All the talk we’ve heard lately about how much to tax during an election year is hardly surprising, given the whopper of a tax increase Dannel Malloy signed into law not long after becoming governor. But an even more interesting question is whom to tax.
House Speaker Brendan Sharkey did us all a favor last week when he floated a proposal to subject nonprofits such as private colleges and hospitals to local property taxes. Sharkey’s idea may never see the light of day, but he deserves credit for starting a conversation and shining light on a burdensome problem for the communities that host these organizations.
First of all, before we even confront the issue of whether to tax nonprofits on their real estate holdings, it would behoove us to consider what constitutes a charitable organization, especially one whose very existence could be threatened by having to pay property taxes.
The big boy on the block is Yale University, which is in effect a corporation with a $2.5 billion annual budget and an endowment of more than $20 billion. Yale does pay property taxes of more than $4.3 million to the city of New Haven on its golf course and its University Properties retail locations. And for more than 20 years, Yale has made voluntary annual contributions to the city of New Haven — $8 million this year and $82 million since the university started the program in 1991.
That makes it one of the five largest taxpayers in the city. Still, city assessors value Yale’s real estate holdings at $2.44 billion, which, if taxed at commercial rates would amount to more than $100 million in annual revenues for the city. Just down the road from the mayor’s office lies Yale-New Haven Hospital, which, unlike the university’s plush golf course, lies beyond the tax collector’s grasp. Even more aggravating for city officials is that only one in five patients comes from New Haven.
Many of these hospitals, their satellite offices and outpatient facilities are, as Sharkey puts it, “pure profit centers.” Why shouldn’t they pay some taxes on their holdings? It only seems fair after all.
Hospitals and universities say they’re large employers and net assets to their communities, which is all fine and true. But their skyrocketing costs are burdening students with mountains of debt and their relentless expansion is taking more property off the tax rolls and socking residential taxpayers with the bill.
Nonprofits also point to the payment-in-lieu-of-taxes program (PILOT) in which the state compensates municipalities for some of the lost revenues from nonprofits — typically about 32 cents on the dollar. Under Sharkey’s proposal, nonprofits could apply to the state for partial reimbursement under PILOT. But PILOT merely replaces lost local tax revenues with monies from state. Either way, taxpayers foot the bill.
And it’s a stretch to call some of these institutions charities, given the high salaries of their top-level executives. One of the favorite targets of taxpayer watchdog groups in my town is The Hotchkiss School, a private boarding school with assets and facilities that are the envy of many small colleges. Last year, Hotchkiss’ head of school, had a total compensation package of almost half a million dollars, while the school’s finance director was pulling down close to $350,000.
To tax nonprofits, the General Assembly would have to alter centuries of tradition and make changes to state statutes, which Sharkey’s proposal would do. In the case of Yale, it would take more than a change in the law since the university’s tax-exempt status is actually enshrined in the state constitution and therefore not subject to the whims of the legislature.
Be that as it may, I do think it would be fair to make some distinctions between large, well-heeled nonprofits and those that barely survive. After all, the neighborhood soup kitchen and the tiny house of worship shouldn’t have to play by the same rules as Wesleyan or Choate. Perhaps the first $1 million or $2 million in assessed value could be exempt.
Of course, aside from doing nothing, there is an alternative to Sharkey’s proposal. The city of Pittsburgh, which after the decline of the steel industry revived its economy with hospitals and universities, gave up trying to convince the state to change its laws. Led by an energetic and very young mayor, city officials seriously considered enacting a citywide sales tax on tuition payments at Pittsburgh’s 10 colleges and universities.
Pittsburgh’s unsuccessful scheme would have effectively passed the costs of the academies’ tax exemption onto weary parents already shelling out upward of $50,000 a year. Or, even worse, it would have forced beleaguered students to go into even greater debt to pay the taxes the colleges won’t pay.
My interest in Sharkey’s proposal stems less from a belief that municipalities aren’t spending enough money than from the fact that residential and commercial taxpayers need relief from high taxes. Either way, Sharkey’s proposal or the Pittsburgh model would face vehement opposition from special interests. If they’re successful in fending off the Sharkey Attack, then at least the idea will have died a noble death.