The city of Pittsburgh has a serious budget crunch, and about one-third of its land area is exempt from property taxes of which half is owned by non-profit organizations. That's the proverbial irresistable force smacking into an unmovable object.
The Pittsburgh Post-Gazette (at which I was a summer intern a looong time ago) is doing an pretty impressive job of covering the raging local debate, not just writing up what he said and she said but also looking around for relevant context and background. Indeed recently the paper brought some local specifics to light by uncovering the actual amounts that various local organizations had been contributing to a voluntary "payment in lieu of taxes" type fund. (As the paper notes, those amounts follow no logic as far as the size or wealth of various organizations -- not surprising for a voluntary system having no force of law.)
Broadly I stand on the side of the non-profits in this issue: the benefits to Pittsburgh of having the Carnegie Museum and Carnegie Mellon University clearly outweigh the lost property taxes, and for-profit versions of those enterprises would be far less rooted in the city (hence far more likely to move away when they felt like it). Were I a Pittsburgh alderman I'd be arguing that trying to balance the city budget by taxing non-profits is a crappy idea on several grounds. BUT...I do get impatient when non-profit folks turn this into some sort of church-state issue, as if non-profits have some sort of inalienable right to tax-exempt status.
That's nonsense. Private not-for-profit organizations in this country operate under a social contract which is an invention (and now a cultural export) of this country: exemption of most taxes plus limited tax benefits for contributions, in exchange for pursuing certain socially-beneficial purposes and spending any surpluses only on that purpose and staying out of partisan politics. A contract is a two-way street, and a social contract retains moral standing only so long as both parties are content with it. That's what Joel Fleischman is going around saying about charitable foundations, and he's right.
A reasonable argument is that cities are the level of government least able to absorb the tax-exemption end of this particular contract. That's because it can be such a big honkin' fraction of the tax revenues which are available to them (property taxes, mostly), and because the services provided by municipal government are a level from which non-profits get exactly the same benefit as businesses. (The city fire truck doesn't respond to the museum's fire alarm any slower than to anyone else's.)
One of the articles linked above describes a number of local attempts to deal with that conundrum, and some places where states have decided to compensate municipalities on the grounds that an entire region or state shares the benefits of having a major university or whatever. Frankly I can see the logic of some of that, and I notice also that the Pittsburgh situation includes an example of the separate issue of whether non-profit hospitals are really charitable enough. (The huge University of Pittsburgh Medical Center in 2005 ran a $500 million operating surplus (!) and contributed only $1.5 million to the city in lieu of a far greater amount in forgone property taxes.)
So I guess all that puts me kind of a similar place on property tax exemptions as Fleishman is in regarding foundations: that the non-profit sector needs to figure out and offer a reasonable adjustment to this part of the social contract, or the other party is going to eventually enforce one that we might like a lot less.
Showing posts with label hospitals. Show all posts
Showing posts with label hospitals. Show all posts
Monday, February 26, 2007
Wednesday, February 21, 2007
Updates on the Smithsonian, non-profit hospitals, web-based philanthropy
Some updates today on non-profit sector stuff that you've read about here....
The Smithsonian Institution's unpopular deal with Showtime was back in the news thanks to, of all people, Oliver North. After North published a fiery op-ed column about his particular complaint, it got resolved. Whether or not the museum's foot-dragging on what seemed to be a perfectly innocuous filming request was due to the Showtime contract isn't clear. At a minimum it reminded people of the smelly commercial arrangement, presumably including people in Congress which must authorize a large fraction of the Smithsonian annual budget.
Illinois is ground zero in the debate about how much free medical care for the indigent a non-profit hospital should have to provide, thanks to the state's ambitious young Attorney General Lisa Madigan. In 2006 Madigan proposed a state law to drastically increase that obligation, but then withdrew it while negotiating with the Illinois Hospital Association. Those negotiations have now apparently broken down (as also reported in Crain's Chicago Business but their text is not available online). That would seem to be rather bad news for the hospitals, since Madigan's father happens to be the longtime top dog of the Illinois House!
Some additional items recently crossed my field of view regarding the rapidly-growing field of web-based donor services. A Slate columnist, it turns out, was an early board member of DonorsChoose and wrote about it this week -- he thinks it represents "the future of American philanthropy." And two business-school professors analyzed some data from eBay's "Giving Works", they conclude that American consumers are typically willing to add about 5% to their purchase of something like an iPod as a "charity premium."
The Smithsonian Institution's unpopular deal with Showtime was back in the news thanks to, of all people, Oliver North. After North published a fiery op-ed column about his particular complaint, it got resolved. Whether or not the museum's foot-dragging on what seemed to be a perfectly innocuous filming request was due to the Showtime contract isn't clear. At a minimum it reminded people of the smelly commercial arrangement, presumably including people in Congress which must authorize a large fraction of the Smithsonian annual budget.
Illinois is ground zero in the debate about how much free medical care for the indigent a non-profit hospital should have to provide, thanks to the state's ambitious young Attorney General Lisa Madigan. In 2006 Madigan proposed a state law to drastically increase that obligation, but then withdrew it while negotiating with the Illinois Hospital Association. Those negotiations have now apparently broken down (as also reported in Crain's Chicago Business but their text is not available online). That would seem to be rather bad news for the hospitals, since Madigan's father happens to be the longtime top dog of the Illinois House!
Some additional items recently crossed my field of view regarding the rapidly-growing field of web-based donor services. A Slate columnist, it turns out, was an early board member of DonorsChoose and wrote about it this week -- he thinks it represents "the future of American philanthropy." And two business-school professors analyzed some data from eBay's "Giving Works", they conclude that American consumers are typically willing to add about 5% to their purchase of something like an iPod as a "charity premium."
Saturday, November 18, 2006
Are non-profit hospitals holding up their end?
The Democrats' big win on November 7th is expected to bring new focus on the issue of how much community benefit non-profit hospitals actually provide, in the person of new House Ways and Means Committee chairman Charles Rangel (D-N.Y.). Committee chairman Bill Thomas (R-Cal.) has been raising the same questions as Illinois' Democratic Attorney General (and likely future governor) Lisa Madigan; Rangel as ranking member has defended non-profits in general but has also expressed concerns about how much charity care the hospitals are providing.
Hospitals, in order to qualify as tax-exempt non-profits, are required by every state to provide some free care for the indigent. However Illinois is one of many states where no specific amount of such care is required; in other states it's low, 5% or less of total patient revenues. Federal rules are soft, allowing non-profit hospitals to demonstrate "community benefit" in other ways such as public-service announcements, medical research, and health fairs. Madigan in 2003 commissioned a study which reported that Illinois hospitals were providing actual free care worth as little as 1% of patient revenues; the NY Times in June reported that the IRS is now examining the same question nationally. Madigan's tough bill in the Illinois General Assembly was deferred this past spring to be taken up in 2007.
The American Hospital Association has proposed instituting a standard definition of community-benefit costs which every non-profit hospital would have to report on as part of its annual tax return. They want that definition to continue to go way beyond free care, and specifically they want it to include bad debt: patients who never pay their bills. That last item gets a big raspberry from watchdog groups such as Charity Navigator, whose president has become Madigan's biggest cheerleader: he asks why patients who were billed because they are not indigent should suddenly count as charity work just because they fail to pay up?
The real issue might be a broader one which this blogger eventually touches on, namely: should hospitals have to meet a different public-benefit standard than other non-profits? The basic non-profit social contract is: exemption from taxes in exchange for a publicly-beneficial operation which spends any profits only on that operation. Non-profit symphonies and museums are not legally required to give away 10% of their tickets for free. Less-blunt incentives encourage them to do a lot of things like that, but the law does not impose an arbitrary minimum amount of it. If hospitals are to be held to a different contract with society in order to be tax-exempt, then what other types of organization should the same logic apply to?
Hospitals, in order to qualify as tax-exempt non-profits, are required by every state to provide some free care for the indigent. However Illinois is one of many states where no specific amount of such care is required; in other states it's low, 5% or less of total patient revenues. Federal rules are soft, allowing non-profit hospitals to demonstrate "community benefit" in other ways such as public-service announcements, medical research, and health fairs. Madigan in 2003 commissioned a study which reported that Illinois hospitals were providing actual free care worth as little as 1% of patient revenues; the NY Times in June reported that the IRS is now examining the same question nationally. Madigan's tough bill in the Illinois General Assembly was deferred this past spring to be taken up in 2007.
The American Hospital Association has proposed instituting a standard definition of community-benefit costs which every non-profit hospital would have to report on as part of its annual tax return. They want that definition to continue to go way beyond free care, and specifically they want it to include bad debt: patients who never pay their bills. That last item gets a big raspberry from watchdog groups such as Charity Navigator, whose president has become Madigan's biggest cheerleader: he asks why patients who were billed because they are not indigent should suddenly count as charity work just because they fail to pay up?
The real issue might be a broader one which this blogger eventually touches on, namely: should hospitals have to meet a different public-benefit standard than other non-profits? The basic non-profit social contract is: exemption from taxes in exchange for a publicly-beneficial operation which spends any profits only on that operation. Non-profit symphonies and museums are not legally required to give away 10% of their tickets for free. Less-blunt incentives encourage them to do a lot of things like that, but the law does not impose an arbitrary minimum amount of it. If hospitals are to be held to a different contract with society in order to be tax-exempt, then what other types of organization should the same logic apply to?
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