Boston’s Payment in Lieu of Tax Program: A Review of the Program’s Development, Implementation and Results Ronald W. Rakow, Commissioner City of Boston Assessing Department

Boston is 52% Tax Exempt State Capitol 30 Colleges and Universities 25 Nonprofit Hospitals Over 20 Cultural Facilities City of Boston Exempt Properties City of Boston Overview

Property Tax Reliance Property taxes constitute nearly two-thirds of City revenue. No other major source of tax revenue (e.g., sales tax, income tax, payroll tax, etc.). City of Boston FY16 Estimated Revenue City of Boston Overview Source: City of Boston FY 2016 Proposed Budget

The Problem Heavily reliant on property tax revenue. Significant portion of tax base is exempt. Under Proposition 2½, the remaining taxable base can only grow by 2.5% per year. City of Boston Overview

Disconnect between Benefits and Costs Benefits spread broadly: o City o State o Region o World Costs are concentrated on Boston taxpayers o Reduction in revenue o Costs of providing municipal services City of Boston Overview

PILOT Program Prior to FY 2012: Participation in the program was voluntary. PILOT agreements were signed when an educational, medical, or cultural nonprofit institution sought to expand their property through land acquisition or property redevelopment. Program Shortcomings: ―The basis for payment was negotiated in each PILOT contract ―Lack of standards resulted in inconsistent payments and participation Prior PILOT Program

What Would Institutions Pay if Taxed? If taxable, educational and medical tax-exempt property would have generated $347.9 million.  City’s total levy is $1.6 b.  Equivalent to roughly half our entire commercial tax base At that time, PILOT payments from educational and medical institutions totaled $14.5 million, or 4.2% of what institutions would pay if their property were taxed.

New PILOT Guidelines Starting in FY 2012: PILOT Task Force recommended new PILOT guidelines to help the City achieve consistency, sustainability, and fairness in the program: Program to remain voluntary Nonprofits owning tax-exempt land valued in excess of $15 million are asked to participate in the program PILOT should be 25% of what institution’s tax-exempt property would generate if fully taxed Nonprofits should receive up to a 50% PILOT deduction for qualifying community programming to the unique benefit of Boston residents Nonprofit should receive a credit for any real estate taxes paid on institution-use property New PILOT formula to be phased in over a period of 5 years starting in FY 2012 PILOT Program

90.7% $43.4 $ % $ % $83.8 PILOT Contributions: FYs 2010 to 2016 $2.0 $5.0 $97.2 $8.7

Nonprofits have a strong preference for services over cash. Museums and other cultural institutions face a different economic model than hospitals and universities. A PILOT program requires a strong partnership between a community and its nonprofits, and that relationship takes a lot of time, effort and commitment to build. Lessons Learned

For More Info on PILOTs….