Tax-exempt Hopkins must help balance city budget

April 18, 2010|By Jay Hancock

It's an old city, home to wealthy, renowned universities that own huge swaths of tax-exempt property that would otherwise generate revenue for police, fire protection, street repairs and so forth.

So Cambridge, Mass., did the sensible thing. Decades ago, it got Harvard and MIT to agree to "payments in lieu of tax," known as PILOTs, to support their local community. Boston gets similar revenue from the universities.

Why the Johns Hopkins University and its affiliates aren't making such payments to Baltimore is beyond me. Hopkins is a huge asset for Baltimore. The city would be a far different and poorer place without it. But Hopkins has a $2 billion endowment and an interest in keeping the city that surrounds it from decaying.

Baltimore's budget crisis is the perfect occasion for Hopkins and other major nonprofits to start making substantial and permanent PILOTs to support government services they use every day.

Among many advantages, revenue from nonprofits could let Baltimore start cutting the high homeowner taxes that push so many residents to the suburbs.

The revenue Cambridge gets from Harvard and MIT "keeps the property tax from being higher than it is" says City Manager Robert W. Healy. "The residents, I would say, benefit the most."

This isn't the first time recession has spurred Baltimore to seek nonprofit revenue. But a PILOT negotiated in the early 2000s with Hopkins and a couple dozen other nonprofits expired after four years.

For some reason, Mayor Stephanie C. Rawlings-Blake wants a "bed tax" on Hopkins and other colleges and hospitals. But the bed charge, literally tied to dorm and hospital capacity, is unfair to institutions such as Loyola University Maryland that are richer in beds than real estate.

"The bed fee is inequitable," says Councilman Bill Henry, whose district includes Loyola. "I do agree that we should be trying to figure out a fair way for nonprofits to contribute more to Baltimore. But the bed fee isn't it."

Instead, Baltimore should negotiate PILOTs that are proportional to property ownership. They don't need to equal the $120 million city officials estimate they lose each year because nonprofit buildings are tax-exempt. A tenth of that would be a good start.

Cambridge began collecting payments in lieu of tax from Harvard and MIT around the 1960s. Five years ago, it struck a 50-year deal producing $5 million a year from the two institutions. There are annual increases of 2 percent, so now it's up to $5.5 million.

When either university buys a property, the institution pays the full property tax the first year and a declining amount over the next four. (If such a deal were in place in Baltimore, Hopkins' recent purchase of the Baltimore's former Zurich Insurance complex would trigger payments.)

"That gives us a chance to adapt to the loss of the revenue," says Healy.

Nobody seems to know how many cities collect payments in lieu of property tax from nonprofits or how much. The practice, while not unusual, is far from universal.

Yale University recently increased its annual payment to New Haven, Conn., to $7.5 million a year, according to a piece in the Boston Globe. Philadelphia and Pittsburgh also have been talking about nonprofit contributions.

Whenever New York City officials make a proposal for getting payments from Columbia or other universities, "it dies almost as it comes out of their mouth," says Carol O'Cleireacain, who used to be the city's finance commissioner and budget director.

That's partly because New York has so much valuable commercial property that it doesn't need the nonprofit support as much. That's not so true in Baltimore, which has sold itself as a hub for nonprofits.

"We are very concerned about Baltimore's budget situation, and we are willing to discuss ways to help the city close the budget gap," said Hopkins spokeswoman Tracey A. Reeves.

To repeat: Hopkins and its nonprofit kindred contribute much to the city — with tens of thousands of jobs, millions in research grants and revenue spent on services and products as well as top-notch medicine and smart graduates.

Hopkins' academic and medical operations already pay the city $10 million a year in parking fees, energy and telecom taxes, and license fees, says Reeves. Energy taxes also would rise under Rawlings-Blake's plan. And Hopkins and other institutions spend millions on security that arguably is the city's responsibility.

But the university seems to understand that it must do more. Better than anybody, it ought to know that a dysfunctional environment is hazardous to things that live in it.

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