State and Local Governments Still Looking to Nonprofits for Tax Revenues

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March 5, 2014; Pittsburgh City Paper

The Pittsburgh City Paper covers the ongoing tensions between that city’s large nonprofit community and its government, pointing out that with the city’s growth being driven by tax-exempt hospitals, universities and other large nonprofits, Mayor Bill Peduto’s chief of staff says, “There’s a disconnect between how our economy is being run and how our government is being financed.”

Since 2005, some local nonprofits have contributed to the city’s Pittsburgh Public Service Fund, totaling about $5 million a year. The fund expired in 2013, and the mayor wants more, and would like to see the arrangement structured differently.

Kevin Acklin, Peduto’s chief of staff, told the City Paper that he wants nonprofits to contribute closer to $23 million a year, or just under five percent of the city’s 2013 budget, equaling what large nonprofits—those with annual revenue of more than $1 million—would pay under the city’s payroll-preparation tax.

But Acklin told the paper that the administration wants to “get away from the short-term tin-cup discussion” of seeking annual contributions to its general fund, and might ask nonprofits to earmark money for specific causes, ranging from subsidizing pension funds to affordable housing. The proposal would give nonprofits seats on an advisory committee.

The idea is to “give the nonprofit community an opportunity to help transform the city,” Acklin told the paper. “The response has been positive, but the devil’s in the details.”

Reynolds Clark, a University of Pittsburgh administrator who chaired the Public Service Fund, told the paper that the administration’s proposals “are a good basis for moving forward.” Earmarking funds for specific projects or investments, he says, addresses “a concern that the money was going down a big black hole.”

A big difference is that the administration wants each nonprofit’s contributions disclosed publicly, unlike the Public Service Fund approach, where contributions were bundled together, although some specific contribution amounts were leaked. However, Clark says the mayor’s $23 million annual goal “is a bit unrealistic.” It would be about as much as the Public Service Fund’s $24.7 million total contributions since 2005.

The nonprofits believe the city’s approach “emphasizes the quantitative over qualitative benefits that nonprofits offer, which goes to heart of the historical tensions. Qualitative benefits could range from campus police to college-student tutors in city schools to the general contributions medical, educational and cultural institutions make to Pittsburgh’s civic environment and civil society.  Quantitative benefits would be the nonprofits’ contributions to the city treasury to pay for public safety, sanitation, streets and other basic municipal services.

In a statement to the City Paper, Carnegie Mellon University said that university presidents “had a very positive meeting” with Peduto last December. “We look forward to…continuing our constructive dialogue.” Other large nonprofits echoed similar platitudes.

Pittsburgh, long considered the birthplace of Payments in Lieu of Taxes (PILOTs), is looking at Boston’s program, which applies to educational, medical and cultural nonprofits with property worth more than $15 million. The city calculates a bill for each nonprofit, allowing them to deduct up to 50 percent of the bill for “community benefits” like scholarships or free admission. The payments are strictly voluntary and publicly disclosed. The goal is to have a plan in place by year’s end.

It will be a contentious process. Under the previous mayor, the city sued to revoke the University of Pittsburgh Medical Center’s (UPMC) tax-exempt status, which is ongoing. Peduto supported the UPMC suit and pledged to review other nonprofits’ finances to see if the city should challenge their exemptions as well.

Meanwhile, a bill in the New Hampshire House to tax larger nonprofit institutions failed, as politicians there continue to target high profile organizations as new sources of government revenue. The bill’s sponsor, while acknowledging that it would fail this year, told NHPR “the rise of large nonprofits that pay big salaries and compete with the private sector means the payroll tax doesn’t capture an ever-growing part of the state economy.”

“Thirteen of the largest non-governmental employers in the state of NH are nonprofits. They employ over 31,000 people and they don’t pay one penny in business enterprise tax,” he said.—Larry Kaplan