Are community nonprofits, hospital nonprofits same? Supreme Court ruling refires tax-exempt status debate
A new legislative study examining the financial picture for more than 600 nonprofit organizations in Pennsylvania has appeared as state lawmakers are moving a bill to assert their right to define what a public charity is.
The Senate-approved bill is a proposed constitutional amendment declaring the General Assembly has the sole authority to set standards in this regard. It is in response to a recent state Supreme Court ruling giving precedence to a 1985 court case in defining what is a public charity and, therefore, exempt from paying property taxes and state sales taxes. The bill would restore the preeminence of a 1997 law setting five criteria to make that determination.
The study by the Legislative Budget and Finance Committee looks at data involving executive compensation, assets and administrative expenses for nonprofits that receive state aid to provide a number of human services.
It shows that many types of organizations, ranging from community and regional service providers to large health care complexes, fall under the nonprofit umbrella. Specifically, it looks at how many employees at each nonprofit are being paid more than $100,000 annually in total compensation.
Generally, a large number of community nonprofits have few employees above the $100,000 threshold. It's a different story with the large health care providers.
Geisinger Medical Center reported 12 employees earning more than $200,000, but that number can be viewed in the context of a regional health care provider with assets of $627 million, according to the study.
Geisinger's compensation packages are based on the market, position and experience, said spokesman Matthew Van Stone in response to the study.
"We use an independent contractor to assess salaries in the market and set executive compensation," he added. "We feel we more than earn our nonprofit status because of the community benefit we provide and the free charity we provide each day."
In light of the study, some lawmakers are questioning whether community nonprofits and hospital nonprofits belong under the same law given the disparities in the size of their operations and scope of their charitable missions.
The question arises because of debate about whether the recent Supreme Court ruling in the case denying tax-exempt status to a religious camp in Pike County will lead to more financially strapped municipalities challenging the tax-exempt status of nonprofits. Pittsburgh recently challenged the tax-exempt status of UPMC, a large health care provider in that city.
The statewide hospital association wants the 1997 law restored and supports the proposed constitutional amendment.
"The (court) decision will place the public charity status of other charitable organizations in question, and hospitals may be impacted by increased legal challenges," said The Hospital and Healthsystem Association of Pennsylvania.
The five criteria in the 1997 law are the most comprehensive in the nation for determining state tax exemption status, HAP reports.
Pennsylvania's hospitals provide nearly $1 billion in uncompensated care annually to the uninsured, which is one of the means by which tax-exempt status is justified, said HAP official Timothy Ohrum at a recent hearing in Pittsburgh.
(Swift is Harrisburg bureau chief for Times-Shamrock Communications newspapers. Email: firstname.lastname@example.org.)