Cash-Strapped Cities Put The Squeeze On Nonprofits

May 14, 2011

Tovia Smith

From the nation's founding, those doing the Lord's work, healing the sick or educating the masses have been given a pass on paying taxes. The thinking has been: We owe them more than they owe us.

But in these hard financial times, that thinking is changing.

"I think we've reached a point where something needs to give here," says Ron Rakow, Boston's assessing commissioner.

Around the nation, financially strapped municipalities like Boston are pressing universities, hospitals and museums — which are all tax-exempt — to pay millions of dollars to help support city services.

Rakow says no one wants to be an ungracious host. After all, he says, Boston wouldn't be Boston without its many world-renowned universities and hospitals. But he says those institutions benefit like everyone else from police or snowplows, for example — and they need to help pay for them.

"We can no longer afford to give a hundred percent tax subsidy to these institutions, when they are such a big portion of our city," he says.

Many nonprofits have been volunteering for years to make payments in lieu of taxes. But Boston is no longer willing to just take what it gets and is now sending out pseudo "tax bills," asking nonprofits for 25 percent of the usual rate.

The city says institutions can pay half in kind, with scholarships or free care. Ultimately, Boston can't force nonprofits to pay — but Rakow says he will be posting who does and who doesn't.

"The ones that maybe aren't doing as much as some of the others — it certainly is going to put them in a place where they're going to need to explain to the public why," he says.

'The Tax Exemption Is Not A Loophole'

Not surprisingly, the so-called guidelines for giving aren't playing so well among some nonprofits.

"I think when you come up with a formula that is a percentage of assessed value, that simply looks too much like a tax," says Richard Doherty, of the Association of Independent Colleges and Universities in Massachusetts.

"The tax exemption is not a loophole," he says. "It's a very deliberate public policy that recognizes that if it weren't for these private, not-for-profit entities, government would be forced to be providing higher education and health care, and the cost would be absolutely staggering."

Doherty says many nonprofits are already giving the city as much as they can. And some of the top givers are balking at the demand for more.

"I would say that before we consider increasing the size of our contribution, we are hoping that others reconsider their level of contribution, to be more consistent and fair," says Rich Copp, a spokesman for Partners HealthCare, which owns Massachusetts General Hospital.

One admitted under-giver, Beth Israel Deaconess Medical Center, has been asked to increase from $170,000 to nearly $3 million. CEO Eric Buehrens says it will.

"You never like to get a letter from the tax commissioner," he says, "but we thought that it was inevitable that the city was going to have to seek some recalibration of the contribution that these institutions were making to the tax base."

What About Corporations?

Around the nation, other cities like Providence, R.I., and Pittsburgh have also been putting the squeeze on nonprofits. But Donald Heller, the director of Penn State's Center for the Study of Higher Education, says cracking down on schools and hospitals is unlikely to prompt a groundswell of public support.

"I think people tend to be saying, 'Look, if there's anybody abusing the system, it's not the public charities out there; it's the corporations that are getting away with not paying any taxes,' " he says. "And that's where we ought to be looking, not at trying to wring a few million dollars out of the universities in Boston or Cambridge."

But to some, the line has blurred between universities and corporations. Boston City Council President Stephen Murphy says many are now sophisticated financial giants, staging, for example, big-name rock concerts in their tax-exempt sports arenas.

They're using the tax-exempt status of medicine or education, he adds, "to get around the fact that they're on a huge land grab here. At some point in time, you gotta say, 'Hey, man up.' "

If the cities don't say it, in some cases the taxpayers will. In New Jersey, for example, angry residents filed a lawsuit accusing Princeton University of "not paying its fair share." Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.