November 5, 2011; Source: Chicago Tribune | He didn’t mention it when he opened the Independent Sector plenary, and Independent Sector was too polite to raise a question to Chicago Mayor Rahm Emanuel about his plan to eliminate free water and sewer service to nonprofits, obviously affecting hospitals. 

Emanuel’s proposed Chicago municipal budget would have allowed for 20 percent fee reductions for hospitals deemed “disproportionate share” institutions—those serving large numbers of Medicaid and Medicare patients—but requiring all other nonprofits to pay 100 percent of their water/sewer service costs, just like for-profit users. The widespread criticism and legal actions in Illinois targeted at nonprofit hospitals deemed undeserving of their nonprofit status are clearly evident behind Emanuel’s budget idea; public sympathy for the limited “nonprofitness” of nonprofit hospitals has waned.

The mayor’s proposal was not just aimed at hospitals but at all nonprofit water users, and that prompted concern from some of the city’s 50 aldermen. Backing off his original proposal, the Mayor recently announced a compromise: nonprofits have to pay for water and sewer service, but “smaller” nonprofits will be allowed a three-year phase-in of the charges. The specifics of the Mayor’s plan call for “extend(ing) a discount on water charges for nonprofit groups with less than $250 million in assets. They’ll get a 60% discount in 2012, dropping to 20% in 2014 and thereafter.”

According to Chicago’s inspector general, if the city ceased providing nonprofit institutions with no-cost water and sewer service, it would save the city only $15.2 million based on 2009 figures. It’s not a lot of money, but it is another example of cities trying to eke revenue out of nonprofit property owners. Since Illinois has already pulled the tax-exempt status of some well-known nonprofit hospitals, revenue raises targeting nonprofit hospitals are predictable. But the Mayor’s proposal goes beyond hospitals to include all nonprofit institutions.

In the end, Emanuel’s effort to bleed a few nonprofits for some portion of the $15.2 million into the next fiscal effort pales against other budget actions with a nonprofit cast. Although he is retreating from some aspects of his fee-oriented revenue raisers, the mayor is nonetheless committed to following through on his plan to close 6 of 12 city-funded mental health clinics. Closing the clinics will have a bigger budget impact than charging nonprofits for water and sewer service, but neither will be for the nonprofit good. Given the size of Chicago’s municipal budget—like New York’s and Los Angeles’s, equal to the size of some state budgets—nonprofit leadership groups should be examining Emanuel’s entire plan of budget cuts and tax exempt taxes and fees to determine how nonprofits will fare under the guidance of President Obama’s former chief of staff.—Rick Cohen