May 17, 2011

Tyranny in Massachusetts? Some Nonprofits Asked to Pay Up

Desperate times call for desperate measures, and desperate government officials in Massachusetts are calling for nonprofits to help fill emptying coffers by asking organizations to pay new, voluntary fees.

By: Daniel Stid

Some strange goings-on in Massachusetts have recently left many flabbergasted and others outraged. For my part, though, they reflect serious efforts to respond to the fiscal straits in which government increasingly finds itself. The events began in April, with the Democratic majority in the state’s House of Representatives taking a page out of what had—up until then—been portrayed as the Republican playbook. The House under the leadership of Democratic Speaker Robert DeLeo passed a measure that, if enacted into law, would sharply curtail the ability of police, firefighters, teachers, and other public employees to bargain collectively on health care benefits, much to the consternation and anger of the state’s powerful public sector unions.

Along similar lines, Boston’s Democratic Mayor Thomas Menino has been drawing intense criticism for asking tax-exempt charities in the city to make "payments in lieu of taxes," or so-called PILOTS, tied to the value of their real estate holdings, in order to shore up the city’s empty coffers. National Council of Nonprofits head Tim Delaney quickly pulled out the rhetorical stops in lambasting Boston’s initiative to "balance its budget on the backs of people served by charities and those who donate to them." Delaney closed his diatribe with the rallying cry that, "The people of Boston should recall their proud history of fighting against tyranny of the Coercive Acts of England by halting this improper, coercive experiment."

Is there something in the water that is driving otherwise progressive politicians to become tyrants in Massachusetts? A more likely explanation is that DeLeo and Menino and their party allies are simply grappling as best they can with how to deal with the fiscal reckoning that is bearing down on states and cities across the country, regardless of which party happens to be in power. State and local governments simply have too many bills to pay and not enough money to pay them with, so they are being forced into unexplored territory when it comes to cutting costs and/or raising revenues to fill the gap.

Hence Massachusetts, like many other states, is contemplating where and how to curtail the bargaining rights of public sector unions in order to reign in the cost of governing. And Boston is only one of several "squeezed cities," as the New York Times termed them in the headline of a front page story last week, seeking "some relief from nonprofits." Indeed, due to restrictions on its ability to raise other forms of revenue, 64-percent of Boston’s 2011 budget comes from property taxes. But this 64-percent is coming from less than half of the property in the city; the Times reports that tax exempt organizations own the majority of Boston’s real estate. You can start to see why Mayor Menino is coming round to the city’s many hospitals, universities, and museums with his hat out!

The Menino Administration’s PILOT initiative is of particular interest for this blog given our focus on the relationship between government and the nonprofit sector in general and on the funding of human services for the most vulnerable among us. Is this initiative just a money grab from cash-strapped charities already struggling financially to serve the poor and disenfranchised?

I’d encourage you to read the final report and recommendations of the Mayor’s PILOT task force before you reach that conclusion. It comes across as a thoughtful and grounded exercise in problem solving that juggles multiple competing considerations and tradeoffs. Consider the broad outlines of the PILOT initiative: All payments are voluntary; the first $15 million of assessed real estate value is exempted, freeing up small and mid-size nonprofits from any expectation of payment; those charities with real estate holdings above this threshold in value are only being asked to contribute 25-percent of what the total property tax would be; charities can offset their PILOTs by providing documented community benefits; and the new approach will be phased in over a five year period.

The Menino Adminstration is basing its PILOT initiative on the propositions that it needs to find additional revenue from somewhere given the deteriorating fiscal situation and that larger nonprofits such as Massachusetts General Hospital and Harvard University can and should do more to support the city. The provisions that exempt nonprofits holding less than $15 million in real estate and that allow for PILOT offsets from the provision of community benefits would keep additional financial burdens from falling on smaller scale human service nonprofits—e.g., a homeless shelter or an afterschool mentoring program. If we are going to insist that all nonprofits should be equally free from these burdens, regardless of their scale and missions, and deem the PILOT approach unreasonable on its face, then we are only adding to the fiscal pressure bearing down on the struggling human service organizations that we rely on to support those most in need.

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