PHILADELPHIA-State lawmakers have thrown a monkey wrench into an attempt to settle Pennsylvania's long-running tax disputes between hospitals and local governments.
They did so by tacking onto compromise legislation a provision that the hospital industry finds objectionable. That provision would bar tax exemptions to organizations with highly paid executives that don't also make payments to the city of Philadelphia in lieu of taxes.
The compensation restriction was added to the hospital-backed tax bill by state Sen. Frank Salvatore, a Republican representing Philadelphia.
"Any institution claiming to be a charity but able to pay any employee $100,000 or more a year should not qualify for property-tax exemption in Philadelphia," Salvatore said.
In a memorandum to its hospital members, the Hospital Association of Pennsylvania, which had the original legislation introduced on its behalf, said it will lobby to have the compensation amendment stricken from the bill.
The legislation, with the compensation amendment, passed the Pennsylvania Senate on June 26 by a 35-15 vote. It's pending in the state House.
The bill attempts to end the property-tax exemption battles between local tax assessors and not-for-profit organizations throughout the state. In 1985, the state Supreme Court gave the assessors the ammunition to go after not-for-profits by creating a strict five-part test that traditionally tax-exempt organizations had to pass to avoid property taxes as "purely public charities."
Since then, dozens of Pennsylvania's more than 200 not-for-profit hospitals have been forced to either pay property taxes or make payments or provide services in lieu of property taxes because of the decision. Other organizations, including nursing homes, colleges, universities and religious institutions, also have been hit by local tax assessors.
The legislation would permit any not-for-profit to file an application with the state revenue department to be certified as a "purely public charity."
To qualify, an organization would have to pass a test similar to the one created by the state Supreme Court in 1985. The proposed test has the same five parts as the court test, but the legislation spells out how organizations can meet it rather than leaving it up to individual tax jurisdictions.
Organizations that obtain public charity certification would be exempt from state and local property taxes.
Similar legislation failed in each of the past three state legislative sessions. This year's version has gone the furthest, but now the sponsoring organizations must beat back the compensation amendment.
The amendment would deny a property-tax exemption to any not-for-profit organization in Philadelphia that pays any employee more than $100,000 and has refused to enter into a payment-in-lieu-of-taxes agreement with the city. The city set up a payment-in-lieu-of-taxes program last December.
"The income of CEOs and other employees is not a good indicator of the charitable works of an organization," said Leonard Karp, vice president for public information and government relations for the Delaware Valley Hospital Council.
The council and other organizations representing not-for-profit institutions also oppose the amendment because it places a special restriction on Philadelphia not-for-profits.
"The purpose of the legislation is to create uniform standards," Karp said. "The amendment sets up one system for Philadelphia and another for the rest of the state."
Karp accused the mayor's office in Philadelphia of having the amendment added to the bill to protect the city's tax amnesty program.
Under the program, a not-for-profit can agree to pay the city up to 40% of its annual property-tax liability in exchange for keeping its property-tax exemption. An organization could reduce that amount by up to one-third through the provision of specific community services (Dec. 12, 1994, p. 22).
At the time of the program's launch, the city estimated it could generate as much as $40.3 million in annual revenues from 2,000 organizations. However, enrollment has fallen far short of projections.
Gregory Rost, Philadelphia's deputy mayor for policy and planning, said approximately 50 organizations have enrolled in the program to date, generating $8.4 million in revenues for the city and its school district for the fiscal year ended June 30.
He said another 250 organizations were exempted from the program because a review of their financial and corporate records determined that they were purely public charities under the state Supreme Court's 1985 test.
Rost denied that the mayor's office was behind the compensation amendment, attributing it solely to Salvatore.
Rost said the city opposes the bill because it threatens payment-in-lieu-of-tax programs like Philadelphia's and because the law likely is unconstitutional and won't hold up in court.
Meanwhile, Salvatore's office has denied accusations that the amendment was added at the request of the city as a provision designed to kill the bill before it goes further.