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Wellspring of Life, and Cash?

December 27, 2010

It looks like, for every Christmas, there’s a scrooge.  In this case, it’s looking to be municipal governments.  Hey, are you a not-for-profit with some property?  Gee, sorry about all those years we said we wouldn’t tax you… now we’re going to do it.

Houston’s taxpayers in November narrowly voted to adopt a “drainage fee” to raise at least $125 million a year toward the cost of improving roads and storm-water systems. The city will charge fees to property owners, and it won’t grant exceptions to churches, schools and charities.

The city has been tightening its budget. “We’re cutting up the city’s credit cards,” says Mayor Annise Parker. “Everyone who contributes to drainage issues has to share in the cost of correcting those issues.”

The article’s a treat.  This isn’t just one city working the new coffers.  Here are a couple other examples, but go read the whole thing for a full download:

Some cities are charging religious groups property taxes on buildings no longer used for worship. Other localities are soliciting voluntary contributions. Albany, N.Y., recently passed an ordinance asking schools, hospitals and other nonprofits to contribute to city services.

In Minneapolis, residents recently began paying a street-light fee that also applies to nonprofits, which in some places pay fees for elevator safety and fire inspection.

It’s the city governments suddenly realizing that they need more money, and then they also noticed that there was un untapped source.  However, the general solution is rife with problems.  First, there’s a long expectation that non-profit organizaitons are exempt, and many plan their budgets in that manner.  While some have extra cash, quite a few are barely scraping by. So when a warehouse or an office space suddenly becomes a cost center they didn’t expect… well, that’s a big budget problem.

Next, most people will only get unhappy about cities looking for new ways to soak them, and there will be grief for whatever they find.  If it sucks more out of their favorite charity, or someone who would normally help the community in another way, then there will be some repurcussions back to the government.  The article cites several cities that got pushback and had to drop similar measures.   Admittedly, this probably affects most people less than a direct hit on their own taxes, but it’s not good news in any way.

And really… are city budgets so bad that they need to take the lunch money from the little kid even the bullies won’t pick on?  You really have to wonder how long it’s going to take before someone, somewhere in a government agency decides that it’s really time to just start taking the painful cuts.

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2 Comments leave one →
  1. December 28, 2010 10:06 am

    Mike, that’s a good report. I took this in a slightly different direction, though. NFP’s do end up paying taxes on many things (I’ve had to do tax statements for some in the past), and they do pay employee taxes. I don’t know that having a big cash flow is an issue either, though it depends on whether the cash is flowing or pooling.

    For instance, an organizaiton like Guide Dogs or Canine Companions has a large endowment and pulls in money, but also has a large number of paid employees, large expenses, and takes no government money. But their results aren’t returned to shareholders, they’re used to give people independence. So large cash flow and NFP are not mutually indistinguishable in my mind.

    With all that said, a random tax like I listed above would affect the smaller NFPs before the larger ones. So I’m okay with changing the rules on NFPs, but do it legally and uniformly, and then decide how you’re going to inhibit NFP progress.

  2. Mike permalink
    December 27, 2010 2:45 pm

    I did a study on this in 2008 for California only. There were some startling statistics involved in not-for-profit (NFP) orgs. As memory serves, 85% of them had cash flow of $250k or less and overall assets of $500k or less.

    The other 15%, accounted for cash flow of $120B, that’s right, billion. At the tax rate these businesses in NFP clothing should pay, that’s another $12B a year that should be flowing into government coffers.

    As for the true NFPs, the 85% in California, they should not be taxed as they are pursuing their missions in a means that is consistent with the NFP and tax exempt charters.

    For the others, they are businesses and should pay just like any other business. Don’t care if it’s health care, education, or religion, it’s flagrant abuse of the NFP system.

    So, if the municipals want to take the lead here, I say let them. I’d rather see the $ get collected and used locally in any case.

    Original post with references

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