Lots of PA’s older core cities are struggling with non-taxable properties these days, and because of the recent Supreme Court ruling, we’re seeing more interest in trying to collect some kind of taxes from non-profits. Scranton is looking at ways to collect revenue from non-profits, and over in Allegheny County there’s been a lot of really excellent coverage of UPMC’s various PILOT agreements with municipalities who are not the city of Pittsburgh.
The point of the tax-exemption for non-profits is basically to say that the services they provide are as good as what the government might otherwise have done with that money. I have some problems with that, but if that’s what you believe, it makes sense to exempt things like salaries and benefits and programmatic expenses from taxes. It doesn’t make sense to exempt the land non-profits use. The land and buildings they use still consume local government services, and there’s a clear opportunity cost. Pittsburgh might prefer to have a high rise that contributes to the tax rolls on a downtown plot of land, instead of one of UPMC’s buildings. You don’t want the city tax code encouraging non-profits to overconsume land, which seems to be what’s happening with UPMC.
I think Joshua Vincent has the right solution to this problem:
Some towns, like New Haven Connecticut have an appropriately symbiotic relationship between town and university. Yale University pays almost $10 million a year to the city. That’s great, but it’s due to one-on-one negotiations and personal relationships between the chief executives of both entities. It’s not a system, and certainly not built for permanence. What is needed is a systemic method for nonprofit entities to be able to maintain your charitable purpose, but also pay their fair share for services like any other property owner. Allegheny County Pennsylvania, home to Pittsburgh, is wrestling with the preponderance of tax exempt properties midst traditional revenue streams being wrung dry. The County executive is doing it piecemeal, without a rationalized method for deciding what the contribution from the not for profit should be. Interestingly, the biggest non profit is called only by its initials UPMC, as if its magnitude confers the acronymic majesty of such dead stars as USX (i.e. United States Steel). There are several ways out including raising wage taxes (which will tax the butcher the Baker and the candlestick maker as well), begging, glomming on to the economic magnet effect of the nonprofit by re-purposing surrounding vacant and blighted land, or levying a charge based upon the value of the land that the tax exempt entity owns. Why? Anyone of goodwill knows that the Cleveland Clinic, Yale University, Massachusetts General Hospital etc. do good deeds.
The land upon which they sit only provides a platform to do that good. The land value has little to do with the charitable purpose of these nonprofits. Therefore, instead of a traditional property tax or some of to use algorithm to determine an annual contribution (that can be terminated at any time), why not collect revenue based upon land value using the same formula that the rest of the city uses. A land tax on that basis is uniform, fair and efficient, and would go a long way to letting cities get back to the business of governing, planning and providing a framework for improved lives.
For example, just using the exempt land values of Philadelphia, using the current property tax, an extra $45 Million could be raised; and transitional land value tax would raise just about double that. We think that beats creeping annual tax hikes on everyone else.