Some city leaders fear losing money if legislators broaden the definition of a charity.
Some municipal governments miss millions of dollars in potential annual revenue because local nonprofits didn’t have to pay property taxes.
A state Auditor General’s studied 10 counties’ tax bases.Their annual real estate tax revenue would increase nearly 20 percent if exempt charities paid at the same rate as other property owners, according to Keystone Crossroads’ analysis of data in the report.
The report stressed that the issue is critical to local governments in Pennsylvania – and elsewhere – because property tax revenue often is their biggest source of income. It’s even more impactful in county seats and state capitals due to government real estate already off the tax rolls. The Auditor General’s report did not suggest how to deal with the issue, however.
But the state Senate Finance Committee advanced a bill Thursday that would change how charities are defined. Senate Bill 4 proposes letting state lawmakers – instead of the courts, as nowwhich currently decide – determine what constitutes a charitable organization that truly deserves tax exemption for providing services that the government otherwise would provide. “We have to decipher what’s fair, and what’s just,” says committee chairman John Eichelberger, R-Blair.
The measure passed the General Assembly last session. But because the bill calls for a constitutional amendment, the legislature must pass it twice.
If it goes through again, voters would have the final say via referendum next fall.
How the legislature proposes to define a “purely public charity,” if enabled by voters, remains to be seen.
Pennsylvania’s Act 55 already sets parameters similar to the five-part system judges use when considering challenges to an exempt property owner’s status, typically brought by a county board of tax appeals. The judicial checklist is known as the HUP test, and its criteria focus on whether and how an entity reduces government workload.
York Mayor Kim Bracey worries her city – a county seat with a high poverty rate and perpetual flirtation with Act 47 – could lose money if lawmakers lower the threshold for an organization to qualify as charitable.
She’d prefer the definition be narrowed, or at least require entities to “prove” their status, she said earlier this week.
Guidelines for the General Assembly would be spelled out in legislation that has yet to be developed, Eichelberger says.
Three hearings will be scheduled statewide in the coming weeks to get public input for those guidelines, he says.
Eichelberger already has a few ideas, though. He and other lawmakers acknowledge tax breaks should continue for the “purely public charities” doing work government does not, or cannot, or that others don’t want to do. But Eichelberger says he hopes to limit or eliminate tax breaks for nonprofits that providing the same services as for-profit companies, and those that pay salaries over a certain amount.
Committee members voting against advancing the measure say they’re opposed to rushing the process, particularly at a time when the state’s facing a $2 billion budget deficit.
State Sen. John Blake, D-Lackawanna, says the Department of State would spend about $2 million on advertising required by law for a voter referendum.
It’s unclear how payments in lieu of taxes would come into play. Hospitals, universities or churches often voluntarily provide money or a service through those so-called PILOT agreements. Pinnacle Health has one with the city of Harrisburg – a county seat, the state capital and arguably the state’s most infamous example of municipal debt and distress.