Nonprofits call for others to pay
The budget at Youth Enrichment Services in East Liberty couldn't be much tighter: For now, free rent is the only thing keeping a roof overhead at the nonprofit mentoring program for accused teenage criminals.
So if the Legislature enacts a $100-an-employee tax on nonprofits, an idea floated Tuesday by Gov. Ed Rendell, the group would probably have to collect that fee from its employees, its executive director, Floyd Jones, said Wednesday.
Nonprofits such as area universities and hospitals could generate millions toward meeting Pittsburgh's $60 million budget shortfall, but not every nonprofit has their resources, Jones said.
"You can understand why it's an attractive pool of people to go after, but I think the problem is it's going to be more of a tax on the people who work for the nonprofit than the nonprofit itself," said Jones, whose agency spends about $400,000 a year to place about 100 teenagers awaiting hearings with mentors instead of in juvenile detention. "People will be penalized for working for nonprofits."
Yesterday, directors of several Pittsburgh nonprofits, large and small, acknowledged the need for tax-exempt groups to share more of the city's financial burden. But several also questioned whether a tax based on the size of a nonprofit group's workforce is the fairest way to spread the city's debt more broadly, especially at a time when the sluggish economy has discouraged charitable contributions and eroded endowments' investments on Wall Street.
A property tax on nonprofits, an option that could raise $7 million annually and help the city eliminate its $60 million budget deficit, would shift more of the city's burden onto the groups best able to shoulder it, said Kim Wilson, executive director and sole employee of Pittsburgh Social Venture Partners.
"The smaller organizations that really couldn't afford it tend not to own their property," said Wilson, whose group runs on about $130,000 a year and awards another $160,000 in grants to groups such as Youth Enrichment Services. "Some of the larger organizations that can afford to own their buildings could, possibly. ... I just have the general sense they'd be in a better position to pay a property tax."
Rendell's proposal would impose the $100 per employee annual fee on the city's more than 6,000 nonprofits. The governor also has proposed increasing the current $10 occupation tax paid annually by everyone who works in the city to as much as $100.
If the city enacts a service fee on nonprofits as well, it could still exempt churches, synagogues, parochial schools and other charities, state lawmakers said.
State Rep. Dan Frankel, a Squirrel Hill Democrat, said the proposed service fee also could be tied to a progressive scale in which the largest organizations pay at a higher rate than the smaller ones.
For the nonprofits that make up some of Pittsburgh's largest employers, the fee could trim current budgets.
At Duquesne University, collecting $100 for each of the school's 2,500 workers would net the city $250,000, but also could make the university less competitive than schools in the rest of the country, according to Dave Mastovich, the university's director of public affairs.
"The governor's tax proposal will make it harder for us to attract young people and professional talent to Pittsburgh," Mastovich said. "This cannot serve the long-term best interests of the city."
Mastovich said university officials have not considered how to pay for the proposed fee on its employees from its annual operating budget of about $180 million.
At the Salvation Army, a tax on the agency's 300 employees would force the organization to rethink how it currently spends its yearly budget of $24 million, according to Capt. Bill Bumford. Ultimately, a tax on agencies providing social services could force groups -- including his -- to trim their programs, he said.
"It would all come back to cutting services on people, I guess," Bumford said.
But cities like Pittsburgh draw both tax-exempt nonprofit groups and people who need social services, simultaneously boosting expenses and undermining the city's ability to pay them, said Maxwell King, president of the Heinz Endowments. As a result, he said, those nonprofits should contribute more to the health and welfare of their community than just their good works.
"There's a serious crunch for cities all over America to meet the needs of their populations," King said. "So when nonprofits own 30 to 40 percent of the property -- as they do in Pittsburgh and Philadelphia and many other big cities -- it becomes a significant budgetary issue for city government."
