May 7, 2012; Source: Tredyffrin-Easttown Patch

Why monitor what localities (and states) are thinking when it comes to their ideas for taxing tax-exempt entities? Because these initiatives reveal not just what taxpayers and the American public imagine to be the revenue-generating abilities of Harvard, Princeton, and Stanford, for example, but what they think of the strength and cogency of the argument for nonprofit tax exemption in general. How important are tax-exempt nonprofits to the American public? Schemes for taxing tax-exempt property owners typically generate flimsy dollars, but in the process, the public increasingly sees nonprofits’ tax exemptions as less and less sacrosanct.

Not far from Philadelphia, the Tredyffrin/Easttown school district has a draft of a letter on its website asking all nonprofit property owners to pitch in to help it reduce a projected $6 million budget shortfall. The Tredyffrin/Easttown school board approvingly noted that FLITE, described as “an organization that uses its raised funding for the ‘slightly disadvantaged child’” indicated some willingness to expand its organizational fundraising to include raising money for the school district. It is a sad commentary on our society to find small nonprofits thinking about how they might share some of their fundraising with public school districts.

These payment-in-lieu of taxes (PILOTs) deals look voluntary, but nonprofit property owners know what comes with declining—perhaps a little less cooperation from city fathers, perhaps trouble in getting a building permit or a zoning variance, perhaps a little less cooperation with other municipal services. The NPQ Newswire has called these formal and informal payments in lieu of taxes (PILOTs) “involuntary voluntary” payments. David Thompson of the National Council of Nonprofits calls them “mandatory volunteerism.”

NPQ readers should know, however, that the tax exemptions that accrue to nonprofit property owners by right (if they are using their properties for tax-exempt purposes) are more than matched by the willingness of municipalities to offer tax abatements and tax exemptions to private developers and other entities with less charitable service motivations and programs. Just in the last couple of weeks or two, we saw news on a variety of non-nonprofit tax exemptions:

  • Baltimore has proposed offering the private developers of a “superblock” to contain 300 apartments and 200,000 square feet of retail space a 15-year, 95 percent tax waiver;
  • In Cape Cod, The Wampanoag Tribe of Gay Head (Aquinnah)for-profit developer of a planned resort casino are protesting the Massachusetts governor’s decision to deny the tribe a tax abatement and plan on taking the state to court, if necessary;
  • In West Virginia, the state government has offered the developers of a stamping plant in South Charleston a tax deal that will reduce the plant’s tax payments from $64.5 million to $9.2 million over a 13-year period in addition to offering $25 million in subsidized loans and a $2.5 million recoverable loan;
  • In New Jersey, the Maplewood Township Committee offered the developer of a 126-unit factory conversion a 30-year tax exemption, replacing the taxes with an annual service charge of approximately two percent of the project development costs;
  • Watertown, N.Y. approved a tax deal with the developers of a 394-unit apartment complex that will cut the taxes on the property in half for 10 years and then limiting tax increases to one percent thereafter.

There are, of course, many more than the handful we’ve listed here, and we aren’t saying that these municipal tax abatements offered to private developers and for-profit property owners aren’t desirable or justifiable. But readers—and critics and municipal officials—should remember that local governments knowingly grant tax abatements and tax exemptions to private developers and private landowners for profit-making, often high-end, development projects with absolutely no charitable intent and less public benefit than the operation of many nonprofits. The financial backers of risky real estate development projects often look to tax abatements for predictability and certainty of the projects’ future operating costs. There is a rationale—sometimes—for some abatements. Just don’t think that nonprofits are the sum total of the moneys that municipalities think that they could be receiving under full property tax rates. In cases of for-profit developers, municipalities have voluntarily foregone full tax revenues.—Rick Cohen