Skip to Navigation
University of Pittsburgh
Print This Page Print this pages

November 25, 2009

Local governments & nonprofits:

How is it done elsewhere?

Evelyn Brody, a professor at the Chicago-Kent Law School, expanded on a report on the impact of tax-exempt property on the fiscal health of municipalities released in May by the Pennsylvania legislative budget and finance committee. It found that governments and churches account for nearly 75 percent of the tax-exempt property in the municipalities the committee reviewed — so the issue at hand relates to the other 25 percent, she said.

“Where you really find problems is in the municipalities that host eds and meds,” she said, citing the finding that 183, or 7 percent of Pennsylvania’s municipalities, host acute-care nonprofit hospitals or colleges and universities. Of those 183 municipalities, nearly 85 percent host only one such institution.

The committee found a wide variety of arrangements with nonprofits in the 47 host municipalities for which it had complete data:

• In 40 municipalities, nonprofits provided public safety services either through their own police staff or contracts for police service.

• In 32 municipalities, nonprofits paid real estate taxes on property not used for their institutions’ public charity purpose.

• In all 47, nonprofits paid municipal fees for services such as water and sewer.

• In 22 municipalities, nonprofits made cash and in-kind contributions.

• In 30 municipalities, nonprofits contributed to local volunteer fire companies.

• Nonprofits in 26 municipalities participated in community revitalization/ economic development initiatives.

• Five municipalities received payments in lieu of taxes, or PILOTs.

Brody detailed some of the oddities of PILOTs. “The problem with the PILOTs data is we don’t know what it is; it’s obscure,” Brody said, pointing out that the existence of a PILOT sometimes is unknown even within the municipality itself.

In addition, in light of the report’s finding that school districts typically received at least two-thirds of PILOT payments, Brody recounted what occurred in Philadelphia when it was time to renew an expiring PILOT.

“The hospitals and universities had signed on when times were pretty good… When it was time to re-up they didn’t quite have the profits that they had been experiencing. And Philadelphia said, ‘Okay, we’ll reduce the dollar amount but pay it to the school district.’”

Brody called the arrangement “weird, because the whole point of PILOTs is that if you view the property tax as a benefits tax — as a tax that is providing funding for funding of services to the property itself, the one thing that the commercial property owners are not benefiting from is the schools. They don’t have kids.”

The report viewed PILOTs as a limited help to financially strained municipal budgets because more than two-thirds of the municipalities with the highest fiscal distress did not host a tax- exempt medical or educational institution.

Brody said some PILOTs can be a way for government to indirectly tax a nonprofit’s income. “The institutions that look attractive to hit up for PILOTs are the ones that have positive revenue.”

Beyond Pennsylvania

The report found only Connecticut and Rhode Island provide state funding for municipalities that are home to nonprofit hospitals or universities.

Brody said in Connecticut the replacement rate is about 77 percent of the taxes that would be paid otherwise; in Rhode Island, about 27 percent.

“There are two serious problems with that: One is, what are the taxes that otherwise would have been paid? Nobody’s assessing exempt property. So now you have the incentive for the assessor to go out and appraise the hell out of this property because it’s going to be paid for by the state. The other problem is the state isn’t going to pay for it unless the state appropriates the funding.”

Brody offered a brief rundown of issues in other states:

• An Illinois Supreme Court decision is pending in a large property tax case involving Provena Covenant Hospital in Urbana.

• In New York, municipal rumblings prompted a state senator to convene a roundtable on the issue.

• In Minnesota, following a court decision that found a child care center did not qualify as a purely public charity due to its fees, changes were made in state statutes on the requirements for charities.

• In Boston, which has what Brody said is the oldest voluntary PILOT program, dating back to the 1920s, last year 43 tax-exempt institutions contributed a total of $31 million, including $12.7 million from education and medical institutions. In fiscal 2009, it’s estimated that Boston’s eds and meds will contribute $14.5 million.

• Several proposals came up in the Rhode Island legislature over the summer, Brody said. One gave municipalities the option of imposing a tax on 20 percent of all real and personal properties owned by private colleges and universities that were not participating in PILOTs.

Another proposed an impact fee on a portion of the real estate property value for colleges and universities with real estate valued at more than $20 million. Separately, the city of Providence in May proposed a $150 per semester service fee on higher education students to defray the cost of police and fire protection.

Nonprofits fought both the student head tax and the impact fees, Brody said, adding that in July the Providence city council formed a commission to study the tax-exempts issue.

—Kimberly K. Barlow

Filed under: Feature,Volume 42 Issue 7

Leave a Reply