City Turns to Charity for Help : Finances: Once, Troy, N.Y., could afford to service nonprofit facilities without charge. But with a $20-million deficit and a poor credit rating, it looked at donations for help.

The mayor of this down-at-the-heels city can remember when downtown Troy teemed with life. It was “exciting”--a “beehive,” says Mayor Eugene Eaton. “You had to get off the street to let the shoppers by.”

That was in the ‘50s and ‘60s, before Troy lost the textile mills and heavy industries that had made it a manufacturing hub since the late 19th Century. In those days, Troy could afford to give nonprofit institutions a free ride.

No longer. With a $20-million deficit and a credit rating below investment grade, Troy needs all the help it can get. So this Hudson River city of 50,000 is capitalizing on a growing trend in the ailing Northeast: turning to hospitals, schools and other formerly tax-exempt institutions for donations.

Over the next five years, Troy will receive $400,000 a year--1% of its current budget--from six of its largest nonprofit institutions: Emma Willard, an exclusive all-girls prep school; Rensselaer Polytechnic Institute; the Sage Colleges; the Eddy, which provides services to senior citizens; Samaritan Hospital, and Seton Health System, a health care organization.

Together, they’ve established the Troy Redevelopment Foundation, which will create a committee of city officials, business leaders and foundation representatives to review proposals for using the money. Half will be used for city services, the rest for education and economic development.

In Philadelphia this year, hospitals, colleges and universities will kick in $8.4 million under a new program called PILOT--Payments In Lieu of Taxes. Cambridge, Mass., will receive about $2.5 million from its tax-exempt institutions. Six miles from Troy, in Albany, N.Y., where 73% of property is tax-exempt, officials also are courting nonprofits.

“I just can’t keep burdening 27% of property owners with 100% of taxes,” said Gerald Jennings, mayor of the capital city where much of the property is government-owned.

“I view it with alarm and admiration,” said charity expert Peter Swords, executive director of the Nonprofit Coordinating Council of New York. Although the gestures are noble, he said, the practice could leave nonprofit institutions less able to fund their own programs.

He said nonprofits, such as hospitals and schools, receive tax breaks because they provide valuable services for the community.

But the man who first approached Troy’s nonprofits for donations said the institutions are members of the community and should pay for the services they use, such as police and fire protection.

James Maloney, director of finance in Cambridge, where half the city’s property is tax-exempt, agrees. “There’s no question the city benefits from the presence of Harvard and MIT (Massachusetts Institute of Technology),” he said. But “they also require a significant amount of service.”

In the event of an emergency at one of MIT’s labs, for example, a hazardous waste team must be prepared to respond. And police must provide crowd control at Harvard football games.

While Harvard has voluntarily donated money to the city since the 1930s, the arrangement has recently become more formalized, Maloney said. Harvard now provides $1.2 million a year, making it the city’s largest contributor.

Other donations range from MIT’s $900,000 a year to a $500 donation from a day-care center.

In Philadelphia, where negotiations are still under way, “virtually every major hospital and every major college and university” is expected to chip in, according to Deputy Mayor Greg Rost. City schools will reap the biggest benefit: $4.62 million.

Troy’s financial problems have been chronic. A year ago, Moody’s Investors Services ranked the city as one of three in the state with a credit rating below investment grade. To offset its deficit, Troy laid off a fourth of its unionized labor force in one day, removed cellular phones from employees’ cars, and put a stop to coffee breaks and entertainment expense accounts, according to city manager David Grandeau.

RPI President R. Byron Pipes says the school cannot afford to be a passive observer while Troy continues to decline. Its deterioration affects the school’s ability to attract students and faculty.

Robin Robertson, principal of Emma Willard, said the school is happy to donate the money, even though it will have to make up the donations in other ways. “We’re very much part of the city of Troy. And as the city of Troy goes, so goes Emma Willard,” Robertson said.

It wasn’t until the middle of the last century that Troy started going downhill. That’s when the mills and industries began to fade out.

Now it’s a city of empty stores, vacant buildings and apartments for rent. Downtown on a recent weekday morning, the only pedestrian was the mayor, who strolled down the empty street reminiscing about the past.

Troy’s days as a manufacturing center are probably gone for good, but Eaton said his city could conceivably recover some of the prosperity it once enjoyed.

“Everybody came to Troy . . . to the movies,” said Eaton, who grew up and reared his children in Troy. “We’d like to bring people back.”