Rebuilding Place in the Urban Space

"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Wednesday, January 21, 2015

Proposal to eliminate nonprofit property tax exclusion in Maine

Maine's Governor is proposing to eliminate annual revenue sharing with local governments, suggesting that local governments could make up the loss in revenue by charging property taxes on nonprofits--schools, universities, hospitals, land trusts--holding more than $500,000 in property.

Typically, nonprofits are exempt from property taxes, in the expectation that they are providing other services to localities, thereby reducing the overall burden on local government.

The Maine Medical Center in Portland is a nonprofit hospital.

This is in response to his desire to reduce income tax rates and to eliminate the estate tax.  Some of the revenues would be made up by higher sales taxes.  The rest would come from eliminating state aid to local governments and slashing social and human services.

- "Tax reform plan rattles Maine towns, nonprofits," Portland Press-Herald
- "Plan to tax nonprofits could be costly to Maine's land-conservation trusts," Portland Press-Herald
-"LePage’s budget aims to make big changes in the state’s tax code," Portland Press-Herald

From the second article:
LePage’s massive tax overhaul plan is intended to reduce Maine’s income tax rate through a series of changes in the tax code. Part of the plan eliminates state aid to municipalities and attempts to replace those revenues by opening the door to municipal property taxes on nonprofit organizations. The budget language makes specific mention of exempting churches and houses of worship from the tax, but no other nonprofit types are highlighted in documents provided by the administration or in the actual legislation.
Tax the river?  Land preserved by the Brunswick-Topsham Land Trust.

Nonprofits aren't replete with extra cash.  The problem with the proposal is that most nonprofits don't generate significant budget windfalls on an annual basis--universities tend to be an exception, but that is because some have very large endowments--so it's unlikely that most nonprofits have available funding to start paying property taxes.

Payments in lieu of property taxes.  Property taxes provide the bulk of local revenues and can be supplemented with payments from the state and federal governments for certain types of programs.

On the other hand, the major cost borne by local property taxes is K-12 education, and these nonprofit properties don't generate much in the way of demand for local schooling.

For decades, cities with large clusters of nonprofits, such as universities or health care facilities, have complained about how much of their land ends up being non-taxable.

That's why the method called PILOT, payment in lieu of taxes, was developed, which allows for nonprofits to provide payments to localities, without having to accede to or authorize the taxation of property owned by nonprofits.

Taxing college students.  A few years back, Providence and Pittsburgh put forth proposals for a capitation tax on college students, as each city has many colleges and universities, and they aren't paying property taxes ("Pittsburgh Sets Vote on Adding Tax on Tuition," New York Times).

(Note that "eds and meds" are said to be the primary economic drivers for center cities and the prominence of central business districts declines and cities are no longer central to the manufacturing economy.)

Bowdoin College map, Brunswick, Maine. Under the proposal, government institutions and churches would be exempt from property taxes.  

Therefore, private colleges and universities would be responsible for property taxes, but not public colleges and universities.

And interestingly, the University City Business Improvement District in Philadelphia is paid for, not by an assessment on property, but by voluntary payments by the major nonprofits based there (the University of Pennsylvania, Penn Hospitals, Amtrak, and now maybe Drexel University, I'm not sure about them).

Will a decrease in state income taxes be absorbed by local property tax increases?  In Maine, rather than an increase of revenues from PILOT type programs, what's more likely to happen is that if state income taxes decrease, sales taxes increase, and the state cuts aid to localities and social welfare, localities will be forced to increase overall property tax rates, while continuing to maintain property tax breaks for nonprofits.

It will be interesting to watch how this plays out.

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At 12:00 PM, Anonymous charlie said...


Very few good reasons to exclude higher education and hospitals from property taxes.

I'd go even further and include churches.

Property tax is a wealth tax, but the idea is you can spread it thin enough that it doesn't kill you. But certain sectors have taken advantage of that.

Likewise, the SOTU included a proposal have have high income 529 plans be included as income.

Colleges can get good stewards, and the result would be a shift from land to other property to escape the taxes.

At 12:12 PM, Blogger Richard Layman said...

what I didn't mention is the likelihood of surcharges or building into the cost of service by a hospital or university would be the cost of property tax.

It shifts the cost.

And maybe that's reasonable.

With hospitals, in our area there aren't many examples of for profits involved. There are in other areas. But presumably they do pay property taxes.

Not unlike the old complaint of the Am. Assn. of Railroads and how they paid property taxes in part as a cost of providing services, while truckers using public highways did not.

At 2:36 PM, Anonymous h st ll said...

What's the point if you exempt churches? They are the main ones who need to be targeted and many are quite wealthy.

At 3:39 PM, Anonymous Anonymous said...

This proposal would be fought tooth-and-nail by the Consortium of Universities, a stalking horse for GWU, hospital portion of which has been a for-profit for over a decade. Once the hospital converted to for-profit under UHS, all of the back office functions (and related jobs) were shipped off to the boonies of Pennsylvania.
GWU would argue that its massive Square 54 project--mixed-use development on the old hospital site (which was an eminent domain gift from the feds in the 1940s) generates enough property and sales tax to make up for the fact that it has hollowed out a formerly residential neighborhood and destroyed the substantial income tax base that used to be there.

At 4:06 PM, Blogger Richard Layman said...

The churches exemption--and I am not a lawyer--might have to do with the first amendment and separation of church and state. I don't know (hopefully charlie will pipe up) if churches have a solid case for arguing that the first amendment makes them exempt from property taxes.

The Federal RLUIPA (Religious Land Use and Institutionalized Persons Act) says that churches can't be discriminated in govt. action at all levels.

It's subject to interpretation. I argue that it means churches have to be treated equally. Others argue that churches are first among equals and exempt from laws.

E.g. I thought a church in Capitol Hill would be able to evade the historic preservation law wrt their strictures against graven images, in this case stained glass. The mayor's agent ruled against the church, saying that they knew the laws when they bought the church. (I don't know if this case has been appealed.)

Or I remember another case where a church argued its religious use meant local laws concerning location of cell towers in a steeple was exempt from local law. Don't remember what happened with that one.

PG and MoCo I think have lost cases wrt churches in rural areas. I remember a case in Georgia concerning restrictions on new churches because of the economic impact of the property tax exemption. Etc.

Anyway, if every nonprofit is responsible for property taxes, then I would say that churches are equally treated. They might argue that local govts. are exempt and that creates unequal treatment, etc.


At 4:09 PM, Blogger Richard Layman said...

wrt the Coalition of Universities and opposition. Absolutely yes. Colleges and universities are the most vociferous opponents of such attempts.

In 2005 I had a conversation with this great BID/Main St. guy from Philadelphia and I talked with him about the U City BID.

He said that the University of Pennsylvania especially would never accede to the precedent of paying a property assessment, even voluntarily, for a BID, because that would imply they should pay property taxes more generally, and that is why those nonprofits voluntarily bound together to fund the BID in the way they do, which to my understanding is the only such example in the US.

At 7:52 PM, Anonymous charlie said...

I have no idea on the churches/1st amendment/property tax, although thinking of it brings back memories of con law. Not in a good way.

I wasn't speaking of DC and churches, obviously there are a lot of poltiical impairments in the way.

In terms of hospitals, every nonprofit one has a lot of very high paid executives. Plenty of fat to be trimmed. You can distinguish between a state enterprise and a private one, but to speak of a nonprofit hospital makes little sense.

At 8:06 PM, Blogger Richard Layman said...

1. Hmm, seems like if property tax exemptions are eliminated, churches could be taxed, "just like other nonprofits."

2. wrt hospitals, you make a good point. E.g., when I worked at a nonprofit, I used to say "we try to make money, but we don't pay taxes." E.g., National Geographic is a big publisher, not really different from other magazines.

Anyway, there is a lot of discussion in the Pittsburgh Post Gazette over the battle between UPMC and Highmark. Highmark was an insurer, but then they recently merged with the West Penn-Allegheny Hospital System (it happens I studied those two hospitals and their community activities while producing what became an unfinished study of the Lawrenceville commercial district).

Highmark is changing its policies about reimbursement and UPMC. It's a big deal.

Big business.

But yes, they probably don't pay property taxes...

At 7:29 AM, Anonymous charlie said...

40 or 50 years ago, there were clearly "Non profit" charity hospitals.

Even today, the catholic church owns a lot of hospitals. Nonprofit -- well, again a lot of way of extracting money. Buying $10000 tables at the Cardinals' dinner is a legitmate expense, after all.

In terms of the the legal stuff, yes, that is basically my guess and reading. You can see the political challenge.


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