Pittsburgh is trying to change the contract

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.

Land conservation takes the lead

A startling report from the Land Trust Alliance is getting some national-media attention this week but I wish they hadn't buried their lede, which is that in the U.S. the permanent protection of land for conservation is now going faster than sprawl -- and pulling away.

Last month the national conservation groups were celebrating the current boom in state/local public funding for land conservation; now the LTA has pulled together national data on non-governmental activity for the same purpose. They report that just in the past five years private non-profits protected 13 million acres, equal to a new Yellowstone National Park every year.

The national conservation-advocacy groups say that new development consumes 2 million acres per year, so the nongovernmental land trusts alone are now protecting more land than is being sprawled on each year. Obviously adding the new open space protected via all those new state and local bond referenda, and the occasional addition to federal national monuments and so forth, makes the picture even better.

The LTA report does have a couple of oddities, such as that most of their charts and graphs include only state and local land trusts when national groups like The Nature Conservancy and Trust For Public Land are a huge part of all this activity. And while criticizing the drops in direct federal appropriations for conservation they ignore the fact that all that private non-profit land protection is being subsidized by the federal tax code to the tune of billions per year now. (And the increase in federal tax benefits from donating land or easements which President Bush signed into law in August will boost all this even more.)

The non-profit land trust business is, not surprisingly, booming like dot-coms in the 90s. The LTA reports that even while the number of state and local land trusts was increasing by a third, the average operating budget increased by two thirds and salaried staff increased by almost half. In just five years, during an economic downturn! And that again doesn't count the big national/international groups.

Your tax dollars at work

The U.S. government, it turns out, has been passing federal-employee personal contributions on to more than 1,200 non-profits which owe federal taxes, and has issued billions of dollars in federal grants to the same delinquent charities.

This revelation comes from the General Accounting Office, as reported by MSNBC and written about by Trent Stamp of Charity Navigator. The watchdog agency says that the true number of non-profits delinquent on payroll taxes but still receiving federal-employee donations is undoubtably even higher. That's because federal law for some bizarre reason prohibits the relevant officials from checking whether charities that are to receive employee donations are up to date on their routine federal tax returns.

The GAO picked 15 of the delinquent charities at random to check out further, and concluded that every one of them was probably acting illegally -- doing things like buying a boat for the executive director while failing to pay federal payroll taxes. (And let's keep in mind that most of what is called "payroll taxes" is actually money withheld from employee paychecks.) The GAO made up a bogus charity, applied for funding from three local offices of the federal employee-contributions system, and received funds from all three with no trouble.

Ok clearly part of the story here is serial incompetence in our federal bureaucracy. But for me the bigger issue is this: the fact that fewer and fewer Americans still think non-profits to be highly trustworthy is not simply due to "a few prominent rotten apples that have made headlines" as I keep hearing people tell each other at conferences. There is a broader problem here in this sector and it is not being faced.

Give me land, give me land...

U.S. conservation groups like Trust for Public Land and the Land Trust Alliance have been celebrating a November 7th election result that hasn't risen to the top of the media coverage: voters in 23 states approved raising their own taxes by $5.7 billion for new permanent parks or nature preserves.

A total of 99 state, county or local referenda for this purpose passed, many by overwhelming margins. That's out of 128 which were on ballots; the 77% winning percentage is similar to national elections going back a decade but the amounts keep getting bigger. The winning referenda this time were scattered around the country, six in Texas alone, with the biggest being California's at $2.25 billion.

That follows a huge conservation victory in Congress in August, an expansion of the tax benefits for donating permanent conservation easements on private land. That was buried within the federal Pension Protection Act (which included other provisions that were less clear and less welcome) .