HARRISBURG - The role of nonprofit organizations in providing charity while enjoying tax-exempt status will get a higher profile in Pennsylvania in coming months.
State lawmakers are setting the stage for having statewide voters decide the constitutional question of whether the Legislature or courts should ultimately define what a public charity is for tax-exempt purposes.
Both chambers have given initial approval to a proposed constitutional amendment declaring the Legislature has that authority. The amendment will need approval in the next two-year legislative session starting in 2015 before it can be placed before the voters.
Accompanying this narrower jurisdictional issue is the question of whether the diverse nonprofits in Pennsylvania, which range from large health care complexes to community nonprofits under the United Way umbrella, should be judged by the same criteria to meet charitable standards or separate ones. A recent legislative study of more than 600 nonprofits receiving state aid to deliver human services indicates a wide disparity in net revenue (minus expenses) among them. About two dozen have annual revenue of more than $10 million while more than 200 report negative net revenue.
Distressed cities, such as Scranton, have a stake in the outcome of this debate because of the revenue loss incurred when nonprofit property is exempt from taxes.
Legal disputes between municipalities and individual nonprofits over tax-exempt status are driving the constitutional amendment. Denying tax-exempt status to a religious camp in Pike County, the state Supreme Court ruled last year that it didn't meet a charitable status set in a 1985 court case. That ruling called into question the validity of a state charities law enacted in 1997.
The House Finance Committee plans a hearing next month to see how the 1997 law is holding up.
It's time for a review since the law has been around for 16 years, said panel Chairman Kerry Benninghoff, R-171, Bellefonte. A lot of groups are trying to obtain tax-exempt status and any change in criteria will bring winners and losers, he said.
Democratic lawmakers think legal distinctions should be drawn between hospital nonprofits and community nonprofits before voters are asked to amend the Constitution.
"Our smaller nonprofit social service agencies like the United Neighborhood Centers and the Greater Scranton YMCA, who are purely public charities should not be grouped in with large hospitals, which could lead to abuse in the tax revenue for local governments," said Rep. Kevin Haggerty, D-112, Dunmore.
Local officials have first-hand knowledge of local charities and understand the benefits of their causes, and are better equipped to decide who deserves exemption from taxation, he said.
Rep. Dan Frankel, D-23, Pittsburgh, offered a floor amendment last month to require that the Legislature create additional separate standards to determine charitable status for hospital organizations if it asserts its authority to define what a public charity is, but it was defeated.
He said these standards can weigh such factors as the size of hospital net revenue, compensation paid to executives and spending on lobbying.
"Everyone else can see the distinction between too-big-to-fail nonprofit hospital systems and the local soup kitchen, church day care center or Boys and Girls Club - the legislature and state law should too," said Frankel.
He said a distinction should be drawn between hospital organizations and smaller community hospitals and critical health care access hospitals in rural areas.
Pennsylvania acute care hospitals face an uncertain financial future, yet still provided $1 billion in uncompensated care in 2011-12, according to The Hospital & Healthsystem Association of Pennsylvania (HAP).
Hospitals are coping with cuts in Medicare and Medicaid payments and the added threat of challenges to their tax-exempt status, said HAP President Andy Carter.
As this debate continues, the House Republican Policy Committee will examine the work of community nonprofits when it holds hearings this summer on the persistence of poverty and efforts to combat it. The committee wants to find out from nonprofit officials what programs work or are ineffective in helping people out of poverty, said Chairman David Reed, R-62, Indiana.
Contact the writer: rswift@timesshamrock.com