Task force to study tax impact of nonprofits on local area
Norwich — How does the taxation of nonprofits affect communities in southeastern Connecticut? Can the rules regarding tax-exemption be made more predictable for nonprofits?
A new task force is being formed to consider these and other questions after a local community denied tax-exempt status to several nonprofits.
Earlier this month, the Southeastern Connecticut Council of Governments Executive Committee met with the council's Regional Human Services Coordinating Council co-chairs, Deborah Monahan and Kathleen Stauffer, along with United Community and Family Services CEO Jennifer Granger and Norwich City Manager John Salomone, following recent decisions by the Norwich assessor, according to a memorandum summarizing the committee's meeting.
The assessor, Donna Ralston, had ruled that nearly three dozen nonprofits were not exempt from property taxes. Of those, 18 had missed a state filing deadline but then had received an extension until Aug. 1, under a bill the General Assembly recently passed.
James Butler, the executive director of the council of governments, said at the council's Wednesday meeting that he had suggested forming a task force to study human service agencies' tax impact on municipalities and possibly propose legislation that might benefit both.
Monahan, who is the executive director of the Thames Valley Council for Community Action, and Stauffer also have discussed nonprofits' need to have a clear understanding of their tax status. Some agencies own properties in multiple towns.
Butler said he is interested in exploring how the exemption of nonprofits affect three different types of municipalities in southeastern Connecticut: a larger community, a mid-sized suburban area, and a smaller, rural town.
At the same time, it has to be recognized and weighed that nonprofits provide services that municipalities can no longer provide, Butler added after the meeting.
He said the task force will look into possibly proposing a more uniform state statute governing the tax exemption of nonprofits. He said the statute is somewhat broad and can be open to interpretation, according to assessors.
Stauffer, who is also CEO of The Arc of New London County, said in a phone interview that a goal of the task force is to bring cities and towns and nonprofits to work on the same team, rather than taking opposite sides and having residents lose out.
The state has cut or flat-funded nonprofits over the last decade, while costs have been rising, she said. Meanwhile, the state's budgetary challenges squeezed cities and towns.
She said there is a need for better understanding of the role of nonprofits, which provide critical services at a highly competitive cost, often more competitively than what the public sector can provide.
"I think out of frustration, cities and towns are looking for new revenue streams, and I don’t think they understand the extent to which they are burdening over-extended organizations that probably are lightening their load in ways they are not aware of," she said.
Stauffer said the 150 nonprofit health and human service providers in southeastern Connecticut provide 7 percent of the region's jobs and annually contribute $560 million in wages, $35 million in indirect business taxes, and $1 billion in small business sales in New London County. The nonprofits' employees annually pay $16 million in taxes to the state and to municipalities, including property taxes.
Michael Passero, the mayor of New London — where about 44 percent of properties are tax exempt, and the median income for residents is about $35,000 — said the tax-exemption of nonprofits falls disproportionately on cities.
Passero, who is also the chairman of the council of governments, said that while nonprofits in the city provide good social benefits, it shouldn't be left to New London's minuscule tax base to solely subsidize them. He said either nonprofits should pay taxes, or the towns surrounding New London that also use the services should pay. For example, residents from surrounding municipalities come to New London for the hospital or for mental health services.
He said the state legislature needs to fix the issue.
"It's not the nonprofits' fault," he said. "They didn’t set up the system, but if the state thinks it's good public policy to relieve them of property tax they have to recognize that the host municipality has to be compensated."
The state provides a payment in lieu of taxes to municipalities for colleges, hospitals and state-owned property, but representatives from the Connecticut Conference of Municipalities have said the state does not fully fund the program.
Passero added that nonprofits shouldn't be buying property and taking land off the tax roll, but should instead lease so a landlord is still paying taxes for municipal services.
Butler said he will outline the task force over the next few weeks and welcomes ideas from members of the regional council. He also plans to reach out to the co-chairs of the human services council to add agencies to the task force.
Meanwhile, the Southeastern Connecticut Cultural Coalition, The Alliance: Voice of Community Nonprofits and the Community Foundation of Eastern Connecticut are hosting a forum at 5:30 p.m. Monday at Otis Library to educate nonprofits on state statutes and public policy regarding nonprofit property tax exemption.
Wendy Bury, executive director of the cultural coalition, said by email that along with health and human service organizations, the issue has also begun to affect arts and cultural organizations.
"Based on conversations with numerous assessors in the region recently, it is our understanding that the antiquated statute does not reflect the changing business models for some nonprofits, which, for many reasons, have had to generate new streams of revenue to directly support their charitable mission, purposes and programs," she added.