Nonprofits eyed as source of additional city revenue Groups not required to pay property tax may face new fees

February 12, 1996|By Eric Siegel | Eric Siegel,SUN STAFF

Oriole Park at Camden Yards pays no city property taxes. Neither do the National Aquarium, the Johns Hopkins University and the Cathedral of Mary Our Queen.

In all, $3.28 billion worth of assessed property in Baltimore is exempt under Maryland law from property taxes -- an amount equal to a third of the city's tax base, state records show.

In Maryland, the value of Baltimore's exempt property is exceeded only by that in Montgomery County, where the $3.47 billion in exempt property accounts for just 12 percent of the Washington suburb's tax base.

With the city once again facing a gloomy financial outlook, some lawmakers say Baltimore should follow the lead of a growing number of cities and begin collecting payments in lieu of taxes from the larger exempt organizations.

Such payments could help Baltimore offset the cost of providing vital services used by exempts as well as taxpayers, the lawmakers say, and provide at least some compensation for the loss of millions of dollars in tax revenue.

But Mayor Kurt L. Schmoke is leery of the idea. He worries that it will hamper the city's efforts to attract more nonprofit groups -- efforts that can create much-needed jobs but that can also mortgage the city's tax base by permanently removing properties from tax rolls.

"Now is the time," Councilwoman Sheila Dixon, a West Baltimore Democrat, said of the idea. "We're all very strapped."

Councilman Martin O'Malley, a Northeast Baltimore Democrat, agrees, provided the money collected is narrowly targeted. "I think we should tag it to public safety -- fire and police," he said.

Faced with a stagnating commercial and residential tax base and the prospects of declining federal aid, Mr. Schmoke is acutely aware of Baltimore's need for more revenue, but he is not yet ready to embrace the establishment of a nonprofit payment program "without further study of its long-range impact."

Instead, he wants to build on the recent success the city has had in persuading nonprofit organizations such as the Annie E. Casey and International Youth foundations to relocate here.

"We have decided to stay on course of trying to attract headquarters of major nonprofits," he said. "And we think that it would be counterproductive to that effort if we were also launching a new program of payment in lieu of taxes for nonprofits."

The Catch-22 of that approach is that attracting nonprofits -- and state and federal installations -- generates and guarantees jobs but also takes property off the tax rolls.

Since 1990, the value of tax-exempt property in the city has grown by $600 million, or roughly 25 percent; at the same time, the value of taxable residential and commercial property has grown by $400 million, or 6.5 percent.

Property tax is the principal source of city-generated revenue, accounting for slightly more than half of the $800 million General Fund, Baltimore's principal operating fund. The overall budget -- including federal and state grants for health, schools and other specified programs -- is $2.3 billion.

In Boston, where more than 50 percent of the land area is exempt from property taxes, officials recognized the potential problem posed by expanding nonprofits a decade ago. The result: a program in which nonprofits agree to pay 25 percent of the amount they would pay in property taxes for expanded facilities. The rate is based on the part of the city budget devoted to essential services.

Last year, Boston received $17 million a year in payments from 45 participating institutions. "This is not a huge source of revenue but it's an important amount," said Ronald Rakow, Boston's commissioner of assessing.

One of the longest-standing payment agreements is in nearby Cambridge, Mass., between the city and two of its most prestigious nonprofits: Harvard University and the Massachusetts Institute of Technology.

That agreement currently provides the city of 100,000 with about $4 million annually -- a fraction of what the schools would pay in property taxes but better than nothing, said acting Mayor Frank Duehay.

In launching a payment program two years ago, Philadelphia called nonprofits a "double-edged sword for [the city's] increasingly overburdened tax base."

"Many nonprofits have physically expanded ownership and development of previously taxable real estate, thereby contributing to the city's declining tax base," said a report by the city's Office of Policy and Planning.

Under the Philadelphia plan, initiated with an executive order by Mayor Edward G. Rendell, "purely public charities" such as soup kitchens and homeless shelters were not asked for payments.

But major hospitals and universities, where six-figure executive salaries are common, were asked to give between 33 percent and 40 percent of what they would pay in property taxes; up to a third of their payments could be offset by donated services.

In return, the city agreed not to challenge their exempt status.

Since the program began, Philadelphia has received $12.8 million from 50 of the city's nonprofits.

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