Moodys: Cities must balance tax-exempts’ cash, contributionsFebruary 15th, 2012 at 1:14 pm by Ted Nesi under Nesi's Notes, On the Main Site
Moody’s Investors Service thinks Providence and other cities could reap significant rewards from pushing local tax-exempt institutions to fork over more money. But they should guard against killing the goose that laid the golden egg.
Payments in lieu of taxes, or PILOTS, “represent a potential revenue boon for local governments with high concentrations of tax-exempt properties in their tax bases, many of which are in the Northeast,” Moody’s analysts wrote in a research note Tuesday that singled out Boston as a successful example.
“Though far from immanent, greater PILOT revenue comes with long-term risks for some local governments should PILOTs grow so large that they impair not-for-profits’ ability to create jobs and stimulate the economy, or encourage them to move elsewhere,” Moody’s said, adding: “In general, local governments are still far from that tipping point.”
“Efforts by local governments to bolster PILOTs appear to be shaping into a trend,” according to Moody’s. In addition to Providence and Boston, Scranton, Pa.; Worcester, Mass.; Framingham, Mass.; and Newton, Mass., have all sought larger voluntary payments recently.
Mayor Angel Taveras wants Providence’s seven big tax-exempt organizations to pay the city $7.1 million more a year. Brown University has resisted his push to up its contribution by nearly $4 million, and the hospitals – which currently contribute nothing to Providence’s budget – have said little about whether they’ll play ball.
In Boston, tax-exempts have boosted their PILOTs by 24% over last year’s amount in response to Mayor Tom Menino’s request for an increase of more than $6 million. The largest payment last year came from Boston University, which paid $5.08 million, or 8.8% of what its tax bill would be.
A notable difference between Boston and Providence is the different attitudes of their hospitals.
Partners Healthcare, which owns $2.8 billion in tax-exempt property, paid Boston $4.34 million in 2010-11, or 5% of what its tax bill would be. Lifespan, which owns nearly $1 billion in tax-exempt property in Providence, would pay the city more than $1 million if it contributed at the same rate as Partners.
Lebanon, N.H., gets more than 5% of its budget from PILOT deals, Moody’s said, while Princeton, N.J., gets nearly 2% of its tax revenue from PILOTs and New Haven, Conn., gets more than 1% of its general fund budget from them. Providence wants to fund about 1.5% of its $614 million budget with $9.1 million from the tax-exempts this year.
While more money from tax-exempts would be a “credit positive” for local governments, Moody’s said municipal leaders need to balance that against the possibility that siphoning off more from them will hurt their economies.
“In many regions of the U.S., research universities and academic medical centers are the largest employers and also promote economic development through startup company spinoffs,” Moody’s said. Providence’s seven biggest tax-exempts employed 20,837 workers in 2011, which was 19.5% of total employment. Brown is the city’s largest employer.
“Placing a greater PILOT burden on these entities could reduce their financial and operating strength and ultimately reduce the employment and economic benefits they could create in the future,” Moody’s said. In Brown’s case, the university is projected to run a $9.4 million budget deficit next year, the school said Saturday.
Moody’s downgraded Providence’s credit rating last March and expressed concern earlier this month about the city’s deteriorating financial outlook. Taveras on Wednesday is expected to announce a deal with Johnson & Wales for higher payments and meet again with Brown’s president. He will sit down with the hospital CEOs on Friday.
(photo: Brown University)
Tags: boston, brown university, care new england, chartercare, johnson & wales university, JWU, lifespan, moody's, municipal, nonprofits, providence, providence college, providence financial crisis, RISD, roger williams hospital, tax-exempt