OUR THOUGHTS ON:

Cities Ask Colleges and Hospitals to Pitch In

Not-for-Profit

By Tod Wilson

Faced with ongoing budget shortfalls, city leaders all over the country are asking 501(c)(3)s to pitch in. Nationwide, colleges, universities and tax-exempt hospitals are being approached and asked to make voluntary payments in lieu of taxes (PILOTs) to help keep cities afloat. While municipal governments generally exempt universities, hospitals and other charitable institutions from paying property taxes, these nonprofits hold significant amounts of valuable property.

Brown University, sitting on property worth an estimated $1 billion, recently agreed to contribute $31.5 million over the next 11 years in order to help the city of Providence, RI avoid bankruptcy. This was on top of the $4 million the university voluntarily gives the city each year.

Last week a group of nonprofits in Pittsburgh proposed a new two-year deal with the city that would have them paying $3 million this year. These institutions have made voluntary contributions for several years, but they’re unwilling to call them “PILOTs” because they don’t acknowledge that tax-exempt property owners have any duty to pay property taxes.

In 2011, Syracuse University agreed to make a $500,000-a-year voluntary payment for city services. According to the city’s mayor, “If you use snowplows, you should have to pay for snowplows, if you use police and fire services, you should have to pay for that.”

Officials in Baltimore threatened to impose a tax on hospital and university dorm beds before Johns Hopkins University and other nonprofits agreed to make contributions.

Boston, home to numerous colleges, universities and research centers routinely collects $34 million in “mandatory voluntary” payments from the city’s largest institutions as part of the one of the biggest such programs in the country.

So-called payment-in-lieu of tax deals are on the rise. Such arrangements have been used in at least 18 states since 2000, mostly in the Northeast. City officials assert that it’s simply a matter of fairness. As nonprofits expand, they consume more city services and use up more property that used to be taxable. Critics argue the payments are arbitrarily calculated and unreliable source of funds in the long term.

Although these large institutions argue they contribute greatly to the city’s economy and quality of life, cities grappling with debt are succeeding in getting nonprofits to pay up.

Small charities and religious organizations aren’t currently any under pressure from communities to pitch in. However, as cities continue to look for new ways to fund city services, they may eventually turn their focus to these entities.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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