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Municipalities, Nonprofits Square Off Over Tax Bill

Municipalities, Nonprofits Square Off Over Tax Bill

CT News Junkie, April 12, 2019

By Christine Stuart

The leader of Connecticut’s largest municipal lobby blamed the state for making it necessary to propose legislation that would allow municipalities to tax nonprofits.

“It is state policy that has pitted local governments versus nonprofits,” Connecticut Conference of Municipalities, executive director and CEO Joe DeLong told the Finance, Revenue, and Bonding Committee. “That’s why we’re here.”
 

The legislation, which received a public hearing Wednesday and does a number of other things including increasing the food and beverage tax to 7.35 percent, would require community nonprofits to pay a “municipal public safety and infrastructure benefit charge,” annually.

Gian Carl Casa, president and CEO of The Alliance, a coalition of more than 300 nonprofits, called it a “tax.”

DeLong said he doesn’t consider the nonprofit community a drain on resources because “we are all in this together,” however, “if the state doesn’t address gaps in state policy in terms of how we fund stuff at the local level then we’re going to continue to have to be here to fight for local survival.”

New London Mayor Michael Passero said it’s not tax-exempt institutions like Connecticut College that’s the problem for his municipality. The city of New London does receive some funding under the Payment-In-Lieu-of-Taxes (PILOT) formula from the state for Connecticut College.

He said it’s things like the Homeless Hospitality Center, which provides shelter and other services to people throughout the region. Passero said the cost of providing public safety services to the center is not something that is shared by surrounding communities and it’s a burden that should not be shouldered entirely by the city and its taxpayers.

It’s “not sustainable if only the taxpayers in the city of New London have to carry those services,” Passero said.

Casa said nonprofits are exempt from property taxes because they provide services the government doesn’t.
 

“We believe this [tax exemption] protects taxpayers because it would cost government more to provide the services themselves if the nonprofit were not there,” Casa said.

Casa said if the government was forced to provide those same services it would likely increase property taxes.  

Tax Exempt Status Stays back to top

DeLong said the proposal won’t take away the tax exempt status of these groups, instead, they would “simply be asked to pay a reasonable fee for the public services they benefit from.”

Already Casa said his organizations are seeing municipalities try to remove tax exempt status of some nonprofit organizations.

According to a 2018 survey by The Alliance, about two thirds of the 35 nonprofits responding to the survey said their properties - which had a history of being tax exempt and had no changes of use - were suddenly being denied tax exemptions in 41 towns.

Sen. John Fonfara, D-Hartford, said the property tax has failed to live up to its responsibility to meet the increasing needs of cities and towns.

“Need far exceeds capacity in many of our communities,” Fonfara said.

The question remains what’s the best way to pay for these services and where should the money come from.

Another part of the bill would increase the sales tax on food and beverages sold by restaurants from 6.35% to 7.35%.

The Department of Revenue Services would be required to deposit 13.6% of all revenue collected under the food and beverage tax and deposit that money into a newly created Municipal Revenue Diversification Fund, which would be held separate from the state’s General Fund. Cities and towns that want to receive money from this fund would be required to opt in by a vote of their local governing body and would then receive funding based on point of sale.

The state’s experience at managing to give these funds back to municipalities has been mixed.

DeLong said they were “skeptical” but still supportive of the idea.