Updated: Jul 6
Throughout her campaign and especially since she has been elected to serve as mayor of Boston, Michelle Wu’s promises have come under intense scrutiny for being too ambitious and costly. Perhaps the most notable of these promises is her pledge to make the MBTA completely free. To reach this goal, Wu has already put forth an appropriation request to use $8 million from the COVID-19 relief funds to ensure that three bus routes — the 23, the 28, and the 29 — are fare-free for the next two years.
With someone like Wu in charge who seems to be willing to spend big on public projects and improving Boston’s infrastructure, people are bound to ask the question, “How will we pay for this?” When I encountered this question on Twitter and in the comment sections of various local publications, I tried to think of potential avenues that the city could collect additional tax revenue from. Colleges immediately came to mind because of how ridiculously high they charge for tuition and how much space they take up across the city. Many colleges have also experienced major endowment growths during the pandemic. The endowments of Harvard, BU, and BC grew $11.3 billion, $1 billion, and $1.2 billion respectively.
It turns out that most of the private colleges and universities in Boston are exempt from paying property taxes because of their nonprofit status. The huge amount of capital that these colleges own and have accumulated over the years, especially in their endowments during the pandemic, makes classifying them as nonprofits a huge wasted opportunity for tax revenue that could fund costly initiatives like free MBTA, construction of affordable housing, and the modernization of Boston Public Schools, among others.
The concern over these institutions’ tax-exempt status is nothing new. Back in January of 2011, the city reintroduced its PILOT (payment in lieu of taxes) program, which requests voluntary payments from tax-exempt institutions based on their property value every year. However, the program only demands 25% of the assessed property tax value that these institutions would be paying if they weren’t tax exempt.
Since the program is completely voluntary, these institutions often fall short of their requested payments. For example, in FY2020, BC only paid 23% of their PILOT request, BU paid 87% of theirs, Harvard paid 79% of theirs, and Northeastern paid 68% of theirs. In addition to only being requested a small portion of their property value, these colleges continue to fall short in their payments, which suggests that the PILOT program is largely ineffective and better ways of collecting money should be implemented.
I’d also like to put in perspective how insignificant the PILOT payments really are when compared with the city’s overall budget. According to the “PILOT Value Basis” for FY20, which is the value of Boston educational institutions that the PILOT payment requests are based on, the program only requested about 0.8% of their estimated value. Of that 0.8%, only 73% was actually paid and the city only yielded about $45.4 million from educational institutions. “Community benefits credits” are essentially scholarships or other programs that reduce costs account for roughly two thirds of that $45.4 million. This $45.4 million figure accounts for a very small portion (1.3%) of the $3.61 billion operating budget that the city has allocated for FY2021. Clearly, the PILOT program is doing very little to contribute to the city’s budget.
Looking back at the endowment growths of colleges in the area, especially Harvard, it’s quite clear that they aren’t paying their fair share to the city. Harvard’s $11.3 billion endowment growth over the first year of the pandemic is over three times the size of Boston’s whole budget for FY21. Some may argue that Harvard doesn’t have a responsibility to pay the city of Boston because it is located primarily in Cambridge, but this is simply false. Harvard owns more than 350 acres in Allston, roughly one-third of the entire neighborhood, and it has been expanding its properties exponentially for decades now. There is also a significant amount of potential tax revenue in other big local colleges, such as BU, BC, and Northeastern.
The current PILOT program that launched in 2011 was reviewed by a PILOT Task Force in 2010, but its members largely consisted of executives of the nonprofit institutions that would participate in the program, including President Brown of Boston University, which seems to constitute a major conflict of interest. Over the summer, former Boston mayor Kim Janey established a Task Force to modernize the program. The main goal of this task force, however, was to increase the portion of payments that came through Community Benefits rather than increasing the amount that these institutions contribute to the city as a whole.
The failure of the PILOT program to extract significant funds from tremendously wealthy education institutions in the Boston area suggests that we should re-evaluate what qualifies an institution as a nonprofit under law. People ought to seriously question the validity of classifying universities as nonprofits when their endowment growth in a single year is comparable with the entirety of Boston’s annual operating budget.
Max Dahlstrom (CAS '23) is from Boston, MA. He is action coordinator of BU YDSA. He majors in philosophy.