Could liquor tax make up for nonprofits’ tax-exempt status?
Across the Lehigh Valley and statewide, large institutions such as colleges, government and hospitals employ thousands of people and drive local economies.
But as nonprofits, they are also tax exempt, which means they don’t always pay for publicly funded services they consume.
State Rep. Robert Freeman, D-Northampton, has introduced legislation in which the state would provide financial assistance to communities with at least 15% of tax-exempt property.
Speaking by telephone Wednesday, Freeman said while nonprofits are “regional assets” for providing employment, cultural functions and more, “they don’t pay real estate taxes,” which is a main source of revenue for municipalities. Since that narrows the tax base, it results in residents generally paying higher taxes, he said.
Freeman said House Bill 451 would establish a Tax-Exempt Property Municipal Assistance Fund with money funded by the state’s 18% liquor tax, known as the Johnstown Flood Tax. That tax helped rebuild the Cambria County city after it was devastated by a flood in 1936. Freeman thinks the money now should be targeted to other communities.
In the Lehigh Valley, the proposed legislation would provide significant funding to Allentown, Bethlehem, Easton, Fountain Hill and other municipalities with high percentages of tax-exempt properties, he said.
His bill would require each county to annually provide the state with information regarding the assessed value of tax-exempt properties. The funding formula would be based on the assessed value of those properties as if they were taxable.
No municipality would receive more than 10% of the total revenue in the fund, and property owned by the municipality itself would not be eligible for compensation, according to the legislation.
Some communities, including Easton, which hosts the Northampton County government center, Lafayette College and nonprofits, have been able to keep property taxes level but have raised fees for such services as garbage and sewer disposal. In addition, some organizations help communities make up for lost tax revenue by making what is known as PILOT, or payment in lieu of taxes.
Freeman, who has introduced similar legislation without getting it to a full House vote, was confident it could pass this time. He said the issue has become a “more acute problem” in many communities that lost their commercial downtowns and industries over the years.
The other reason Freeman is optimistic: The state budget is flush with cash, he said, and a portion of the millions of dollars reaped by the flood tax (about $430 million during the 2021-22 budget year, according to Pennsylvania Capital-Star) could be earmarked for municipal assistance.
House Bill 451 was referred to the House Local Government Committee, which Freeman chairs. The longtime Easton state lawmaker said he has not heard if any state senator is interested in proposing similar legislation in that chamber.