MuniLand

The non-profit tax shell game

By Cate Long
April 30, 2012

Old cities in the Northeast often have high concentrations of non-profit, tax exempt properties such as universities, hospitals and churches. Cities generally receive the bulk of their revenues through property taxation, so for cities with high concentrations of tax exempt properties the tax base can be considerably diminished. Ryan Delaney of WRVO, a public-radio station in upstate New York, reports that Syracuse has an astonishing 56 percent of city properties exempted from property taxes. Delaney drills down into a current fight over tax exemption for a proposed development project. The fight shows how property-tax exemptions are growing and can be just a mask for private development and profit. From Innovationtrails.org:

The project includes a few steps: Cameron Group would lease a small strip of land in front of an off-campus parking garage from the university for $1. Cameron Group would then spend $20 million to construct a new building that will mostly be filled with a fitness center and bookstore, and offering some space for private retail.

The university would rent out the space for its fitness center and bookstore. At the end of the 30-year tax break, ownership of the building would be transferred to the university, and only the private retail space would be taxed.

Developer Valenti says the only way his firm can offset the costs of the project, while offering low rent to Syracuse University, is if he’s offered a 30-year payment-in-lieu-of-taxes (PILOT).

During those three decades, the developer would pay 17 percent of the assessed taxes – enough to foot the bill for fire, police and public works costs, according to the Syracuse Industrial Development Agency (SIDA).

That works out to about $64,000 a year, the bare minimum needed in order to make the project financially viable, says Valenti.

The developer of the bookstore project is asking to pay Syracuse $1,920,000 in PILOTs instead of property taxes of $11,294,000 for the term of the 30-year lease. The developer’s rationale is that he would be unable to offer low-cost rent to Syracuse University unless he is allowed to pay only the lesser tax amount. The article doesn’t say if the developers’ projections were verified, and it’s hard to know how accurate the developers statements are. But isn’t the broader question: Why is a private developer even allowed to sneak under the umbrella of a non-profit? If the university needs a bookstore and fitness center, it surely has the operational capability to develop a new building.

If the Syracuse City Council needs to raise additional revenue, another approach could be imposing a small commuter tax on those who work within the city limits and are employed by tax exempt institutions. This would even out the burden of supporting city services between the non-profits and the for-profit entities that are paying property taxes. Of course it would be challenged in court, as it should be. Fighting every university, hospital and church to get voluntary payments in lieu of taxes is hard work. Tax the non-profit employees a small amount. Everyone needs to contribute to a safe and stable community – whether they live in it or just earn their living there.

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