THE ARGUMENT
Should Massachusetts allow municipalities to require nonprofits to make payments in lieu of taxes?
Yes Erika Uyterhoeven State representative, Somerville Democrat
Elite universities, private schools, and hospitals — many with multibillion-dollar endowments — need to pay their fair share to the communities they call home. Currently, through their nonprofit status, they are exempt from property taxes. This allowance has created tax shelters for these institutions’ insatiable wealth accumulation.
Veiled behind the core mission of providing education or health care, wealthy institutions over time amassed billions in land, property, and assets. As one example, Harvard University increased the value of its endowment by $11.3 billion in fiscal 2021 alone, according to a report in Harvard Magazine.
The asset management companies overseeing these massive endowments behave identically to Wall Street investment management firms, yet the institutions they serve do not have to pay property taxes.
This property tax exemption has detrimental consequences on our communities. First, these institutions buy up property, which exacerbates the affordable housing crisis by reducing the number of available housing units. Second, municipalities lose out on property tax revenue. This means residents and local businesses shoulder a disproportionate tax burden, forced to cover the full cost of providing municipal services — from public safety to snow removal — that benefit all in the community, including nonprofits.
Many cities have tried to right this wrong through agreements called Payments in Lieu of Taxes. Boston has led with one of the most equitable PILOT agreements in the nation that asks nonprofits with more than $15 million in property to pay the equivalent of 25 percent of what they would have paid in taxes.
Although proportionally this is still far less than what residents pay, in fiscal 2022 such PILOTS would have raised $124 million in combined cash contributions and community benefits from 47 institutions in Boston, according to the city.
However, many institutions make none or only some of their PILOT payments because these programs are voluntary. In fiscal 2022, cash contributions from nonprofits in Boston’s program covered just 29 percent of the requested PILOT. This demonstrates the need to revisit the current tax exemption law that allows wealth accumulation at the expense of our communities.
That’s why we must pass House Bill 2963, a proposed bill that would give municipalities the power to require certain large institutional nonprofits to make PILOT payments. This is a modest first step in ensuring all community members pay their fair share.
No Jim Klocke CEO, Massachusetts Nonprofit Network
What do you think of when you hear the word nonprofit? Maybe it’s a local food pantry. Maybe it’s a group home, or a hospital where you’ve been treated. Those are all nonprofits, and they’re threatened by a State House bill that would allow municipalities to mandate payments by some nonprofits. The legislation would upend the legal structure upon which the sector is built.
That legal structure is a good thing. It’s the reason why Massachusetts had a highly skilled nonprofit sector in place when the COVID19 pandemic erupted. Nonprofits sprung into action to provide health care, food, social services, educational support, vaccines, and countless other services across Massachusetts.
The legal structure of the nonprofit sector begins with the requirement that nonprofits serve the public interest by executing their charitable missions.
It includes strict standards on the protection of donated funds and the use of assets. And it includes a requirement for submitting detailed filings each year — to the IRS and state government — on finances, governance, and operating practices. Those filings are publicly accessible, providing transparency far beyond what is required of private companies.
Because of their legally binding pledge to serve the public interest, nonprofits are provided with tax-exempt status. Tax-exempt status enables nonprofits to dedicate all of their funds to their public missions. If they don’t do so, that status can be revoked. Each year, nonprofit leaders sign documents, under penalties of perjury, attesting to their organization’s compliance with nonprofit laws.
The State House bill would upend this system by enabling municipalities to mandate payments by some nonprofits — in other words, to tax those nonprofits. That precedent would open the door to legislators adopting any type of tax requirement on any nonprofit.
Such obligations would dramatically reduce the amount of services nonprofits can provide, as well as their capacity for innovation and growth.
Like the people they serve, nonprofits are still recovering from the pandemic. Many — of all sizes — are operating on thin margins or at a loss. Inflation has made it harder to balance budgets, and the prospect of a recession grows every day. That’s why it is especially important that we don’t undercut the sector’s ability to innovate and serve as many people as possible.
We need to keep the nonprofit sector’s legal structure in place.