Governments find new ways to raise revenue by dipping into nonprofit pockets
Hard pressed to close massive budget gaps, state governments and local municipalities are looking for new ways to raise revenue. Increasingly, their solutions are impacting the pockets of tax-exempt organizations.
After months of hard work marked by parsimonious and even painful decisions, Alliance for Children and Families member Andrus Children’s Center, Yonkers, N.Y., approved a 2009-2010 budget during the spring of 2009 that was “so tight, it was painful,” says President and CEO Nancy Woodruff Ment. The very next day, the agency received notice of a new state payroll tax designed to make up a deficit in the Metropolitan Transportation Authority (MTA) budget. All employers in the MTA district, whether they were tax-exempt or not, would be subject to the new tax.
The agency had become accustomed to fiscal finagling at the state level, such as delayed payments for contracted services and retroactive rate adjustments. But such a visible, large-scale tax was unprecedented.
|
“The tax was .34 percent of direct payroll, which might not sound like much, but for us it was another $55,000 to $65,000 that we didn’t have in our budget,” Ment says. “We had just closed a projected balanced budget and this really stunned us.”
Quick to Assess, Slow to Repeal
“The Alliance has been tracking the growing utilization of payments in lieu of taxes and other new assessments at the local level for some time,” says Peter Goldberg, president and CEO of the Alliance. “Typically, municipalities aren’t challenging the tax-exempt status of nonprofit organizations. Rather, they are looking to user fees and assessments as viable means to offset revenue lost by these exemptions. The issue arises sporadically, but occurs more often when the government is in financial distress.”
The most common scenario is that services once covered wholly by municipal budgets, such as garbage collection, water treatment, emergency response, and fire inspection, become privatized or financed partially through user fees.
Examples are found in cities across the country. In Minnesota, Minneapolis and St. Cloud have a streetlight assessment that impacts all property owners, including tax-exempt organizations. Several months ago, Schenectady, N.Y., proposed a curb fee to be levied on all building owners.
These fees are particularly problematic because they rarely are repealed when the economy improves.
“Payments in lieu of taxes are effective for municipalities because they create a new revenue stream,” says Kathryn Vanden Berk, a Chicago attorney who specializes in nonprofit law and authors a column in this publication. “It’s hard for them to revoke an exemption, but it’s very easy for them to assess a fee.”
Impact on Already-Tight Budgets
Taken individually, payments in lieu of taxes may be more a nuisance than a fiscal crisis. But the cumulative effect, fueled by the growing trend, eats away at nonprofit budgets. Most agencies already heavily rely on charitable donations to fill the gap between low government reimbursements and the actual cost of the services they provide. Every additional dollar in expenditure means agencies either must raise more money or cut costs.
Scott Erickson, CFO at Alliance member Pressley Ridge, Pittsburgh, suggests resisting these fees and assessments. “We deliver publically mandated services at less cost than the government itself can do. Any attempt by cities and other taxing authorities to assess a fee on tax-exempt organizations would be subverting the system. Such fees would only drive us further in the hole.”
Still, not everyone is staunchly opposed. Ment believes it’s equitable for both nonprofits and for-profits to contribute to the municipal services upon which they rely. However, she adds, new assessments shouldn’t arise simply because municipal entities require an immediate bailout.
“I can’t predict what’s ahead, but I don’t see this as a viable strategy for the government to balance its budget,” she says. “With such stringent belt-tightening, the economy is weakened further, and systems are destabilized.”
Looking Forward
Because payments in lieu of taxes are implemented at the local level, state and national associations rarely address the issue directly. Ment says her state association, Alliance member the Council of Family and Child Caring Agencies, New York, is so involved with fighting deep service cuts and major program changes taking place at the state level that there are limited reserves for taking up an issue that impacts only some members.
From the Alliance’s perspective, the key is to stay alert and proactive, Goldberg says. “Whether it’s a question of tax-exempt status, fees, assessments, or any other issue that may arise, we counsel our members to be prepared to continually demonstrate that they are a precious, irreplaceable public benefit.”
Printer-friendly version
