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Friday, November 28, 2014 |  Madison, WI: 16.0° F  Light Snow
The Daily
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Citizen Dave: Idea of the Week... expand Madison city revenue through tax-exempt land

As always, I took home a lot of interesting ideas from the Mayors Innovation Project's annual meeting in Washington, D.C. last weekend. Let's start with an idea that comes from Boston regarding tax-exempt land.

Fifty-two percent of the land in Boston is occupied by tax-exempt property, almost exactly the same as Madison. That's not surprising when you think about it, as Boston and Madison are both home to state government, large universities, large hospitals, and a host of nonprofit organizations.

That's a good thing. Madison gains a lot from being the capital city and home to UW-Madison, topnotch medical facilities, and non-governmental organizations that do many good works in our community.

Still, with so much property off the tax rolls, it's worth asking if at least the major institutions couldn't afford to pay a little more toward the upkeep of the city that provides the infrastructure for them to flourish.

That's the question Boston asked a few years ago, and their experience (PDF) is worth studying here. At the meeting, we heard a presentation from Ronald Rakow, the Boston Commissioner of Assessing.

At the request of Mayor Tom Menino, Rakow launched an effort to work with tax-exempt institutions to arrive at a more fair way to recognize both the contributions those institutions make to the community, but also the cost of the city services they consume.

They started by trying to assess the value of tax-exempt property. Once the city assessor arrived at an estimated value for a given property, they sent a letter to the institution, giving them a chance to disagree about the value of their property.

Then, when the values were established, the city applied its tax rate to that value and concluded that if all of that property were fully taxed, the city would receive $423 million more in tax revenues.

With that information in hand, Boston next formed a committee to study the issue and come up with a more fair way to distribute costs.

The committee recommended a few principles. They suggested that any payments be voluntary, that the city recognize the value of the services provided by the institutions, and that smaller nonprofits continue to be entirely exempt.

In the end, Rakow sent letters to forty institutions asking them to make voluntary payments based on the committee's formula. The payments would be at the rate of 25% of the rate for taxable property; the 25% represents the portion of the tax bill that goes for police, fire, and streets services in Boston, a figure that would be higher in Madison. There's also a 50% deduction to recognize the services provided by the nonprofits. Any institution with less than $15 million in value remained completely exempt, a threshold that would have to be lower in Madison.

Then, Rakow's office met personally with each institution to explain the amount requested and to get their feedback.

This is the first year of the program, and Boston has realized a 24% increase in payments from those forty institutions over what they were paying through this "Payments in Lieu of Taxes" program, named the PILOT Task Force. Of the amount requested in the assessor's letter to those entities, the city received 88% of what they asked for. (Harvard was a notable exception, paying far less than the city requested.)

This seems like something worth trying here in Madison, under the following principles:

  • Establish an open dialogue with the entities involved.
  • Keep the payments voluntary.
  • Keep small nonprofits completely exempt.
  • Recognize the good works done by tax-exempt entities that justify a lower payment rate.

In tough budget times like these, asking major tax-exempt institutions to work with the city to help support the basic services they enjoy is a reasonable thing to do.

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