The Giving Review: A conversation with National Taxpayers Union Foundation’s Matthew Putnam Part 1

The paper uses Boston as a case study. Last month, Boston University agreed to pay a total of $104.3 million to the city under a five-year PILOT agreement—the largest such commitment in the city’s history.

Rather than treating PILOTs as a threat to nonprofit status, Putnam presents them as a pragmatic response to the fiscal pressures created when large portions of valuable real estate are removed from cities’ tax rolls. He favors voluntary, negotiated PILOT deals over mandatory taxes or attempts to revoke nonprofits’ property-tax exemptions, arguing that well-designed programs can balance municipal fiscal needs with the public missions of charitable institutions.

Putnam was nice enough to join me for a recorded conversation last month. The just-less-than 14-minute video below is the first part of our discussion; the second will appear tomorrow. During the first part, we talk about PILOTs and what they say, if anything, about what many consider to be, and want to protect as, the inviolability of charitable tax-exemption.

There are a “number of reasons that organizations like universities and hospitals have gotten involved with” PILOTs, Putnam tells me. “I think the first is that—though these organizations are providing community benefits and they are truly nonprofits—they are still using services in their cities. They’re using snow removal. They use the roads throughout the city. Fire and police protection still comes from the city, and they come onto the nonprofit space, and they help with emergencies.

“So when your property taxes are going towards these kinds of services, it’s so relevant for huge entities are taking up many, many city blocks for them to contribute towards that,” he continues. “You don’t want to be shifting all of that burden onto residential taxpayers or commercial taxpayers.”

Some of these nonprofits’ “administrators see it is a public good to be involved in those payments,” Putnam notes. Sometimes,

people see PILOTs as a way for cities to come after nonprofits, but I think the way that NTUF views them is as kind of a way for nonprofits to head off that kind of issue. … The way we see it, PILOTs have enabled nonprofits in New England to kind of prevent these long legal battles, these very public back-and-forth fights between organizations and their governments, and it allows universities and hospitals to garner a little more goodwill in that way.

Throughout the exchange, Putnam resists the suggestion that nonprofits’ agreeing to PILOTs undermines any principles of charitable tax exemption. “I don’t think they’re conceding that, Oh, maybe we shouldn’t necessarily have this exemption. I think they’re saying, We want to make sure that while we’re providing community benefits, we’re also not forcing other people to pay more money, just because we are expanding.”

Putnam also distinguishes the effects of nonprofits’ PILOT agreements on charitable exemption from the effects of some proposed enhancements of conditions on tax-exempt status or increases in governmental scrutiny of groups with such status. The sector “is a massive industry, and there have been a lot of changes in how nonprofits are viewed in the last few years,” Putnam says.

Most recently, of course, the presidential administration is going after some the nonprofit status of universities, arguably because of political positions or their institutional positions. And so I know it’s definitely not outside the realm of possibility that we’ll see changes in nonprofit status in the next few years. Whether or not PILOTs are driving that change or are a foothold to drive that change, I’m not sure if I believe that, right?

From the standpoint of municipalities, Putnam argues that PILOTs should not be viewed as a significant revenue source or a substitute for sound fiscal policy. The payments typically represent only a tiny fraction of city budgets, he underscores, and are intended primarily to offset localized property-tax shifts rather than fund new spending. Successful PILOT programs are collaborative rather than coercive, he maintains, citing Boston’s task-force process as a model in which city officials and nonprofit representatives jointly negotiated voluntary agreements that balance community benefits with fiscal fairness.

“In the vast majority of these situations there’s involvement from both sides,” according to Putnam.

It’s not typically that cities are coming to nonprofits and saying, You owe us half of what you would be paying in property tax or else. It’s typically that they are coming together. They were coming up with a memorandum of understanding or similar agreement. And again, this is all voluntary.

There are “many cases where universities have come to the table, and they’re still underpaying” in the eyes of the city. “But there’s not a threat that follows it. It’s really understood as a way for universities, hospitals, and these larger nonprofits to make up some goodwill.”

In the second part of the conversation, Putnam discusses the right level and type of PILOT payments and agreements and whether they will become a benchmark for imposing actual taxes on nonprofits or even develop into a broader challenge to exemption.