City of Worcester, MA in the winter

Impact - Taxing Nonprofit Institutions

The Issue

Because Worcester's commercial/industrial tax base has shrunk dramatically during the last two decades, homeowners are bearing an increasing share of the tax burden. When these factors are coupled with dips in the State's economy resulting in level funding or only minimal increases in local aid from which the City gets more than half its revenues, it is understandable that local public officials are seeking new sources of revenue. Some have called for the establishment of a Payment in Lieu of Taxes (PILOT) program, which would formally request tax-like payments from tax-exempt institutions. Twice during the last eight years, the Research Bureau has prepared studies on this subject. We reviewed the PILOT formulas in Boston, Cambridge, Providence and New Haven; compared institutional endowments of the colleges in those communities with those in Worcester, which serve as an indicator of how much a nonprofit organization can contribute; calculated the taxes and fees paid to the City by the local colleges; and documented the local colleges' recent investments in economic development projects and their services and contributions to the public schools and the neighborhoods. We concluded that the colleges were "paying their fair share." We further suggested that the City would be better served by asking the colleges to generate projects that would promote economic development. As far back as 1989, the Research Bureau had argued that the colleges are a tremendous asset to this community that could be a catalyst for economic growth.

The Results

Shortly after the Research Bureau's most recent study on this subject was published in April 2004, a task force established by the mayor issued a report on utilizing Worcester's colleges and universities to promote economic development and expansion of the tax base. Among the many worthwhile recommendations, the report called for the development of a more formal structure of communication among municipal government, the colleges, and the business community to explore economic development opportunities similar to several that have already been identified: the Gateway Project between Worcester Polytechnic Institute and the Worcester Business Development Corporation, UMass Medical School and the development of the biotech sector, and the University Park Campus School collaboration with Clark University, the Main South CDC and the Main South neighborhood. The colleges, municipal government and the private sector established the UniverCity Partnership and appointed a director to initiate and coordinate these economic development opportunities. Each college campus has appointed a liaison officer to the Colleges of the Worcester Consortium. That person is responsible for exploring economic development opportunities and expanding the tax base on his campus, and in collaboration with other institutions.

A related issue identified by both the Mayor's Task Force and the Governor's Regional Competitiveness Council, appointed to identify strategies for increasing economic opportunities in each region of the Commonwealth, is the need to retain talented young people who graduate from colleges in this region. The Research Bureau is currently overseeing a two-part study aimed at "talent retention." The first part consisted of a survey of 2005 area college graduates regarding their post-graduation location decisions, the reasons for their choice, and their perception of opportunities in this region. The second part involved an in-depth survey of a representative sample of employers in the region to determine their hiring needs, recruitment practices, and relationships with local colleges. The overall goal of this study is to develop strategies that will better connect college students to employers as well as to cultural, recreational, and further educational opportunities in the area. The assumption behind this effort is that the more students feel connected to an area through internships or other activities, the more likely they are to remain after graduation.

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