Wednesday, January 6, 2010

More on PILOTS and Nonprofit Charities Paying Their Fair Share

Ok.  I accept the friendly challenge.  There is a pretty good, thought provoking op-ed piece in today's Rochester City Newspaper regarding the costs and benefits suffered and enjoyed, respectively, by municipalities largely populated by tax exempt institutions.  As a matter of fact, municipalities do suffer costs and enjoy benefits when tax exempt organizations move in.  Of course, as the gentleman from Illinois points out, municipalities also benefit from the presence of taxable entities.  Implicit, too, in John Colombo's argument is that a city suffers no tax harm from the presence of a taxable entity.  They get a benefit but suffer no costs, in other words.  Therefore, presumably, local governments are better off if only taxable entities move in.  I agree only for the sake of the argument.  If we presume, as we should, that tax exemption is justified by the benefit derived by the organization's presence, we may question that argument.  But not now.  Simply put, local governments lose property tax revenue when a tax exempt organization moves in, a loss that would not occur if a taxable entity moved in instead.  One would think "there goes the neighborhood" a common refrain at city hall when very highly endowed tax exempt entities like Carnegie Mellon University come looking for a new place to settle.  But we know that is precisely not true.  If CMU decided or even credibly threatened to move out, Pittsburgh City Hall would have an incredible hissy fit.  It is safe to say that every city in America would welcome the presence of CMU and other wealthy job providers even knowing that CMU could legitimately assert the right to never pay a dime to the public fisc, at least not via the property tax.  So there must be some credible evidence, as of yet not very well marshalled by tax exempt organizations, suggesting that wealthy universities and hospitals generate a quantifiable benefit that far outweighs the lost revenues and far exceed the benefit to be derived from them not being present at all.  There is the rub.  The fallacy, if I may call it that, in comparing CMU to Microsoft is that Microsoft is the wrong comparator.  Cities have to compare the benefits of having the non-taxable but nevertheless job generating, event- and highly skilled, very intelligent population-attracting entity in its jurisdiction to having nothing at all, because it is never the case that a Microsoft or other taxable entity would or would have necessarily relocated to its jurisdiction but for the presence of the tax exempt entity.  Unless we can definitively correlate the absence of any given taxble entity to the presence of a tax exempt entity, the fact that the city would raise more revenue from a comparably sized taxable entity assumes too much.

That CMU and other very wealthy tax exempt organizations might violate their fiduciary duty and charitable obligation by paying fat salaries or failing to make their goods and services available to a sufficient segment of the population without regard to ability to pay is a whole 'nother issue, I think.  I don't think it addresses the question whether the city of Pittsburgh, for example, would be better off it it taxed CMU.  We start with the presumption that the cost of tax exemption is outweighed by the benefit to be derived from the tax exempt's existence.  Unless we want to require every charitable organization to quantify that presumption, and risk skewed results due to the inability to accurately quantify the value of education, research or health care, we should presume the cost benefit analysis favors charitable organizations as well as their local government hosts.  Local governments presume as much when they welcome with open arms large charities knowing that they will pay no taxes.  It just that those same tax exempt organizations become easy political targets when local government budgets get tight.

dkj

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