Boston Nonprofits Wrestle With City Demand For Cash Payments

The City of Boston has been mailing voluntary property tax bills to major hospitals, universities and museums. As nonprofits, they don't have to pay taxes, but Boston Mayor Thomas Menino says they should. He is asking them to pay a quarter of what they'd have to pay if they were taxable institutions.

WBUR's Business and Technology Reporter Curt Nickisch spoke about the issue with All Things Considered host Sacha Pfeiffer.

Sacha Pfeiffer: It's not new that Boston has been pushing nonprofits for years to pony up voluntary payments. But why is the Menino administration upping the ante by sending out voluntary property tax bills now?

Curt Nickisch: Boston's certainly not alone. Municipalities everywhere are trying to fork more money into their coffers during tight times. There are about 80 in Massachusetts that also have similar arrangements, and a growing number of Bay State communities are moving closer to voluntary payments lately, such as Marion, Dartmouth and New Bedford. But Menino's gone the furthest by trying to practically make the new standard 25 percent of what a for-profit would be paying.

Why don't nonprofits don't pay taxes?

It's law today that nonprofits are tax-exempt — the allowance is even in the Massachusetts Constitution. The historical argument for the exemption is that they are doing important social services that the government does in other countries, things like educating citizens, giving health care to people who can't pay, funding arts and culture. And that's why they have a special place in tax law.

But looking at the list of the 40-odd institutions, I don't see churches on here or tiny arts organizations. It's basically big hospitals and universities and the biggest, high-profile museums.

Right, no soup kitchens in there. It's because Menino's going after the deeper pockets. It belies his political bent, because it's more popular to go after perceived rich institutions with big endowments than it would to go after your neighborhood church. Even though if you follow the logic — that nonprofits are getting the benefit of city protections like fire and police service for free — that obviously applies to small nonprofits, too.

It's interesting that different institutions are reacting differently to this pressure. Boston University for instance is voluntarily paying more than $5 million this year. Meanwhile, Boston College, right up Commonwealth Avenue, is paying less than $300,000. Others, such as Emmanuel College, aren't paying anything. Why are some going along with the mayor and some not?

It's not hard to discern the pattern that the bigger "compliers," such as Boston University, happen to be institutions that have done a lot of construction lately. So it's only natural that you need to maintain a good relationship with the very city that has to approve building permits and land swaps and other such authorizations. I spoke with David Orlinoff from Concord Financial Organization (he's a financial adviser for nonprofits), and here's what he said:

I wouldn't call it extortion. Although I'm sure that some people could at least call it coercion from time to time. It's more a question of: What's the most effective way to do business with a city? And there are times when it's important to fight and there are times when it's not important to fight.

Is Menino going to be able to get his 25 percent standard to stick?

On the one hand, nonprofits would like there to be a level playing field, knowing that they're not going to be alone in making voluntary payments, but that your competitor is, too... that goes a long way in getting everyone on board.

Still, this is something nonprofits are going to wrestle hard with. And here's why: In the end, the amount of money we're talking about here is not unaffordable. But nonprofits worry they're going to be stepping down this slippery slope. Because if they all go along, then that means the mayor of Seattle could say, 'Hey look what they do in Boston, why can't we do that here?' And the more nonprofits pay taxes, the less they have to fund the work they do. This could quite practically set a sweeping precedent for all nonprofits across the country, as David Orlinoff says:

[It] would be a major change in our society's way of thinking about the role of nonprofits. So it's a very major thing that is not likely to be settled just because of short-term revenue needs.

It's clearly something that the boards of all these institutions are going to think long and hard about.