Task force looks for ways to collect from tax-exempt nonprofits

Jessica Perry//April 20, 2012

Task force looks for ways to collect from tax-exempt nonprofits

Jessica Perry//April 20, 2012

As more municipalities cut services and real estate values plummet, state and local government officials are pushing to form a task force that will examine methods to collect in lieu of tax payments from tax-exempt and tax-abated properties.

As more municipalities cut services and real estate values plummet, state and local government officials are pushing to form a task force that will examine methods to collect in lieu of tax payments from tax-exempt and tax-abated properties.

“In good times, we wouldn’t be considering these types of things from nonprofits or tax-exempt organizations,” said Bill Dressel, executive director of the New Jersey State League of Municipalities. “But now … with costs coming in above the 2 percent cap and energy tax revenues not going to towns … towns are looking at all options possible. Many nonprofits already understand that, and some of them may be working with their host municipality for a reasonable fee.”

Sen. Jennifer Beck (R-Red Bank) suggested state Department of Community Affairs Acting Commissioner Richard E. Constable III should take a look at the strain that the growth of tax-exempt properties puts on small and large municipalities at the Senate Budget and Appropriations Committee hearing on April 17.

“Red Bank now has 16 percent of tax-exempt properties. In Newark, I believe that close to 40 percent of land is tax exempt or tax abated, so how can they become self-sufficient if only 60 percent of their properties pay taxes?” Beck said in an interview with NJBIZ following the hearing. “I think we may need to revisit the constitution to think through how we deal with this issue of not-for-profits.”

According to state Department of Treasury spokesman Andrew Pratt, there is no state law — and the state has not made any attempt — to collect fees from nonprofits. But Pratt noted that nonprofits are not exempt from certain taxes — like withholding tax, Medicare and family leave — or from township fees, like inspection and zoning approval.

“Towns can collect fees for services rendered … like historical commission review if it’s in a historical buffer zone,” Pratt said. “It’s a revenue source for the towns, and it can be very high. It could cost a nonprofit tens of thousands of dollars to do several projects.”

Pratt said an additional benefit for towns hosting a substantial amount of nonprofits is that the people who are employed by them often live in the same community, which generates more property taxes for the town.

Still, Pratt noted that large nonprofits — like universities and hospitals — do acquiesce to in lieu of tax payments to their community “because it’s leverage that these towns have, with zoning, permits and fixing up the roads.”

According to New Jersey Hospital Association spokeswoman Kerry McKean Kelly, the association does not track the “total number of hospitals that make contributions to their host communities in lieu of taxes, but it’s a very common practice.” She noted that, in 2011, hospitals in the state provided a total of $2.7 billion in community benefit activities, like community health clinics and screenings, nutrition programs and free and discounted health care services.

“In some instances, the hospital may make an actual cash contribution to the municipality,” she said in an e-mail. “Other times, it may be support for a needed piece of equipment, such as an ambulance for the local EMS squad. Each community’s needs are different, so the programs vary across the state.”

Beck said, in Red Bank, Riverview Medical Center makes in lieu of tax payments to the town, but she noted that the hospital “has a storage facility, and that building is not on tax rolls.”

“Nonprofit hospitals are tax exempt, but if they put in a fitness center and charge people for a membership, then that should be taxed,” Dressel said.

Beck said one way to resolve the issue is to “complete the tax exemption for the footprint of the original company, but as they acquire properties beyond the original building, they have to make in lieu of tax payments.”

According to Beck, another problem for Red Bank is its place as a “regional center” in the eastern part of Monmouth County, which she said “makes sense for (nonprofits) to locate here.” But Beck noted that the surrounding municipalities — including Fair Haven, Shrewsbury and Fairview — utilize nonprofit services located in Red Bank, yet they don’t lose tax revenue from hosting a large percentage of tax exempt properties.

“A Red Bank (community) comes to me and says, ‘Why is it fair that we serve all those other municipalities, but our taxpayers get the burden?’ ” Beck said. “It’s not completely fair that the Visiting Nursing Association (Health Group) serves all of Monmouth County and parts of Ocean (County), but we alone” lose the tax revenue from the association’s location in Red Bank.

Pratt said municipalities receive state statute-supported relief in the form of payments in lieu of taxes from state-owned property, which he said the state is required to make “wherever there’s a heavy presence of state tax exempt property, like in Trenton.”

But Dressel said for decades, the city of Trenton has “not felt that they’re compensated for state-owned property.”

“The formula for calculating the state’s payment does not equate to the property tax … that would be collected from the dollars they would receive if it was a commercial enterprise,” Dressel said. “The costs they have to expend to provide essential services to those (state-owned) facilities does not equate to what they would normally get if they were taxing it.”

According to John Franklin, CEO of United Way of Northern New Jersey, if government officials form a task force to examine charging nonprofits payments in lieu of taxes, they should “consider that many folks critical of government spending say nonprofits are the most efficient with their dollars … and government funding has faded in many areas of nonprofits.”

An Asset Limited, Income Constrained, yet Employed report published in August 2009 and revised in July 2011 by United Way found that over $315 million is spent annually to provide services to households earning below $60,000 in Morris County alone — $46 million of which came from nonprofits in 2007, which Franklin said is a “huge number when you multiply it across the state.”

“If you take away a portion of nonprofits spending (from charging them a fee), the government will have to make up the difference,” Franklin said. “Taxing nonprofits is counterproductive.”

On the expanding percentage of cities’ tax exempt property, Franklin said new nonprofits are forming, but there are also a multitude of efforts to consolidate, and United Way recently merged five of its operations in Morris County.

“Every time a big-box store goes up, it creates low-income jobs that require workers to use nonprofit services. Every time you create a business that has 20 jobs that pay $8 or $9 an hour, it’s a cost to the community,” Franklin said. “If you want to look at ways to increase property tax (revenue), you’ll need a bigger blanket.”