Posted on Monday, December 27, 2010
Facing budget gaps and an aversion to new debt and taxes, states and local governments are slapping residents with an array of new fees—and some are applying them to nonprofits.
That marks a sharp departure from long-standing tax exemptions mandated by state law or adopted on the theory that churches, schools and charitable organizations work alongside governments to provide services to the community.
Listen: Whether they're called taxes or fees, municipalities are turning to nonprofits to pay.
The issue is on display in Houston, where some flood-prone roads are in such disrepair that signs warn drivers, "Turn around, don't drown."
Houston's taxpayers in November narrowly voted to adopt a "drainage fee" to raise at least $125 million a year toward the cost of improving roads and storm-water systems. The city will charge fees to property owners, and it won't grant exceptions to churches, schools and charities.
The city has been tightening its budget. "We're cutting up the city's credit cards," says Mayor Annise Parker. "Everyone who contributes to drainage issues has to share in the cost of correcting those issues."
A number of groups—including schools, businesses, churches and senior citizens—are demanding exemptions. "We'll defeat this," says David Welch, of the Houston Area Pastor's Council, who plans to lobby state legislators in January. "This is really a tax. It is the first time that churches would not be exempt from property taxes," he says. Some opponents have filed suit claiming the ballot wording was misleading.
At a group called the National Council of Nonprofits, Tim Delaney, chief executive, says, "Governments are taking their public burdens and putting them on the backs of nonprofits, at a time when the demand for our services is skyrocketing."
Some cities are charging religious groups property taxes on buildings no longer used for worship. Other localities are soliciting voluntary contributions. Albany, N.Y., recently passed an ordinance asking schools, hospitals and other nonprofits to contribute to city services.
In Minneapolis, residents recently began paying a street-light fee that also applies to nonprofits, which in some places pay fees for elevator safety and fire inspection.
Drainage fees that apply to nonprofits have been adopted by cities that include Richmond, Va.; Lafayette, Ind.; and Verona, Wis. Such fees are emerging now because the federal government has been cracking down on how cities handle the rain that rolls off roofs, parking lots, and other impervious surfaces, sometimes causing floods and ripping up roads. The runoff can collect debris, oil and other pollutants and ultimately drag it all into the nation's waterways.
The federal Environmental Protection Agency recently issued strict storm-water rules for real-estate developments and stepped up enforcement of run-off rules for municipalities. In 2010, municipalities accused of violations paid $5.3 billion in repairs, a nearly four-fold increase from 2009. Those settlements ranged from Kansas City, Mo., with $2.5 billion in fixes, to Revere, Mass., which agreed to spend $50 million on repairs.
The American Society of Civil Engineers estimates that cities and towns need to spend more than $250 billion over the next five years fixing crumbling storm systems.
As municipalities try to bridge budget gaps with fees that also hit nonprofits, some residents are kicking up a storm. Chicago and Dade City, Fla., scrapped proposals for drainage fees after protests from these groups. Cleveland suspended its proposal after community groups and businesses sued.
In Arnold, Mo., a similar suit was filed in October. Residents of Mobile, Ala., rejected a referendum that would have imposed a drainage fee.
The federal government itself is refusing to pay drainage fees in several cities, including Washington, D.C., saying it is really a tax so the U.S. government is immune.
In Houston, among drainage-fee proponents was City Councilman Stephen Costello, the owner of an engineering firm. He says he and his firm invested $100,000 for the petition drive that got "Proposition 1" on the ballot, while other engineers helped finance the campaign.
A former Harris County tax assessor, Paul Bettencourt, was outraged. "I have never seen nonprofits taxed before," he says. He helped raise $100,000 to fight the measure. On Election Day, 165,000 people voted yes—50.9%. About 160,000 said no.
The outcome came as a jolt to Greg Meyers, president of the board of the Houston Independent School District, which includes 300 schools. Mr. Meyers says schools will have to lay off 50 to 70 teachers or raise taxes to pay their share—$3 million to $4 million a year.
"One taxing entity taxing another is mind-numbing," Mr. Meyers says. The board intends to lobby for a new state law.
Mayor Parker is holding her ground. "If we take away one broad category, somebody else will have to pay significantly more," she says. "It's a zero-sum game."
Churches also are seeking an exemption. The Roman Catholic Archdiocese of Galveston-Houston anticipates paying $750,000 to $1 million a year in fees.
"We as a society have said we are not going to tax places of worship," says C.O. Bradford, a Houston councilman.
"This is different from paying for other utilities," he said. "If they stop paying their bills, we can turn off their water or electricity. But we can't stop the rain from falling out of the sky."
Jeanne Dugan WSJBy IANTHE JEANNE DUGAN