By Gian-Carl Casa | April 5, 2017
Should Connecticut’s municipalities be allowed to tax homeless shelters, residences for people with disabilities or behavioral health problems, or substance abuse rehabilitation and treatment centers?
Some legislators and local officials think so and a proposal before the General Assembly would allow local governments to tax property purchased by nonprofit organizations, if that property had been previously taxable.
Another proposal would let municipal governments assess “service fees” — another word for “taxes” — on nonprofits. And some municipal leaders are asking for voluntary contributions instead.
The mere existence of these proposals is a sign of the fiscal desperation of Connecticut’s urban and population centers. Nonprofits tend to be grouped in more densely-populated communities because it is where the most need is concentrated and transportation is available. In larger communities as much as half of the property is exempt from taxation. Local leaders are looking at nonprofits as a source of funds so they can avoid increasing the tax burden on other residents and businesses.
But taxing nonprofits is a bad idea that will come back to hurt the very communities it is intended to help.
Nonprofits are exempted from property taxes for a good reason: they provide services to their communities so that government doesn’t have to. Property tax exemptions are a way to compensate nonprofits for doing that work on behalf of the community.
In addition, many nonprofits contract with the state government to provide certain types of services. Taxing those entities means money appropriated by the state would in turn be paid to another level of government, rather than used for its stated purpose. It would amount to municipal “nullification” of the intention of the General Assembly that appropriated the funds.
After a decade of budget cuts and with more cuts pending, taxing nonprofits would deprive them of funds at a time when many are barely surviving. Put simply, it would limit their ability to help people.
For example, there are more than 2,000 people with intellectual disabilities on a waiting list for services from the state Department of Developmental Services. Taking money away from the nonprofits that help them could not only mean those citizens would be out of luck, but that the list would grow.
Some local governments are asking nonprofits for “voluntary” payments. While that is one alternative we must be careful that calling something “voluntary” truly means it is so, and not a de facto obligation for struggling nonprofits.
It is a generally accepted principle of public policy that when you tax a transaction or an item, users do or use less of it. Taxing nonprofits would mean we would have fewer services for people with behavioral health problems and addictions, fewer arts and cultural associations, fewer shelters for victims of domestic violence and a loss of many other services.
Taxing nonprofits will not solve municipal fiscal troubles. It will hurt our communities and the people who live in them.