Tag Archives: PADM6190

Voluntary payments by nonprofits to their “host” jurisdiction

While nonprofit organizations, such as many colleges and universities,  enjoy special favored tax status including property tax exemption on property used for the nonprofit purpose (details depend on jurisdiction), those same organizations may nonetheless elect to make various types of voluntary payments to their jurisdiction.  Such a payment can be in recognition of the benefits derived in terms of municipal services provided by the jurisdiction, and also in recognition of the dependence of the nonprofit’s operations on the vitality and sustainability of the community in which it is located.  This latter issue has become increasingly salient as many municipalities encountered severe fiscal distress in the aftermath of the financial crisis.  A recent piece in the Chronicle of Higher Education addresses an new 11-year voluntary agreement recently arrived at between Brown University and Providence, RI.  A useful overview of “payments in lieu of taxes”, or PILOTs, is offered by Kenyon and Langley (2011) at the Lincoln Institute.  While not every voluntary agreement is officially labeled as a PILOT, it is a general term for a variety of types of monetary commitments from nonprofits to their host jurisdiction.

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“Three Cups of Tea” author and related nonprofit – class discussion

We spoke toward the beginning of this class briefly about a recent controversy surrounding financial matters in a nonprofit, the Central Asia Institute, and the exposé “Three Cups of Deceit” on the topic by author and former donor Jon Krakauer.  Your classmate noticed this recent development in the situation covered in the Philanthropy News Digest as a settlement is reached in Montana after a year-long investigation.  Note that not only Mortenson but also the CAI board came in for criticism.  Here is an LA Times article which also touches on another recent American foreign-aid focused charity controversy.

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Example of conflict between jurisdictions and nonprofit entities over tax exemptions

Here is an interesting article that touches on our discussion a while back about how tax exemptions are privileges which depend on rules about the activities that nonprofits (state concept) and tax exempt entities (IRS concept) engage in. Here a state permits tax exemption for property as long as it is supporting the university, but the debate was over whether the support could come through the revenues from its use commercially or only through its use for actual university purposes. Note the concern over “commercial advantage”; the justices are saying that if the University don’t have to pay local property tax on the property, that gives it a commercial advantage over other landlords (the building houses apartments and a credit union) because it can potentially offer lower rents than nonexempt landlords. (This rests on a understanding of a concept from Public Budgeting and Finance: tax shifting, where ultimately landlords will pass on the cost of the property tax bill to renters as it is part of the cost of operations). Note also who is bringing the case: the local school board, since that is the beneficiary of the property taxes that have not been paid. Now as long as the building is still cost effective to run and revenues exceed expenses after property taxes are included, then the University may still opt to do so; but the proceeds available to put into the scholarship fund will obviously be lowered. Note also that this whole situation results from a gift from a donor of the building in order that it’s revenues could be used for the Veterinary program.

http://www.dispatch.com/content/stories/local/2011/11/02/no-tax-break-for-osu-rental-property.html

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