Giving Back
State’s mayors will draft bill calling for tax on nonprofits 

Business Review
December 22-28, 2006
By Richard A. D’Errico 

Northeast Parent & Child Society just paid $1.25 million to buy one of the largest office buildings in downtown Schenectady. 

In two years, the 33,000-square foot building that houses Internet service provider Logical Net Corp. and Social Security Administration offices will be completely occupied by the nonprofit. 

And another building will fall off the tax rolls. 

“We aren’t going to pay taxes on that building,” said Jim Johans, Northeast Parent & Child Society’s president and CEO.

That’s $64,000 a year, Johans said. 

Johans believes it’s wrong for nonprofits to get a free ride when it comes to property taxes, but said it’s a tough sell to contributors that their donations would be going to pay taxes. 

“How much of that [$64,000] should I pay?” Johans asked. “I don’t have to, there’s nothing requiring me to pay a PILOT [payment in lieu of taxes]. I recommend we change the law.” 

Johans noted he does pay more than $20,000 to the city in lieu of taxes anyway, and other nonprofits should do the same. 

The New York State Conference of Mayors, which represents 575 cities and villages, plans on making the case for a nonprofit property tax and is drafting legislation to be ready for the 2007 term. 

“We’re looking at coming up with some sort of legislation to address this,” said Peter Baynes, executive director of NYCOM. 

It could cost nonprofit NYCOM $156,990 a year in city, county and school taxes on its headquarters, which is assessed at $3 million, on Washington Avenue in Albany. 

‘A Terrible Burden?’

Baynes said that in the 1970s, the state Legislature passed a bill, signed into law, that requested nonprofits to make payments to municipalities, but there was such an outcry from nonprofits that the law was eventually repealed. 

The most recent bill concerning nonprofits and property taxes was introduced in 2003. IN a report titled “Taxpayer Equity” by Sens. John Bonacic (R-New Paltz) and Elizabeth Little (R-Queensbury), it was noted that nearly one-third of the property value across the state is exempt from taxes. 

Johans said if nonprofits pay some form of property tax, it will lower the property taxes in New York. 

“That includes every church in New York State,” he said. “Churches should be paying property taxes as well as every nonprofit. That’s a debate that needs to happen at the state Legislature.” 

Just how much nonprofits pay would be open to debate. 

“I believe every nonprofit should pay at least 1 [percent] to 10 percent,” he said. “I’m interested in paying my fair share. Right now, I’m not required to pay anything. I think that’s bad policy.” 

Mary Seeley, executive director of Equinox Inc., thinks forcing nonprofits to pay taxes is a bad idea. 

“This would be a terrible burden for most nonprofits to pay,” she said. “Most of the revenue generated for our programs goes directly to serve people. Some money would be taken away.” 

Johans has a forum to make his voice heard. He is head of the Tech Valley Nonprofit Business Council, which has pushed to make nonprofits recognized as part of the region’s business community. 

“Jim’s a leader in the not-for-profit world, so his opinion is highly regarded and respected,” said Assemblyman Paul Tonko (D-Amsterdam), whose district includes part of Schenectady County. 

Johans is convinced that if property-owning nonprofits paid some percentage of property tax every year, New York would be more attractive to businesses both inside and outside the state, which would create economic opportunities and jobs and reduce the burden of all taxpayers. 

There are 196,196 nonprofit companies in New York. According to the state Office of Real Property Services, that translates into $2.29 billion lost in property tax revenue ($19 billion is lost if government-owned land is included). It’s not clear how much revenue that would mean for the state or local communities. Officials at the state Department of Taxation and Finance said no studies on the subject have been conducted. 

Giving Back in Other Ways

Schenectady Mayor Brian Stratton has done some math of his own. Stratton, who is leading a resurgence in a city hit hard by GE layoffs over the past two decades, said about 30 percent of the property in the city belongs to nonprofits and is tax-exempt. That’s $12 million a year nonprofits would pay if they were for-profit businesses. 

Those untaxed properties include Proctor’s Theatre, Sunnyview, St. Clare’s and Ellis hospitals, and Union College. Stratton estimates Union College would pay $2 million a year if it were a for-profit entity. The row of houses Union bough around the campus and the decrepit Ramada Inn were all renovated and turned into eye-appealing properties, Stratton said, but they also came off the tax rolls. 

Union and Stratton have been in discussions in the past over payments in lieu of taxes. Stratton recommended Union pick up the tab on a five-year lease for a first truck that services the area where Union is located, a $130,000-a-year proposition. No agreement has been reached. 

Union argues it contributes to the region in other areas. Citing a report by the Capital District Regional Planning Commission in 2004, Union’s economic impact exceeds $185 million a year in the city and $211 million in the state. Union was also recognized nationally as one of 25 colleges deemed a “best neighbor” for its economic impact and social benefit to the community. 

“We have made it clear to the mayor that PILOT is not feasible at this time,” said Phil Wajda, a Union College spokesman. “While we are mindful of the financial challenges facing the city, the college faces similar daunting financial challenges. As a not-for-profit, we must remain true to our core mission, which is to provide the best education possible for our students, and more importantly, make it accessible.” 

He said the school is willing to explore ways to partner with the city that would be “mutually beneficial.” 

Union charges $45,550 a year for tuition, room and board and fees. 

Proctor’s CEO Philip Morris said he was once a councilman in Jamestown, Chautauqua County, and looked at the impact of lost revenue from tax-exempt properties. The conclusion was that most of the properties were municipal. 

Johans said he anticipated the arguments nonprofits might make, such as that they give back to the community in other ways, or that they are charities and can barely make ends meet and should get a free ride, but those arguments don’t stand up. 

Equinox’s Seeley disagrees. 

“I don’t think it is a free ride,” she said. “We’re paying in different ways.” 

Not All Nonprofits Are Created Equal

Constance Laymon, CEO and founder of Consumer Directed Choices Inc., and Albany nonprofit that helps people with disabilities hire their own personal assistants, said the issue of just what is a “nonprofit” was the subject of discussion at the Nonprofit Congress held in Washington, DC, in October. Laymon was one of the delegates. 

“You’ve really got the haves and the have-nots in the nonprofit world,” she said. “I know of organizations that rely 100 percent on people writing a $5 check or a $10 check.” 

Assemblyman Tonko said he’s willing to look at the issue, and called it an interesting concept, especially coming from a nonprofit leader. 

“I would have to withhold my support until I talked to the not-for-profit community and see what the pragmatic and doable notions are for such a proposal,” he said. 

Johans has a guess what nonprofits will think of the idea. 

“Everyone hates it but me,” he said. “But give us a couple years to warm up to it.”