Stopping the Free Ride for Nonprofits on Property Taxes

New Orleans   Talking recently about greater accountability for nonprofit hospitals with a health expert from Massachusetts, she kept bringing up PILOT programs and why they were important in funding health care expansion in her state.  PILOT in the tax world stands for “payments in lieu of taxes.”  It perked my interest to find out how prevalent such payments might be, so let’s take a look.

First, the backstory.  All of the states in these United States offer property tax exemptions of one kind or another to tax exempt nonprofits.  Nonprofit educational institutions and hospital combines dominate their specific industries.  In cities where they are important service providers and employers, their historic and institutional footprint often also makes them significant landholders.  If these property holdings were taxed in the same way that other real estate properties, either residential or commercial, are taxed, the revenues received by their home cities would be a game changer for all citizens.

All of these “payment in lieu of taxes” situations are voluntary.  Some are wrested from nonprofit operators by cities using leverage when the institutions want to build or develop on public land.  Others have been able to negotiate PILOT arrangements when nonprofits are involved in what otherwise would be classified as for-profit enterprises like running food and lodging establishments.

A working paper by several people at the Lincoln Institute for Land Policy offered the most comprehensive view.  They undertook some exhaustive research and found that “218 localities in at least 28 states since 2000” have collected such payments and “these payments are collectively worth more than $92 million per year.”  Not chicken feed, but not a cure-all either.

The Lincoln Institute also found that most of the action is in the Northeast, more specifically in Massachusetts and Pennsylvania.  They mention that if Palo Alto in California, the home of Stanford University and health system in the West were separated and Baltimore was not included in the South, then 95% of PILOT revenues are collected in the northeast.  They also were clear that the bulk of the money comes from universities rather than hospitals.  The working paper indicates that “the majority of revenue comes from just 10 organizations: Harvard University, Yale University, Stanford University, Brown University, Boston University, Massachusetts General Hospital, Dartmouth College, Brigham & Women’s Center, Massachusetts Institute of Technology, and Princeton University” in that order.  Sadly, not a lot of money goes to local entities from what the researchers found.  Where they could get the numbers, they concluded that the payments were less than 1% of tax revenues.

Given the robust competition between nonprofit and for-profit hospital chains, it was surprising to see the small potatoes most of these tax-exempt operations are providing in local revenues.  Senator Chuck Grassley (R-IA) made this point a cornerstone of his contribution to the Affordable Care Act.

Seems like a lot of cities would be well advised to make PILOT a major goal for revenue enhancement, especially given the contention of how much charity really exists in charities.

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Please enjoy John Fogerty’s The Holy Grail (featuring Billy Gibbons of ZZ Top).

Thanks to KABF.

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Whining of Charities is Unseemly

Gulfport  The recently approved tax bill is an abomination without any doubt. It’s claims of reform are a poorly crafted mask for a transfer of wealth from virtually all of us over the coming years to the coffers of the rich and corporations. Despite a couple of public relations stunts based largely on favorable tax savings when Verizon and Wells Fargo offered raises and bonuses to their workers, most economists are skeptical that any of these huge corporate savings will trickle down. Polls indicate that Americans think the bill stinks, and President Trump thinks it’s wonderful, so there we have it.

Nonetheless, one thing that is clear for individual and family taxpayers is that the standard deduction will rise for individuals from $6000 to $12000 and for couples to $24,000 beginning on January 1st, 2018. Without a doubt there are going to be some people who begin this roll with a smile on their faces.

There has been a quiet, but steady hum in the background though from charities of all places. Very little of their complaints are full voiced because the whining seems so unseemly, but increasingly some of the larger ones are wringing their hands more loudly because they aren’t happy that their appeals for tax deductible contributions will be so meaningless to those largely middle class families who might have made contributions thinking they would benefit by itemizing, but now won’t bother.

Me thinks they protest too much, even if this is only some static accompanied by the strident pitches of nonprofit public relations and marketing mavens. Particularly ironic are the voices of local community foundations since they are favored by the wealthy, who will do very well with these tax cuts, thank you so much. Itemized deductions were already largely a wealth preserve. The nonprofit Tax Foundation doesn’t mince its words on this issue, saying, “While the federal tax code generally imposes a much higher burden on high-income households, itemized deductions are an area of the tax code that mostly benefits the wealthy.”

The numbers bear that out. Only 6.5% of families making $25,000 or less itemize. According to the Tax Foundation, the vast majority don’t itemize:

30.1 percent of households chose to itemize their deductions (44 million returns). 68.5 percent of households chose to take the standard deduction (101 million returns). 1.6 percent of households had zero or negative adjusted gross income, and were unable to take any deductions. (2 million returns)

Additional research by the Foundation indicates that a majority only itemize once their income hits the $75 – $100,000 per year range, with 78.8% itemizing between $100-$200,000, and 93.5% itemizing over $200,000 per year. Pretty clear where these benefits lie. The impact of these Republican tax giveaways likely just means that more families with less than $100,000 to $150,000 won’t itemize, but those making $150,000 or more will still be doing so.

Lower income families already give a higher percentage of their incomes away according to most research, regardless of the tax benefits. Perhaps it is time for charities to start making their appeals based on their programs and benefits regardless of the supposed tax benefits, so that people give because they believe in the nonprofit’s mission rather than trying to stiff Uncle Sam. At the least they need to stop whining, because they are clearly crying wolf way too often since their rich donors will be doing very well thanks to the Republican’s special care for their interests.

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