A bad economy and reduced tax rolls mean hardships for state and local governments. In response, many have reduced budgets. Others are looking for new and enhanced sources of revenue. And some say they’re looking in all the wrong places.
The December 27, 2010 front page of the Wall Street Journal reported that cities large and small throughout the country are looking to nonprofits to shoulder a greater share of the municipal expense load. Houston, for example, recently adopted a “drainage fee” to help with chronically flood-prone areas. And the fee will fall on nonprofits – schools, churches and social service organizations, all of whom claim the fee is a tax from which they are exempt.
Universities are part of the debate too. The same week, the NonProfit Times reported that Boston is looking at PILOT (Payment In Lieu of Tax) payments made by its resident colleges.
According to the article, Boston’s property tax accounts for roughly 64 percent of its revenues and the city wants to raise an additional $5 million from charities. The amount already raised via PILOTs was not available.
“It’s about fairness,” Boston Mayor Thomas Menino said in an interview with a local radio station. “It’s about how do you want to participate in this city that you get city services from: police, fire, public works. I think you should share in those costs.”
The debate about nonprofits and fees (or taxes) is not a new one but is certainly something we’ll continue to hear about as the economy slowly climbs out of its slumber. Until things turn around dramatically and tax revenues rise, you can expect cash-strapped governments to consider previously-immune organizations as possible revenue sources. This isn’t the last we’ve heard about the issue of tax-exempt status and what it really means in these times of economic hardship.