Charities, Cities at Odds Over Constitutional Amendment

In just a few months, state voters could find themselves picking sides in a long-running dispute about who decides which charities should be exempt from taxes, a decision with significant financial implications for the charities and the cities and towns where many of them are based.

Charities, including large hospitals, are concerned about new costs if their tax status changes. The municipalities, many with tight budgets already, worry about erosion to their tax base.

A constitutional amendment passed the Legislature during its last session that would give the Legislature the explicit authority to ``establish uniform standards and qualifications'' to determine what qualifies as a purely public charity and is therefore tax-exempt.

If lawmakers approve it again over the next two years -- and it passed a Senate committee last week -- the proposal will go before voters in the form of a referendum. That could occur as early as the May 19 primary.

Votes about the amendment in the Legislature have been mostly along party lines, with support from the Republican majorities. Supporters say the state needs a consistent approach to keep disputes out of court.

Hospital and health-related organizations, religious groups and other nonprofits have urged lawmakers to advance the proposal, while municipal officials say it might add to their already disproportionate number of tax-exempt properties.

"We're concerned that the standards will be lowered," said Lock Haven Mayor Rick Vilello, a Democrat and past president of the Pennsylvania Municipal League. "And more nontaxable property increases the burden on grandma."

Senate President Pro Tempore Joe Scarnati, R-Jefferson, said litigation on the subject is already costing both municipalities and charities, and he wants the amendment to go through before lawmakers hammer out whatever new rules might be needed.

"If there's a real, sincere desire to vet this and talk about it more, that's wonderful, that's wonderful," Scarnati said. "But if the desire is to stall it or to kill it, then I have a problem with that."

The issue has emerged in the wake of a 2012 state Supreme Court ruling that addressed the tax status of a summer camp in the Poconos owned by an Orthodox Jewish community in New York.

The camp's owners sought a property tax exemption as a purely public charity, but a majority of justices ruled it didn't qualify because occasional use of the camp facilities by area residents didn't relieve the government of a burden, one of the elements that make something a charity under case law.

Justice J. Michael Eakin described how, more than a century ago, the practice by state lawmakers of generously issuing exemptions prompted the adoption of limits in the 1874 constitution.

These days, Eakin wrote, lawmakers can grant tax exemptions "but only within the boundaries of the constitution -- the constitutional identification of those boundaries remains the unique province of the judiciary." By a 4-3 vote, the justices ruled against the camp owners and for the Pike County Board of Assessment Appeals.

Sen. Ryan Aument, R-Lancaster, who is sponsoring the amendment, said the court's decision raises issues about the separation of powers among branches of government.

"It's the residents of this commonwealth, through their elected General Assembly, who ought to determine what constitutes a purely public charity," Aument said.

Senate Democrats, who all voted against the bill in committee last week, argue that the amendment will cost millions to advertise and conduct, and some would prefer to hammer out new rules before the referendum lands on the ballot.

"There's going to be different opinions in the General Assembly about what that should look like," said Sen. John Blake, D-Lackawanna. "That's a debate we need to have. The question is, Do we need to do it sooner or later? And that remains to be seen."