February 27, 2007 | Read Time: 3 minutes
Should nonprofit groups pay cities for services they receive like water and fire protection — or do such payments call into question the very reason charities are exempt from property taxes or other levies?
Two prominent commentators on the nonprofit world are offering answers to that question in response to a recent article in the Pittsburgh Post-Gazette about the city of Pittsburgh’s efforts to balance its books by asking for contributions from charities, which are exempt from property taxes.
Charities and foundations in Pittsburgh have agreed to make payments to a fund that supports city services, such as fire and water, but they are upset that City Council members want them to pay more and to promise to do so forever. Many experts say what happens in Pittsburgh could set a precedent for other financially strapped cites.
Paul Botts, author of the blog Dot-org, says that on the surface, forcing charities to pay for government services is a bad public-policy idea.
“Broadly I stand on the side of the non-profits in this issue: the benefits to Pittsburgh of having the Carnegie Museum and Carnegie Mellon University clearly outweigh the lost property taxes, and for-profit versions of those enterprises would be far less rooted in the city (hence far more likely to move away when they felt like it),” Mr. Botts writes. “ Were I a Pittsburgh alderman I’d be arguing that trying to balance the city budget by taxing nonprofits is a crappy idea on several grounds.”
But Mr. Botts, a foundation official who has worked for several nonprofit institutions in his career, doesn’t wholly dismiss the idea. In fact, he says that charities also have a social contract that requires them to be good citizens. And, for nonprofit institutions such as hospitals and foundations, that contract might include chipping in to help pay for basic services.
A fire department, after all, responds just as quickly to a museum as it does a shopping mall.
“The nonprofit sector needs to figure out and offer a reasonable adjustment to this part of the social contract, or the other party is going to eventually enforce one that we might like a lot less,” writes Mr. Botts, who is a program officer at the Gaylord and Dorothy Donnelley Foundation. He makes clear on his blog that none of his postings necessarily represent the views of the foundation.
Jack B. Siegel, a Chicago lawyer and the author of the blog Charity Governance, also tackles the issue of what charities owe the cities where they are based.
“This situation is not unique to Pittsburgh,” Mr. Siegel writes. “As more and more local governments face more demands for services and shrinking tax bases, we can expect to see more discussion and debates over the exemption and whether PILOTS [payments in lieu of taxes] are in order.”
(Read The Chronicle of Philanthropy’s analysis of nonprofit tax exemptions in the nation’s biggest cities.)
Discuss your thoughts on this topic by clicking on the comment link just below this posting.
