A March 28 online posting by the Providence Journal reports that Rhode Island's General Assembly leaders are considering a plan to strip tax-exempt status from approximately 6,600 nonprofit organizations, including churches, hospitals, private universities, YMCAs and even parent-teacher associations, to help the state's growing budget problems.
Most nonprofits avoid paying the state's seven percent sales tax, according to the article. That saves tens of millions of dollars each year on purchases of office supplies, computer equipment, and construction materials for organizations legally prohibited from turning a profit.
While the government would rather not eliminate the sales-tax exemption, according to House Finance Committee Chairman Steven M. Costantino, the condition of the state's finances is forcing it to contemplate a host of unpopular changes.
The article quoted Edward J. Quinlan, president of the Hospital Association of Rhode Island, who said "My experience is that you have open and thoughtful discussion with the Assembly leaders on a year-round basis, given the size and importance of the hospital industry to the state. We have not had any discussion about this, direct or indirect. I'm not aware of any state in the country that has such a tax."
ASAE reports that Boston Mayor Thomas Menino formed a task force more than a year ago to study the city's "payments in lieu of taxes" (PILOT) program, which asks tax-exempt institutions to voluntarily contribute a percentage of what they would owe in property taxes if they were not tax-exempt. The mayor's office said the formula for determining the voluntary payments, which dates back to the 1970s, needs updating to account for current economic conditions. The task force was charged with not only looking at the voluntary payment formula, but also the community benefits provided by Boston's tax-exempt institutions and their in-kind value to the city's residents.
Boston's primary source of revenue is property taxes and more than 50 percent of Boston's land is tax-exempt. In fiscal year 2008, PILOT revenue for the city was $31.4 million, which according to city officials interviewed by the Boston Globe, is paltry compared to what tax-exempt institutions would owe if their properties were taxable. Also, because each payment is voluntary and negotiated individually, the payments from nonprofits in the city vary widely, the chairman of the mayor's task force said.
According to media reports, Boston may seek to gradually increase PILOT contributions to 25 percent of what nonprofit institutions would owe if they were not exempt. That new formula could result in an additional $25 million in payments from hospitals and universities alone over five years, the Boston Globe reported. City officials have suggested that up to 50 percent of payments could be covered by community service programs such as scholarships for Boston students and free screenings or clinics for residents.
In another attempt to bolster the budget at the cost of nonprofits, New Jersey's Governor Chris Christie has turned his battle from teachers unions to nonprofit social service agencies that do business with New Jersey by limiting how much the state is willing to pay for CEO salaries and employee benefits.
According to a posting on www.nj.com, Beginning July 1, the state would cap the salaries of the top-earning executives to $141,000, for any nonprofit social service agency with a budget over $20 million, according to an April 16 Department of Human Services draft memo obtained by The Star-Ledger. Executive directors of nonprofit groups who oversee budgets between $10 million and $20 million could receive no more than $126,900 in state compensation. Those overseeing a budget between $5 million and $10 million would get $119,850 a year from the state, and those with a budget below $5 million would get $105,750 in pay from the state, according to the memo.