Archive for the ‘Real Estate’ Category

The ongoing question of what’s really a charity

February 18, 2013

Query whether a failure to file annual 990 reports should be grounds for determining that a nonprofit organization is not actually a charity, and therefore not eligible for property tax exemption.  Pittsburgh thinks so, apparently; but if being stupidly managed disentitled organizations to charity status, how many small nonprofits would remain standing?

This is the latest in a series of battles between Pittsburgh nonprofits and their host city.  The Nonprofiteer thinks the city should follow Willie Sutton’s advice and go where the money is, and stop trying to squeeze blood from these teeny-weeny turnips.

On the other hand, maybe these battles aren’t really about revenue at all.


Take me to the PILOT, once more with feeling

October 9, 2012

Here’s a new wrinkle in the ever-popular saga “Taxation of the Tax Exempt”: members of the Scranton City Council threaten to withhold zoning changes from owners of tax-exempt property unless they make “voluntary” PILOTS (Payments In Lieu Of Taxation).  The Nonprofiteer has long been open to the notion that non-charitable tax-exempt organizations should have to pay property taxes, even as she acknowledges that the definition of  “charitable” remains contested.

But let’s settle these issues in open political debate, with nonprofits able to make their case that they are truly charitable, and/or that their contribution to the public good entitles them to property tax exemption whether or not they’re charitable in some strict definition of the word.  Let’s not torture the concept of “voluntary” by suggesting that a payment extorted in return for rezoning is somehow a free-will contribution to the public fisc.

Cross-posted to

Of water bills, credit unions and self-help

November 7, 2011

Alarms are sounding in the Nonprofiteer’s home town of Chicago today about the first budget proposed by Mayor Rahm Emanuel, which requires nonprofits to pay for water and sewer services they previously received free.  A sector-wide outcry produced one modification—a phasing-in of the charges over three years at smaller nonprofits—but generally the Mayor is keeping a campaign promise to ask nonprofits to bear their “fair share” of municipal costs.

He also seems to be following the lead of the Illinois courts which, as previously noted, are re-examining the nonprofit status of several of the state’s hospitals.  The Nonprofiteer’s colleagues at The Nonprofit Quarterly characterize Emanuel’s move as over-reaching, in that it affects nonprofits other than hospitals.  But the Nonprofiteer has no difficulty identifying non-hospital nonprofits whose water and sewer bills she doesn’t feel like subsidizing: the YMCA of Metropolitan Chicago (which, notwithstanding the social services it provides, is mostly a very successful health club that uses a lot of water); the Art Institute of Chicago (which, notwithstanding the educational programs it provides, is a wealthy institution with very low personnel costs because every art-history major wants to work there); the University of Chicago (whose housing and athletic facilities use as much water as any suburban development and whose property tax exemption is secured by the Illinois Constitution).  And let’s remember that the smallest nonprofits are renters, most of whom get water and sewer as part of their leases from for-profit landlords, and won’t be affected in the least.  So a bit less howling, okay?

Especially as we contemplate this past weekend’s flood of accounts transferred to nonprofit credit unions in reaction to the obvious greed of the largest banks, particularly Bank of America.  (Even a major philanthropist has moved his accounts to protest B of A’s failure or refusal to modify a reasonable number of mortgages).  Maybe if the credit unions get wealthy enough they’ll be able to provide the rest of the sector with the working-capital loans it can rarely get from commercial banks.  Maybe they’ll offer special water-and-sewer-bill loans.

And maybe a little taste of self-help will remind the sector that it’s supposed to be independent.  Political trends come and go but the work we do must continue, and it’s our business to organize ourselves so it can.

Are you a tax-exempt charity? Sure about that?

August 18, 2010

While it’s not yet true that “Illinois Does A Few Adult Films To Make Ends Meet”, the state has begun to cast lascivious glances at its nonprofits.  Those property-tax exemptions look mighty comfortable.  Why don’t you push that  cushion over to my side of the bed? And with most interactions taking place behind closed doors, don’t expect a warning before the moment of truth arrives—or to be kissed while you’re getting screwed.

Unlike other localities re-evaluating nonprofit tax exemptions, Illinois has bypassed the legislative process, allowing county assessors and the Department of Revenue to take the initiative.  And this spring the Illinois Supreme Court decided that the state’s constitutional provision exempting charities from property taxes applied not to all nonprofits but only to genuine charities.

When the Court ruled that Provena Covenant Hospital didn’t merit a property tax exemption because it failed to provide adequate charity care, there was a brief frenzy of press speculation about the decision’s impact on hospitals—but hospitals only.  Rarely do the media connect the dots between the budget crises of state and local governments and their relationships with nonprofits, and then generally the focus is on the governments’ failure to pay nonprofits for contracts they’ve already performed.

But revocation of property tax exemptions poses an even bigger and longer-term threat than governments’ failure to pay.  And it’s a threat of which few nonprofit executives—let alone members of the public—are aware.

Two cases of denied exemption, one in nearly-bankrupt Chicago and the other in one of its suburban counties, are now working their way through the Illinois courts.  Each concerns a luxury retirement community, and either could break new ground by clarifying what qualifies as “charity” and how much of it a nonprofit has to provide.

The state legislature hasn’t specified a percentage of charitable services required to support continued property-tax exemption.  And though the Provena court ruled that the hospital’s practice of charging fees for nearly all patient care meant it could not be considered a charity, it too stopped short of prescribing when enough charity will be enough.

“The property-tax assessors out there are going to be aggressive, because they need you back on their rolls,” said Elaine Waterhouse Wilson, a partner at the Quarles & Brady law firm. “They’re going to make you come in and prove” charitable work.  Ms. Wilson said the charities that may be at risk “include organizations that are supported primarily by fees . . . . It was very clear [under the ruling] that you had to be giving things away rather than providing general charitable benefits,” she said.

It’s not a tragedy that people are asking whether Illinois nonprofits are worthy of favored tax treatment.  What would be a tragedy is if the challenge came as a complete shock, catching agencies unaware with the sudden need to prove their charitable nature.  Yet that’s what seems likely to happen.

Executives at several Chicago-area nonprofits seemed incredulous at the idea that Provena would be applied to them.  “We provide human services and all our activities are nonprofit,” said Karen  Singer, Executive Director of the Evanston/North Shore YWCA.  “So it’s not on my radar screen at the moment.  It probably should be, but there are only so many things I can think about.”  William Ratner, Executive Director of Lawyers for the Creative Arts, and Alvin Katz of Mayer Brown LLP, the attorney for Victory Gardens Theater and the Chicago Architecture Foundation, both expressed confidence that the organizations they represent are secure in their exemptions.  “They’ll keep going after the hospitals because it’s easy, and because that’s where the money is,” Mr. Ratner said.

But there’s also money in, or rather under, many other nonprofits.  The Chicago retirement development sits on prime Gold Coast real estate.  Can YMCAs in gentrifying neighborhoods withstand challenges to their exemptions when they look and feel—and charge—so much like for-profit health clubs?  Can settlement houses be considered charities if they get paid, by government or clients, for all the services they provide?  Can arts organizations be considered “charitable” just by offering art, or do they have to give out a certain number of free admissions?  (Churches and schools are immune from this calculus because the Illinois constitution separately exempts them; but the educational programs of arts groups aren’t considered “schools.”)

Perhaps the charities will organize and persuade the Illinois legislature to clarify the amount of “charity” necessary to retain tax exemption.  But Professor Phillip Hablutzel of IIT Chicago-Kent College of Law, co-author of the Illinois Not-for-Profit Corporation Act, doubts it.  Though he predicted Illinois nonprofits other than hospitals will soon find themselves battling efforts to withdraw their exemptions, “In the twenty years I’ve been involved, there hasn’t been a coherent front among charities in facing the legislature.  It’s hard to get these people to make common cause–the museum people don’t see what they have in common with the churches.”  Nor, apparently, do many human services agencies or arts groups see what they have in common with the hospitals.

If and when a Provena-style loss of exemption hits another nonprofit, the impact on its operation will be substantial.  “In the current economy,” said Professor Hablutzel, “it would be hard to do fundraising for another one-third of your budget so the taxes could be paid.”

Maybe there’s something to be said for making adult films after all.

Buy land. They’re not making any more of it. But on second thought . . .

May 28, 2010

Everyone in the sector–no kidding, everyone!–should read this Nonprofit Quarterly piece by Clara Miller of the Nonprofit Finance Fund about the practices most likely to make nonprofits vulnerable to financial disaster.  Pay particular attention to Ms. Miller’s skepticism about the value of owning one’s own building.

The Nonprofiteer has argued for years that the likelihood of a building’s being a good investment is significantly smaller than the likelihood of its being a money pit, particularly for arts organizations who make over-optimistic estimates of their likely rental revenue.  But now someone who actually knows what she’s talking about is saying the same thing.

So listen up!  Please.

Hand-wringing over what Kresge hath wrought

April 22, 2010

If the Kresge Foundation isn’t giving matching grants for brand-new arts buildings anymore–and it’s not–the arts-building bubble is over as surely as the housing and financial-industry bubbles.  Granting funds instead for renovation and repair means the new Kresge posture will benefit the arts groups that got while the getting was good (or, perhaps, have some other basis for grantworthiness, e.g. re-purposing of an historic building).  But arts groups which have been thinking about building from scratch are now stuck contemplating Max Bialystock’s mantra: “He who hesitates is poor!”

All about venues

April 18, 2010

The Nonprofiteer was talking to a friend who had just scored an amazing venue for the fundraiser of which she is chair: a church close to all forms of public transportation and parking, with a youth group willing and able to provide valet and food service and an adult auxiliary willing to take responsibility for the building so her agency doesn’t have to pay for a security guard.  A wonderful welcoming space for free–isn’t that what every nonprofit wants?

Whereupon we realized how much time we and all the other nonprofit professionals we know spend trying to find exactly that: a free place to hold the meetings of our tiny all-volunteer association, or to hold the public forum sponsored by our small civic group, or to conduct the fundraiser for our grassroots coalition.  Wouldn’t it be great, my friend suggested, if all the nonprofits in our area (Chicago, but the same would be true for any metroplex) pooled our knowledge about who will share space for free under what circumstances?

If we had a venue registry, we could save endless time–and what is time in nonprofits but the only resource we have with which to secure money?  Anything which saves one saves the other, for as it is written “A rental fee saved is a grant earned.”

Surely someone with more social-networking capability than the Nonprofiteer could figure out how to set such a thing up (isn’t this the very definition of a wiki?).  Or is there one already in Chicago and the Nonprofiteer just isn’t in the (you should pardon the expression) loop?

Thoughts on how other people approach this chronic issue welcomed!

A little reality check on real estate

January 12, 2009

The Fall issue of the Nonprofit Quarterly contains a timely article (in print edition only) detailing the pros and cons of purchasing real estate.  Now that the real estate market has finally crashed, there may be a tendency among nonprofits (as among other bargain-hunters) to finally purchase that home they’ve always dreamed of.

Authors Gabriella DiFilippo and Tanya Vartivarian of the Illinois Facilities Fund provide the following straightforward bit of advice:

With few exceptions, new nonprofit organizations should not focus on real estate ownership.  Instead they should establish the organization and its value to the community.

The Nonprofiteer hopes that even established nonprofit organizations will heed this discouraging word. Especially among the social service agencies, the process of “establish[ing] the organization and its value to the community” is nearly never-ending, and the business of making sure the roof doesn’t leak is often nothing more than a gigantic distraction from making sure that value continues to be provided.

And, as anyone who’s ever bought a home knows, even if it’s not an out-and-out money pit, it always costs more than you think it will.  And that’s money you could instead be using to serve your clients.

Clout Street in Charityville, and how Illinois’ Senator-designate may be involved

January 8, 2009

It’s probably too late to keep Harry Reid and the rest of the forelock-tuggers masquerading as Democrats in the U.S. Senate from caving to Rod Blagojevich and seating Roland Burris; but here’s a nugget from the Nonprofiteer’s world for them to chew on (H/T Tim Novak and Carol Marin):

As the Chicago Sun-Times reports, a couple of developer pals of the Mayor’s got hold of some prime land near Chicago’s downtown by helping to arrange a new home for its  inconvenient preexisting resident, the Chicago Christian Industrial League, a charity serving homeless men.  And when the move to a new building left the charity in financial trouble–for, like many shiny daydreams before it, the scheme turned out to be a money pit–the group did what any right-thinking Chicago institution would do: it hired the Governor’s wife as a highly-paid fundraiser.  Yes, that would be the same Governor caught on tape trying to sell the President-elect’s Senate seat to the highest bidder.

Could Patti Blagojevich possibly have been recommended for this lucrative gig by Christian Industrial League board member Fred G. Lebed of Burris & Lebed Consulting, when yes, in fact, that IS “Burris” as in “Senator-Designate Roland Burris”?  And could Fred’s doing a favor for Rod’s wife Patti possibly have redounded to partner Roland’s benefit?

Inquiring minds . . .

N.B.:  The Nonprofiteer feels terrible being so suspicious of the people who are running charities and governments in her city and state.  Shame on that wicked Patrick Fitzgerald for making her feel that way.

A few home truths about revenue

July 2, 2008

What a powerful article! in the Nonprofit Quarterly, from research conducted by the Nonprofit Finance Fund.  Its assessment of diversification of revenue services (two sources are better than one but three are not necessarily better than two) and of the impact of government funding (less “profitable” than other sources–apparently calling something a partnership, public-private or otherwise, doesn’t automatically make it a source of equal benefit to all participants) are both useful.  But most thought-provoking and valuable is the observation that buying a building is often a snare and a delusion and will leave most agencies suffering from a crippling shortage of liquidity for years to come.

Read and believe.