Pennsylvania Legislature Considers Constitutional Amendment on Tax Exemptions

A proposed amendment to the Pennsylvania state constitution would give the legislature — instead of the courts — final say on whether nonprofit organizations in the state are eligible for a property tax exemption, the Pittsburgh Post-Gazette reports.

Supporters of the amendment argue that it would provide consistency in defining a public charity under Act 55, which was passed in 1997, and thus prevent nonprofits from being subjected to different court rulings in different parts of the state. Opponents of the amendment see it as an attempt to undermine local governments that are willing to go to court to force hospitals and other large nonprofits to pay more into municipal coffers in lieu of property taxes. The state senate passed the amendment last month, and the house finance committee has approved a version of it. The amendment must pass both houses in consecutive legislative sessions before it can be put to voters in a statewide referendum.

Among those supporting the bill are the Hospital & Healthsystem Association of Pennsylvania, the Association of Independent Colleges and Universities of Pennsylvania, the Pennsylvania Catholic Conference, and United Way of Pennsylvania. A memorandum circulated by state senators who support the bill cited a 2012 Pennsylvania Supreme Court decision denying a property tax exemption to a Pike County camp on the grounds the camp did not help to relieve the local government's burden, as required under a 1985 court decision. "By elevating its own judgment above the will of the General Assembly, the Court has created uncertainty as to the qualifications for public charities in Pennsylvania," the authors of the memorandum wrote.

Many municipal and school district officials believe the 1997 law makes it too difficult to challenge the tax-exempt status of a nonprofit, while others opposed to the bill — including the Pennsylvania Municipal League and the Pennsylvania State Association of Township Commissioners — argue that the property tax exemption puts an unfair and unsustainable financial burden on municipalities. In March, Pittsburgh mayor Luke Ravenstahl sued the University of Pittsburgh Medical Center for six years of back payroll taxes and revocation of the health system's property tax exemption. UPMC responded last week by filing suit against the city and Ravenstahl in federal court for unfairly targeting UPMC, which it said had contributed $622 million to the community in 2012.

"There is no question that many of [these] institutions contribute not just financially but to the quality of life where they are located," Richard J. Schuettler, deputy executive director of the Pennsylvania Municipal League, told the Post-Gazette. But when tax-exempt entities sit on 30 percent or more of a municipality's real estate, Schuettler added, the tax burden on everyone else becomes onerous. "It's part of the reason why there are so many more municipalities entering financial distress. Our view is that everyone has to pay some kind of fair share."

Steve Twedt. "Bill Would Shift Pennsylvania Tax Exemption Dynamic." Pittsburgh Post-Gazette 04/21/2013.