Facing Budget Shortfalls, Cities Ponder Taxing Nonprofit Property

The city of Bridgeport, Connecticut, is levying property taxes on nonprofits that provide housing to the needy when it used to treat those organizations as tax exempt, prompting some of the nonprofit groups to file suit against the city, the New York Times reports. Meanwhile, nonprofits in the same situation in New Orleans have recently won tax-exempt status, according to the New Orleans Times-Picayune.

At least three nonprofits in Bridgeport have filed suit against the city so that they won't have to start paying property taxes, including Regional Network of Programs Inc., which operates counseling and shelter programs for the homeless, drug addicted, mentally ill, and adults with AIDS, and Goodwill Industries of Western Connecticut, which provides low-cost housing for the mentally and physically disabled. Goodwill said it has owned its property since 1969 and was never taxed until 1998. Bridgeport Rescue Mission, which operates a soup kitchen, homeless shelter, and drug rehabilitation center, is also suing the city and says it will have to close if the city tries to collect the nearly $300,000 in unpaid property taxes dating to 1996 for the organization's two properties.

"We would have to shut down," said Ray Weir, the board president of Bridgeport Rescue Mission. "We told the city the implication is that if you pursue this you are going to shut down the Fanny Crosby Memorial Home, you are going to shut down the feeding program, and there are going to be more hungry people on the street."

Bridgeport officials maintain that the city needs the revenue, and Connecticut law holds that virtually all property used for housing is taxable, with a few specific exceptions such as church-owned residences occupied by clergy. Moreover, the law states that any housing at least partly subsidized by the government is not exempt from property taxes.

"We recognize the good work that these nonprofits do," said Russell D. Liskov, an associate city attorney. "But they also take valuable properties off the city tax roll. Thus, the city and these tax-exempts are being subsidized by every other taxpayer in the city of Bridgeport."

The problem of how to balance the rights of taxpayers against the needs of the poor, homeless, and disabled is becoming an issue in poor urban areas across the country as the economic downturn reduces the budgets of both cities and nonprofit groups. The city of New Orleans, for example, is expected to lose about $1 million in property tax revenue annually as a result of a court decision reaffirming the tax-exempt status of nonprofits providing low-income housing.

The ruling, which involved about 1,700 apartment units in five complexes owned by the Volunteers of America, will affect other nonprofit organizations owning hundreds of apartments, said Erroll Williams, the assessor for the city's Third District. Williams, who objected to the ruling, promised "fair and equitable treatment" to all nonprofits in the city. "If the law says exempt, other groups will get equal protection."

David M. Herszenhorn. "Bridgeport, Short on Revenue, Taxes Properties That Nonprofit Groups Use for Housing." New York Times 01/06/2002. Greg Thomas. "Nonprofits to Profit from Legal Ruling." New Orleans Times-Picayune 01/09/2002.