Across major American cities, a contentious debate is unfolding between municipal governments and tax-exempt educational institutions. Boston, Philadelphia, Baltimore, and Pittsburgh are at the forefront of increasing calls for Payments in Lieu of Taxes (PILOTs)—voluntary financial contributions that nonprofit educational institutions make to compensate cities for services and to offset property tax exemptions. While these payments have existed for decades, the pressure on universities to contribute more has intensified dramatically.
In Boston, where higher education institutions own billions of dollars’ worth of tax-exempt property, the City has established what many consider the nation’s most structured PILOT program. Philadelphia has restarted conversations about expanding its limited program, Baltimore activists are demanding hospitals and universities “pay their fair share,” and Pittsburgh continues to negotiate with its largest nonprofits after previous agreements expired.
What’s driving this resurgence of PILOT demands? And more importantly, does this approach truly serve the best interests of both cities and institutions?
Several factors have converged to intensify the PILOT debate. Municipal budgets face unprecedented strain from infrastructure needs, housing crises, and expanding social services. Simultaneously, public perception often portrays universities as wealthy enclaves with massive endowments and extensive real estate holdings—a view that ignores the financial realities facing most higher education institutions.
Federal-level pressures on higher education, including political targeting and funding constraints such as the NIH research grant terminations, have further complicated matters. These external challenges, coupled with local demands, create a perfect storm that threatens the traditional tax-exempt status that educational institutions have held for generations.
A fundamental misconception driving these tensions is the view that universities consume city services without adequate contribution—a perspective that fundamentally mischaracterizes both the fiscal and social contributions of these institutions.
The tax-exempt status of educational institutions was not established as a financial loophole; but as recognition of their public purpose. These institutions exist not for private gain but for public good—connecting learning and research to addressing real-world issues. This compact between nonprofits and government reflects their role as essential social infrastructure.
The economic impact of these institutions extends far beyond direct payments. Universities serve as major employers, talent magnets, innovation hubs, and economic engines. A city with vibrant educational institutions benefits from heightened property values, business development, and an educated workforce that strengthens the tax base indirectly.
What often goes unrecognized in PILOT debates is the extensive community benefit that universities already provide. Higher education institutions in Philadelphia, Boston, Pittsburgh, and Baltimore provide direct community benefits. These contributions include educational initiatives (such as after-school programs for K-12 students), built environment improvements (such as park improvements), and health services (such as free or low-cost health clinic services), just to name a few. Additionally, many institutions contribute to public safety initiatives beyond the confines of campus, provide campus amenities that are open to the public (such as gyms, swimming pools, and large open meeting spaces), and offer specialized services that would otherwise require municipal funding. In Boston for example, Harvard University’s Legal Services Center provides free legal assistance to thousands of Boston residents annually, while Northeastern University’s Carter Playground project represents a $108 million commitment to public recreational infrastructure.
For those institutions we have analyzed here at Econsult Solutions, Inc. (ESI), replacement value analysis demonstrates that these services are delivered more efficiently than would be possible through direct municipal provision—and in some cases, services provided by institutions would cost the city up to four times more to deliver directly. From a fiscal standpoint, the PILOT approach creates a lose-lose situation: extracting say $4 million from an educational institution only forces cities to replace specialized services that the institution provided more efficiently—and at a greater cost to the city. This creates a service gap that taxpayers must then ultimately fill.
The irony of increasing PILOT demands is that they come at a time when higher education faces unprecedented challenges. The looming enrollment cliff threatens financial stability, donor relations have grown more complex amid political polarization, and federal funding faces increasing uncertainty.
Many smaller institutions already operate on thin margins, with their tax exemption being crucial to their survival. Many smaller private institutions lack the financial resources of larger universities. Increasing PILOT demands would disproportionately impact these vulnerable institutions, potentially reducing their ability to serve students—many of which derive from the host city.
Rather than viewing educational institutions primarily as sources of untapped tax revenue, cities would benefit from recognizing them as committed partners in addressing community challenges. The most successful models emphasize collaboration over confrontation. Some institutions have developed innovative service-based agreements that leverage their unique capabilities to address municipal priorities. These arrangements—like scholarship programs for local public school students or free health services within schools—create more substantial community benefit than equivalent monetary payments would provide.
Transparency and structured frameworks for valuing institutional contributions can help clarify these relationships. Regular reporting of community benefits, as Boston requires, creates accountability while acknowledging the diverse ways institutions contribute beyond direct payments.
The intensifying debate around PILOTs reflects broader societal tensions around wealth, education, and opportunity. While increased payments may provide short-term revenue for cities, they risk undermining the very institutions that create long-term social and economic mobility. Instead of focusing narrowly on extracting payments, municipalities and institutions should explore comprehensive partnerships that address fundamental community needs. This approach recognizes that educational institutions can contribute most effectively through their core competencies—education, research, healthcare, and community engagement. The greatest public benefit comes not from transactional financial arrangements, but from strategic partnerships that leverage the unique capabilities and shared commitment of educational anchors to create lasting positive change for all local residents.
In an era of polarization and financial strain, cities and institutions must resist the temptation to adopt adversarial postures. Instead, they should recommit to their shared mission of public service and community advancement—recognizing that their success is inextricably linked to the communities they call home.
Cassandra Brown, Director | Cbrown@econsultsolutions.com
Cassandra Brown is a director at ESI. She brings a deep background in higher education, working in various roles with alumni, faculty, and the external business and governance community for 15 years at Drexel University. Ms. Brown received her M.B.A. at Drexel University.
