Locals challenge tax-exempt status of sites
The hockey rink at Connecticut College in New London, Conn., seems an unlikely flashpoint for controversy. On a typical day, the 25,000-square-foot arena echoes with the sounds of intramural squads or varsity teams practicing slap shots.
Connecticut College also rents the arena to outside groups. “These activities are basically just to raise the profile of the college among prospective students and faculty and to open it to the community,” explains spokesman Eric Cárdenas. But to Richard Brown, New London’s city manager, the rentals constitute a for-profit venture that negates the rink’s tax-exempt status. “We’re all looking for new ways to raise revenue, and I think the nonprofits are starting to encroach on the private sector,” he says.
New London — where 46 percent of properties are off the rolls — is among several local governments now challenging long-established property tax exemptions enjoyed by colleges, universities and other nonprofits. Others are stepping up efforts to collect voluntary payments in lieu of taxes, says Jacqueline Byers, research director for the Washington, D.C.-based National Association of Counties.
At a time when local budgets have dwindled to historic lows, the expansion of colleges and universities continues to erase valuable properties from the tax rolls. For many cities, tax structures that rely heavily on property taxes compound the problem. In Boston, property taxes account for about 60 percent of total revenues, and yet a whopping 52.9 percent of Boston’s land area is tax-exempt, notes Ron Rakow, commissioner of assessing. In 2003, the city collected $23.2 million in voluntary payments from more than 40 nonprofits, but that number represents a fraction of the hundreds of millions of dollars in taxes lost annually, Rakow says.
Federal law grants public and private educational institutions certain exemptions from income taxes. Individual states, however, decide whether to provide relief from property taxes. Some write the requirements into their constitutions, others into law.
Local governments can, therefore, lobby for legislation to revise exemption requirements, but officials say state lawmakers tend to be reluctant to amend decades-old tax provisions. Pennsylvania lawmakers passed a statute in 1997 intended to create a uniform standard for property tax exemptions. But Craig Kwiecinski, spokesman for Pittsburgh Mayor Tom Murphy, says the law actually hurt municipalities, making it more difficult for municipalities to challenge the tax-exempt status of nonprofits and thereby reducing the leverage to negotiate voluntary payments. “Voluntary payments have fallen from an annual high of $10 million to nothing today,” he says.
Pittsburgh is challenging Duquesne University’s recent $22 million purchase of a 20-story apartment complex. About 35 percent of Pittsburgh properties are tax-exempt, costing the city around $72 million a year, Kwiecinski says. Based on its selling price, the complex would have contributed a total of $647,000 a year to the city, county and school district, he notes.
Many education officials decry such tax-collection efforts and point to the benefits colleges and universities bring to their communities. But Brown says nonprofits are growing in the scope of their activities and cites a litany of what he considers abuses by New London-area colleges, including rooms rented to casino workers and boat shows hosted on college-owned property. “Private businesses are paying a fairly healthy tax rate — in part because of the presence of these nonprofits,” he says.
Joel Groover is an Atlanta-based freelance writer.