ROBERT SWIFT: Capitol Matters: Non-profit, or not-for profit?
HARRISBURG - The debate over granting tax-exempt status to non-profits providing charity has been framed mostly in terms of its impact on the institutions themselves and on distressed cities.
But any major changes to the 1997 state charities law will affect school districts too.
This was highlighted by an attorney who testified on behalf of the Pennsylvania Association of School Business Officials at a recent House Finance Committee hearing examining that law.
The impact of tax exemptions on a school district's ability to fund education programs is serious because of their increasing reliance on school property taxes, said Howard Kelin, counsel for the Pennsylvania Association of School Business Officials.
Property taxes accounted for nearly 46 percent of total school district revenue in fiscal 2011-12, compared to nearly 40 percent in fiscal 2003-04, while the state share of total revenue declined to 38.7 percent from 42.3 percent during the same period, added Mr. Kelin.
Contributing to the problem from PASBO's viewpoint, the ability of school districts to offset revenue losses through property tax hikes is limited under a 2006 state law. Districts had been able to cite revenue losses from the implementation of court orders granting property tax exemptions as a way to skirt the tax hike limits, but this avenue was eliminated in 2011.
"New tax exemptions for a purely public charity impose a direct dollar-for-dollar reduction on school district revenues, and thus can have a striking, adverse impact on the financial ability of districts to provide educational programs," said Mr. Kelin.
Amidst this backdrop, the education association considers the charities law and the 1985 court test for a purely public charity that underlies it to be flawed.
"PASBO's chief concern with Act 55 (the 1997 law) is that is substantially liberalizes the test to qualify as a purely public charity," said Mr. Kelin. "It would allow tax exemptions to institutions that actually donate relatively little charitable care."
The main problem in PASBO's view is with the key criteria that a purely public charity must donate a substantial portion of its services.
The courts have not given guidance on how much donated care is required to meet the criteria, while the charities act sets a low financial assistance threshold to meet it, added Mr. Kelin.
The immediate issue before state lawmakers is whether to have statewide voters decide the constitutional question of whether the Legislature or courts should ultimately define what a public charity is for tax-exempt purposes.
The Legislature has given initial approval to a proposed constitutional amendment declaring they have that authority. The amendment will need approval in the next two-year legislative session starting in 2015 before it can be placed before the voters.
The action came after the state Supreme Court ruled last year that a religious camp in Pike County didn't meet one of the court's 1985 criteria.
If the constitutional amendment is ultimately adopted, that would leave Act 55 with its lenient standards as the sole test for determining charitable tax exemptions, said Mr. Kelin.
And that would be a problem for PASBO unless Act 55 is rewritten.
ROBERT SWIFT is Harrisburg bureau chief for Times-Shamrock Communications newspapers, of which The Daily/Sunday Review is a part. Email: firstname.lastname@example.org