Pa. House bill would help locals cover costs of tax-exempt properties | Wednesday Morning Coffee
The legislation would put municipalities with large amounts of tax-exempt property on ‘sounder financial footing,’ its sponsor says
Across Pennsylvania, large nonprofit organizations are major employers and economic engines. But they’re also tax exempt, which means they don’t always pay their fair share for the publicly funded services they consume.
In theory, these large organizations, often sprawling health systems that look and feel like for-profit entities, are supposed to make up for lost tax revenue by making large payments, known as Payments in Lieu of Taxes, or PILOT, payments.
Too often, however, those payments fall far short of the mark — as a May 2022 analysis by the Allegheny County and Pittsburgh City Controller offices — revealed.
A bill now before the state House’s Local Government Committee seeks to level the playing field by authorizing a new state fund that would channel assistance to municipalities where more than 15% of properties are off the local rolls because of tax-exempt organizations. The legislation sponsored by Rep. Robert Freeman, D-Northampton, would take its funding from Pennsylvania’s 18% tax on booze, which brought in $431.3 million during the 2021-22 budget year.
In a statement, Freeman, who chairs the House local government panel, said his plan “would provide the financial compensation necessary to put these high tax-exempt property municipalities on a sounder financial footing to ensure their stability and success as a community.”
Pennsylvania put its liquor tax on the books in 1936 to help the city of Johnstown recover from a devastating flood that took the lives of 25 people and caused $43 million in damage at the time.
Lawmakers have tried to repeal the tax over the years, or to divert a portion of its revenue to other programs. But nearly 87 years after it went into effect, the “Johnstown Flood” tax, as it’s known, has proven one of Harrisburg’s most enduring political survivors.
Freeman, who’s the latest lawmaker to take on the fiscal behemoth, said he believes his plan fits the spirit of the levy because it’s aimed at helping “municipalities that are falling further into financial distress simply because they have significant amounts of tax-exempt properties within their boundaries.
“This legislation can help hundreds of communities across our commonwealth, including those municipalities that are under the Act 47 Financially Distressed Municipalities program, college towns, county seats and municipalities that host nonprofit hospitals, as they have a high percentage of tax-exempt property,” he continued.
Freeman’s proposal would require counties to annually provide the state with information regarding the assessed value of tax-exempt properties within their borders.
The formula for assistance would be based on the assessed value of those properties if they actually were on the tax rolls. Under Freeman’s plan, no municipality would receive more than 10% of the total revenue in the fund. And property owned by the municipality itself would not be eligible for compensation, the lawmaker said in his statement.
If it’s eventually signed into law — and that’s a big if — the bill could provide major relief to cities such as Pittsburgh, where nearly a third of the property in the city (34%) is designated as tax-exempt, according the city Mayor Ed Gainey’s office.
In January, Gainey signed an executive order directing the city’s finance and law departments to review all tax-exempt properties in the city, to ensure their tax-exempt status meets the state’s legal requirements.
“The only properties that should not be subject to property taxes are those owned by purely public charities — places where people who are down on their luck get the services they need, mostly for free,” Gainey said at the time.
While it was never mentioned by name, Gainey’s comments appeared targeted at local healthcare titan UPMC, which has come under legislative scrutiny for its tax-exempt status.
In a tweet, U.S. Rep. Lee Summer Lee, D-12th District, one of the lawmakers leading that charge, praised Gainey for the executive order, saying the people of western Pennsylvania “deserve confidence that their tax dollars are reinvested in our communities — not cheated by entities raking in revenue double the NFL’s.”
Freeman alluded to that disparity in his statement, observing that, while “many of the tax-exempt properties in our communities are significant employers and are important regional assets but being tax exempt means they do not pay real estate taxes to their host municipality.”
That gap “puts an undue burden on residential property owners in those communities who must pick up the slack,” Freeman continued. “A high percentage of tax-exempt properties within a municipality’s borders leaves the affected community with a greatly diminished tax base, which in turn makes it difficult to provide essential services.”
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