions in town, but they use city services.
“They need police protection, fire protection, we have to maintain the roads, and plow the roads and do all those things,” Narkewicz says.
All of that gets expensive. To further complicate things, Narkewicz says 22 percent of the city’s property value is exempt from taxes. Despite its relatively small population, Northampton ranks high among Massachusetts cities with the most tax-exempt property.
“We’re actually the fifth highest city in Massachusetts,” he says, “behind only Worcester, Cambridge, Chelsea and Boston.”
So, late last year, Narkewicz created the payment-in-lieu-of-taxes, or PILOT, program.
Here are the gritty details: nonprofits that own property are being asked to pay 5 percent of the property taxes they would owe.
“We’re using a cutoff of only those large, private, tax-exempt institutions which own in excess of $1 million worth of valued property,” says Narkewicz.
Plus, that first $1 million is exempt from the program. The percentage the city asks for will increase every year, up to 25 percent by 2020. Not everyone has to pay. Churches and conservation land, for example, aren’t included.
Based On Boston
Northampton took the PILOT framework from a program started in Boston back in 2011. Before then, the city did have PILOT agreements, but they negotiated them individually, which got a bit messy.
“Because of the structure of the prior program, we had very sporadic participation,” says Ron Rakow, Boston’s assessing commissioner. The city came up with one formula for everyone. Five years in, Rakow says it’s going pretty well. Contributions have leveled off at about 70 percent of what the city asks for.
“We’d love for it to be 100 percent and we’re still working towards that goal,” Rakow says. “But even at a 70 percent participation rate in a voluntary program, we think that’s a pretty significant achievement considering where we were before.”
Boston received about $28 million in these nonprofit payments last year. Northampton is working on a much smaller scale. Narkewicz says so far just one entity has agreed to pay into the program: Historic Northampton. They owe a whopping $216 this year.
“I’m not sure what other options [the city’s] got, frankly,” says the organization’s board chair, Kiki Smith. She’s sympathetic to Northampton’s financial bind, and she thinks paying their small share is the right thing to do.
“I think our sense was it’s a necessary tax in some way,” Smith says.
A Tough Sell
Other Northampton organizations haven’t been as open to the PILOT idea. A spokesperson from Cooley Dickinson Hospital declined a request for an interview, but said hospital representatives have spoken to the mayor about the program, and they’re considering the request.
Smith College has been more public about its concerns.
On April 13th, Smith announced $520,000 in local contributions, including an annual $100,000 gift to the city in each of the next three years. But college spokesperson Laurie Fenlason makes very clear: this should not be labeled a payment-in-lieu-of-taxes.
“We reject the notion of a PILOT,” Fenlason says. “We do not reject, in fact we totally accept, the notion of the importance of investing in our community.”
Northampton is allowing nonprofits to pay up to half their contributions through in-kind donations. Smith does a lot of these. Among other things, they let Northampton High school students take classes at the college for free. Local schools use Smith’s athletic fields. Their museum and botanical garden are open to the public. Plus, the school already pays a PILOT agreement for a science building it built a few years ago.
After all the calculations, Smith really owes the city $122,929 this year. So it’s not quite meeting the amount the city wants. Laurie Fenlason says their decision not to pay the PILOT is about principles.
“Independent colleges like Smith…have nonprofit, tax-exempt status for a reason: we provide a service, in our case it’s higher education for women that otherwise the local, state and federal governments would have to provide,” Fenlason argues.
Bottom line: private colleges want to stay tax-exempt.
In nearby South Hadley, Town Administrator Michael Sullivan questions that principle. South Hadley is home to another historic women’s college, Mount Holyoke. Sullivan wonders if colleges’ tax-exempt status is outdated.
“It’s one of those regulations within the state that need to be revisited,” Sullivan says.
Sullivan is considering a payment-in-lieu-of-taxes program for Mount Holyoke. He says he recognizes Mount Holyoke draws people to South Hadley. But he says you could make the same argument of other companies, such as the supermarket, Big Y.
“They bring people into town,” Sullivan says, “probably on a much smaller scale, and most would consider [it] not as noble a venture. I don’t know why, but I just think people adopt that kind of attitude.”
Sullivan, and Mount Holyoke officials, say they discussed the possibility of a PILOT at a meeting a few months ago. Kevin McCaffrey, the college’s government liaison, did not explicitly tell me the college is against the idea, but raises this point: 81 percent of the school’s domestic students get financial aid.
“So any discussion of possible other allocations of our funds has to come up against the discussion of our commitment to aid,” McCaffrey says.
Like Smith to Northampton, McCaffrey says Mount Holyoke is already a big contributor to South Hadley in taxes for its commercial properties, in gifts and the more intangible draw it brings to the small town.
McCaffrey dismisses Sullivan’s idea that perhaps it’s time to get rid of colleges’ tax exemption. He says colleges are educating the next generation of world leaders.
“I think that there is no institution, no sector, that’s doing more to serve the public good than colleges,” says McCaffrey.
Other Western Mass. College Towns
In Amherst, there’s no across-the-board PILOT program, and things are more settled. The town recently reached a deal with UMass for the university to make several regular payments. UMass will pay $120,000 each year for town services. It also pays a fluctuating amount each year for fire and emergency management ($381,344 last fiscal year) and chips in additional money to cover fire and ambulance expenses at “high demand times.”
UMass also began collecting a 6 percent fee on each room occupied at its on-campus hotel in 2014, excluding rooms paid for by the university.
For a number of years, the private Amherst College has regularly contributed thousands of dollars to the town and the school district. A school spokesperson declined an interview for this story, but says those contributions have been as high as $135,000 to the town, and $85,000 to the Amherst-Pelham Regional School District.
Like many other private colleges in the region, Williams College pays its host community, Williamstown, local taxes on non-education property. Williams’ tax bill was $852,000 this year, according to Janet Saddler, the town’s treasurer. Saddler says the college also pays for capital projects at the local schools.
“Their boiler went a few months ago, and the college stepped in and paid the expenses related to that,” Saddler says.
Saddler says the idea of a PILOT program for Williams has surfaced occasionally, but Williamstown has never pursued it.
Taking It To The State
Regardless of the good works of any nonprofit, advocates for municipalities want to make it easier for communities to adopt a payment-in-lieu-of-taxes program like Northampton’s. The Massachusetts Municipal Association has filed a state bill to do that. The group’s head, Geoff Beckwith, claims the bill has been slow moving on Beacon Hill, but he believes it will gradually build support.
At the end of the day, PILOT is still voluntary. No one has to pay anything. So then how do city leaders get their local non-profits to pay? I asked Geoff Beckwith if guilt plays a factor. He’s got other words for it.
“Should large organizations, especially…a college that has international students and hundreds of millions of dollars in endowments, should they feel some level of, if not remorse, then hesitation for not participating in a common sense PILOT framework? I think that they should,” says Beckwith.
This issue, for both sides, is about setting a precedent. It’s a matter of who pays for what, and how far a community is willing to push its most powerful of residents.
Correction: An earlier version of this story misrepresented the amount Northampton is requesting from Smith under their PILOT program this year. It is $122,929. The story also incorrectly stated that Smith is paying in excess of what the city is requesting through a non-PILOT gift. Smith is paying the city $100,000. The web story has also been updated to include additional payments from UMass Amherst not reflected in the original version.