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Sunday, 05 January 2014 20:04

Nonprofits brace for financial squeeze from municipalities

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The financial squeeze being felt by nonprofits on the eastern seaboard is being closely monitored by nonprofit executives in Michigan.

That’s because if a tax reform movement taking hold on the East Coast eventually moves to Michigan, it could put the state’s nonprofits in a precarious position, said Donna Murray-Brown, president and CEO of the Michigan Nonprofit Association.

Under the Payment In Lieu of Taxes (PILOT) legislation that’s gaining momentum in many areas of the United States, municipalities have the authority to send invoices or bills to tax-exempt nonprofits in their areas. The impact is already being felt by leaders in the nonprofit sector in states across New England, she said.

“In New England, municipalities are sending invoices to nonprofits saying, ‘You owe us this,’” Murray-Brown said. “In most cases, the nonprofits have paid it. In some cases, it’s also being called a voluntary fee.”

Recent reports in Nonprofit Quarterly have detailed some of the efforts to collect taxes and payments from nonprofits. Several cities including Scranton, Pa. and Providence, R.I. have targeted colleges and universities for additional funds to fill budget gaps and deficits, the report stated.

In Pittsburgh, Pa., a community group targeted the University of Pittsburgh Medical Center to forego its nonprofit status and start paying $204 million a year in property taxes and $133 million in income taxes that it “avoids” by being a nonprofit, according to the report. That compares to the health system’s annual contribution of just $8.4 million to the city.

The financial crises being felt by many municipalities appears to be the driving force behind PILOT. The most severe example is the city of Detroit, which filed for bankruptcy in July. Murray-Brown said Detroit city officials are looking for ways to amass cash to get out of bankruptcy to make sure the city moves forward in a positive direction.

Compounding matters is that state revenue sharing will be reduced under new personal property tax reforms approved by the legislature in 2012 that must be passed by voters this year to take effect. Nonprofits worry that municipalities could turn to PILOT programs as a way to make up for that decreased funding coming in from the state.

Nonprofit leaders in Michigan said the services provided by their organizations play a vital role in the overall health of a community, particularly as it relates to its residents. They maintain that their services become even more critical when a community experiences economic downturns that trigger a wide range of social service needs.

“Nonprofits are not made to pay taxes because we do public good and make up for services not provided elsewhere,” Murray-Brown said.

That provision of services often results in a financial loss for nonprofits. Murray-Brown said nonprofits typically receive 80 percent on the dollar for services rendered to municipalities.

“We are left to fill in the gaps,” Murray-Brown said. “To charge us an additional fee is counterproductive. We’d like to look at ways to continue to partner with municipalities to continue to close the gap, not be charged additional fees of the government sequestration or budget cuts.

“We have already really had so many burdens placed on us as it relates to the cost structure.”

The partnership that Murray-Brown refers to involves demonstrating the value that nonprofits bring with their expertise to mitigate the most pressing challenges faced by municipalities. She said this will require nonprofits to be proactive and innovative so that they can contribute in innovative ways.

“In New England, nonprofits really got caught off guard. We need to provide examples of how to connect in meaningful ways in the community,” Murray-Brown said. “When you tie what we do to the economy, people never really consider how a nonprofit contributes to a thriving economy.

“Nonprofit organizations are probably the most creative sector you’re ever going to find. They work on a bit of a shoestring budget and still find a way to make it happen.”

Governments should not impede the work nonprofits do to fill in community support services and to leverage other resources, nor should they get in the way of nonprofit fundraising to support those efforts, Diana Sieger, president of the Grand Rapids Community Foundation, told MiBiz for a recent report.

Sieger advocates that the Michigan Legislature should bring back the charitable tax credit on the state’s income tax, which was eliminated in 2012 after being in place for more than 25 years.

It allowed taxpayers to write off their donations to charitable organizations when filing their income taxes.

“Philanthropy is critical to the growth and vitality of Michigan’s recovery,” Sieger told MiBiz.

MiBiz Managing Editor Joe Boomgaard contributed to this report.

Read 2977 times Last modified on Thursday, 02 January 2014 12:55