05 April 2012

PILOTs Are Crashing Cities

What, exactly, is the difference between a for-profit and a not-for-profit institution?

I know about 501(3)(c) and all that. What I really want to know is how  institutions that have vast real-estate holdings, invest in various stocks and pay their President/CEOs over a million dollars a year can still claim the same tax status as some other organization with a shoestring budget that operates a soup kitchen.

I want to know how such institutions, some of which have operating budgets larger than the municipalities in which they're located--and use those cities' sanitation, fire and other services--don't pay any taxes, while the people who are providing those services, and the local coffee shop and bodega and clothing stores, all have to pay.

What's really galling is that nearly everyone who benefits from those institutions comes to them from places outside the communities in which they're located.  Only their lowest-paid employees--some of which are hired through subcontractors or are themselves independent contractors--are likely to have roots in or anywhere near the communities in which the institutions are located.  

The institutions of which I'm speaking are, of course, large private universities.  Here in New York, the two best-known of such institutions are Columbia and New York University.  Neither pays any taxes.  Yet, over the past few years, NYU has been erecting dorm, office and other buildings, the likes of which even high-end real estate developers would be hard-pressed to match.  And it has plans to, essentially, take over entire square blocks of Greenwich Village to build more.

Columbia has embarked on an expansion project that, while less ambitious than NYU's, will probably have a greater impact on its community than NYU's will have on theirs.  Columbia's plan has received much less publicity because it involves demolishing an area of  West Harlem immediately to the north of the Columbia campus.  Part of the neighborhood is industrial; the rest of it is home to some of the lowest-income (and darkest) residents of Manhattan.  Columbia pledged to build a K-8 school to replace the one that is being destroyed and to relocate residents of the area; members of the local community board say that Columbia is reneging entirely on the latter pledge and honoring the former only partially in providing a K-5 school that will serve a significantly smaller number of pupils.

As if their expansion plans weren't bad enough, Columbia and NYU have long had reputations as being among the worst institutional landlords in the city.

Yet neither of them pays taxes.  Yes, they make payments in lieu of taxes (PILOTs), as many such institutions do.  However, those payments amount to far less than what they would've had to pay had they been taxed at the normal rates.  

At least New York City, even with its current large defecit, probably won't be bankrupted by Columbia or NYU.  On the other hand, Providence, Rhode Island cannot say the same about Brown University.  Like Columbia and NYU, it shares the same sorts of qualities as, and engages in similar practices to, the ones I've described.  Although some young people have moved to Providence as suburban sprawl from Boston has made housing in much of Massachusetts as expensive as it is in New York, much of the city is still reeling from the exodus of other industries and middle-class families.  

Mayor Angel Taveras is trying to get Brown to pay more than it currently does.  If he can't get that, he says, he'll have to ask the city's unions to make concessions.  If the unions don't cooperate, Providence will have no choice but to go bankrupt.

According to the Cambridge, MA-based Lincoln Institute of Land Policy, if Brown were to pay taxes on the full value ($897 million) of the buildings it owns--which represent about 7 percent of the land holdings in Providence--it would pay 19 million dollars.  In contrast, Brown and three other private colleges in the city give a total of $2.4 million in PILOTs. 

By the way, 19 million dollars is the size of Providence's budget defecit.


  1. You might also ask yourself,

    What is the difference between a small local business (like a bakery or gift shop) and a giant, multi-national corporation with an annual budget that rivals that of some small countries? Both are "for profit" and both pay taxes.

    My point is just...size matter, I guess. The small non-profit soup kitchen and the local bakery ARE different - one exists to help hungry people who can't afford food, the other exists to make a profit for its owners. But in some ways - specifically, SCALE - they have more in common with each other than the former does with General Electric or the latter with NYU.

    I don't know where I'm going with this - I'm just sayin'.

  2. Dona,

    The schools are run by foul pigs. They don't give a damn about their students or recent graduates. I have conclusively shown this on my blog, with regards to law schools.

    Yet, their tax-exempt status - a political designation for taxation purposes - and demands show that they don't give a damn about the cities in which they are located. Then again, these swine do not care about the taxpayers either - as evidenced by their willingness to take advantage of federally-backed student loans. In the end, the taxpayers are on the hook - if a "bailout" is ever passed.

  3. I grew up in Providence and was admitted to Brown (didn't go). I often wondered why they didn't move to the suburbs. People used to say it would hurt the city if Brown moved. I doubt it. Brown occupies the most valuable part of Providence and, assuming there is no industrial waste, it could be redeveloped quite productively.

  4. EM--You make good points. Even more important (and disturbing) than size is how organizations act when they become behemoths.

    Nando--You have indeed shown that schools are run by people who are just as motivated by money as the executives of Goldman Sachs are. One thing that's even worse about institutions like Brown, NYU, etc, is that they are, in essence, "bailed out" before they would ever need a bailout.

    Anon--Interesting point. Really, there is no particular reason for most private institutions like Brown, Columbia, NYU or Penn to be in their particular locations. Too often, the institutions' relationships with their communities is a very one-sided symbiosis.

  5. What about RISD, the Rhode Island School of Design? As a person climbs the hill to Brown he passes through it.