2012-08-20

Co.Exist

What Happens When Cities Have To Ask Nonprofits For Money?

Institutions like hospitals and colleges don’t pay any property taxes. Their value is in what they bring to a city. But when revenues shrink so low that basic services are threatened, cities like Hartford are starting to ask for their major nonprofits to return some of that generosity.

Cities pay for an awful lot of their services--police and fire departments, trash pick-up, sewer systems, public health programs-- with the revenue that comes in from property taxes. As property values decline, so too does all that money (this is why city governments will likely be the last to emerge from the recession). And a city like Hartford, Connecticut, is in a particularly rough spot: More than half of the property inside the 18-square-mile state capital isn’t taxable in the first place, because it belongs to government institutions, churches, schools, hospitals, or other nonprofits. It’s great to have those things when times are good. When times are bad, it starts looking like a lot of lost revenue.

So what’s a cash-strapped city in such a position to do? Hartford is getting creative, following the lead of Boston and Providence, Rhode Island. The city is now asking the biggest nonprofits in town, which technically don’t owe any taxes, to voluntarily kick in anyway.

City officials are, of course, happy they have all these institutions in town: The Hartford Hospital (which owns 17 properties worth $288 million, according to the Hartford Courant), the St. Francis Hospital and Medical Center (25 properties worth $252 million), Trinity College (45 properties worth $157 million) and the University of Hartford (12 properties worth $151 million) each play a vital role in the community, and their philanthropic contributions may philosophically make up for the lack of property taxes. But they also use the same sewer system that for-profit companies and private homes do. And someone has to pay for it.

“They give back to the community,” says David Panagore, Hartford’s chief operating officer. “But at the same time, our ability to fund the trash pickup and the police and fire activity--all these other things to support their work--is getting too strained.”

By asking those institutions (and a couple dozen of the other largest ones in town) to help pay for city services, Hartford is hoping to ease its budget woes in bleak times and to shift how we think of the role of major nonprofits in the community. The idea that nonprofits shouldn’t have to pay taxes is centuries old. But it originated to protect small charitable organizations that might not have survived without the help of the state. Many of today’s nonprofits are big business, particularly universities and hospitals. As a lot of multinational corporations have left cities, some of these “eds and meds” are now the biggest employers in town, in Hartford and elsewhere.

“They are the anchor institutions in these communities,” Panagore says. “They also are companies that are making a good deal of money.”

So maybe it’s time to rethink how they help support city services that they rely on, too. Over the next couple of months, Panagore will meet with them to work out the details of the program. And there’s reason to think many of these institutions will participate, even if they don’t have to. Boston recently created a similar program, and last year the city actually got most of the money it asked for, nearly $20 million. Hartford Mayor Pedro Segarra is aiming for the more modest goal of a million dollars this year.

Hartford will likely ask for something like 25% to 30% of the property taxes these nonprofits would pay if their buildings weren’t tax-exempt (that’s the rough equivalent of a tax bill that goes to pay for just police, fire, and public works). Why not, though, just ask for whatever anyone is willing to give?

“In the best of all possible worlds, there should be both transparency and consistency of treatment,” Panagore says, “as opposed to, ‘Well, we’re going to go sock it to Joey’s Hospital, but Ralph’s College, it’s okay, we’re not going to ask anything of you.”

But because these payments would function more like gifts to the city than true taxes, city officials have to be a little flexible. And it means that the Hartford Hospital, for instance, could request that its voluntary check go to pay for just public health programs, rather than whatever services the city needs funded most. Still, it’s cash that Hartford wouldn’t have had otherwise. For now, the fine print is still in the works.

“The response back so far has been calm,” Panagore says. This sounds like a strange way to put it, although “calm” may be the best-case scenario when you’re asking large organizations to voluntarily pay taxes they don’t legally owe. “No one has been vehemently or directly opposed. They’ve all expressed a willingness to work with us.”

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