Our recent article on religious denominations within the Jewish community was featured in yesterday’s edition of the Cleveland Jewish Times.
Read the article HERE.
Our recent article on religious denominations within the Jewish community was featured in yesterday’s edition of the Cleveland Jewish Times.
Read the article HERE.
Today’s continued economic uncertainty has prompted bold actions by local governments as they struggle to secure necessary income while faced with substantial budget shortfalls, unpredictable tax revenues and critical services in dire need of funding. In this era of municipal belt-tightening, a rapidly growing number of local officials now look at previously untapped sources of revenue: nonprofit institutions.
Since Boston’s Mayor Thomas Menino first broached the issue several years ago, other communities – small, medium, and large – have followed suit and have turned to some of the country’s most significant nonprofits to augment the current tax base.
This has become an unprecedented source of revenue as well as debate, especially as questions arise around the endowments and land holdings of some of the country’s largest nonprofits, with universities, museums, hospitals and other community resources being cajoled, negotiated with and sometimes even publicly assailed in the media.
This country’s 1.5 million nonprofit organizations represent and cater to a myriad of important causes and missions, and in return, they have traditionally received immunity from real estate taxes and other taxes through their federally-designated 501(c)(3) statuses. However, the notion that charitable institutions are off-limits to the tax collector has recently been cast off.
As a result, municipalities now see an opportunity to extract some much-needed revenue from nonprofit organizations. This phenomenon has been working its way across the U.S. under creatively phrased monikers such as “voluntary contributions” and “payments in lieu of taxes (PILOT).”
We first noticed the momentum towards acceptance of this new model about 15 months ago when we developed a then-controversial op-ed piece for the Giving Institute’s blog about PILOT. Since then we have witnessed additional municipalities placing public pressures on their largest local nonprofit institutions. Most organizations are obliging, and only a few weeks ago a precedent-setting court decision undoubtedly propelled these controversial PILOT issues into the public arena.
The Mesivta Eitz Chaim of Bobov Inc. summer camp, located on 61 picturesque acres in Pike County, Pennsylvania, is operated by the Bobov Orthodox Jewish community in Brooklyn, New York. Between June and August, the camp provides classes and lectures on Orthodox Judaism as well as some recreational activities, though the camp is primarily designed as an educational institution.
Although the camp’s dining and recreational facilities are open to the public, camp representatives were unaware of neither Pike County residents using the facilities nor Pike County or Pennsylvania residents attending the camp. As a nonprofit organization, the camp sought an exemption from real estate taxes, but Pike County and the local school district denied the camp’s request for an exemption based on the nature of the camp and its charitable status.
The Pennsylvania Supreme Court upheld two lower court rulings against the camp’s tax exemption. In order to receive an exemption, the Court held that a claimant must meet the definition of a “purely public charity” as measured in a 1985 Pennsylvania case (Hospital Utilization Project v. Commonwealth).
In Pennsylvania, an “institution of purely public charity” advances a charitable purpose, donates or renders gratuitously a substantial portion of its services, benefits a substantial and indefinite class of persons who are legitimate subjects of charity, relieves the government of some of its burden, and operates entirely free from private profit motive.
At issue in the case was whether the camp relieved the government of some burden, since the dining and recreation facilities were open to the public and the camp’s soccer fields, located outside of the camp’s gates, were used on occasion by the public. The Court affirmed that the occasional use of recreational facilities was insufficient to relieve Pike County’s government of some of its burden and made the camp’s property taxable.
This decision has the potential to be very important, especially in this challenging economic environment when many municipalities are cash-strapped. The implications from the point of view of the nonprofit are that local governments may look to charitable organizations as revenue sources. Furthermore, nonprofits that balk at payments in lieu of taxes may face a likely possibility that the municipality could challenge its nonprofit status, and possibly revoke it.
Here’s an overview of where PILOT programs are especially active:
Boston has become the clear leader in implementing PILOT programs, collecting almost $17 million annually from a variety of cultural, educational and medical institutions, with annual payments ranging from a few hundred dollars from a VFW Post to millions from hospitals and universities. In 2010, 36 nonprofits provided “voluntary tax” payments to the city.
New guidelines promulgated by Mayor Menino’s PILOT Task Force increased the number of nonprofits asked to contribute and pushed nonprofit payments up by 24%. Boston University and other large landholders have “volunteered” payments for municipal services approximating 25% of what they would pay if they were a for-profit entity.
Chicago has slashed critical city services amounting to $417 million. Colleges, universities and hospitals are being approached, although organizations of all sizes are affected.
One prominent example is the 20-member nonprofit Austin Green Team. Since 1989, the Austin Green Team has maintained over one dozen gardens and two greenhouses in the Austin neighborhood on Chicago’s west side, providing beauty and a sense of serenity to more than 100,000 residents. Under the Mayor’s 2012 budget, the Austin Green Team’s water service fee waiver is proposed for revocation, threatening the viability and survival of the gardens. The proposed budget plan includes eliminating fee waivers for virtually every nonprofit organization in Chicago.
In 2011, Worcester Polytechnic Institute entered into a 25-year agreement with the city to annually fund $50,000 to maintain and improve a neighboring park. WPI had already been making annual PILOT contributions of $180,000, including a 2.5% increase built in annually over the next 25 years. WPI president Dennis Berkey described the payments as strengthening the quality of the relationship between the college and the city. WPI also received assurances from the city that for the next 25 years, no additional taxes would be levied on the institution. However, a more important aspect of the relationship was the positive publicity lauded on the school for its support of the city.
Syracuse, New York
In 2011, Syracuse University began making $500,000 annual payments on a 5-year, $2.5 million pledge to the city of Syracuse. Responding to the pleas from the financially strapped city, University officials agreed to be the first nonprofit in Syracuse to make a voluntary payment after the City Council began exploring taxing some aspects of the University’s newly expanded properties. According to City Council, even as the University further shifts the burden of municipal services away from taxpayers, “It’s time for the University to kick in a little more to support these services.”
Providence, Rhode Island
Due to unprecedented financial problems, the Mayor of Providence initiated a program designed to pursue tax exempt institutions for a “failure to sacrifice.” The natural target was the city’s largest landowner, Brown University, who since 1764, was “freed and exempted from all taxes.”
Recent negotiations have yielded voluntary payments from Brown in the amount of $31.5 million over 11 years. Brown owns 200 buildings in Providence valued at over $1 billion in total, and if taxed, would pay the city $38 million annually. As Providence Mayor Angel Taveras summed it up, “every organization, including tax-exempt institutions, must share part of the burden of saving our city.”
Even with a slowly advancing economic outlook, the landscape has changed and nonprofits are unlikely to continue to benefit from their open-ended special tax exemption. With this in mind, land-owning nonprofit organizations should consider the following:
As The EHL Consulting Group enters our third decade as a firm, it’s encouraging to see not only how much we’ve grown, but also how much the nonprofit sector has matured and evolved as well. Both domestic and international nonprofit organizations have changed markedly since the early 1990’s . . . in terms of the numbers of agencies, the levels of sophistication, the work required to attract significant philanthropic support, and the amount of transparency that donors demand.
Helping so many different nonprofits in so many different ways has been – and continues to be – meaningful beyond expectations, and has made our work at EHL Consulting an effort that has been rewarding personally and professionally.
As a longstanding member firm of the Giving Institute, EHL Consulting abides by a strong code of ethics that ensures our clients are treated with respect, and that their campaigns are always honest, heartfelt, and powerful. Working closely with enthusiastic and devoted men and women from all walks of life and from all parts of North America and elsewhere motivates us to keep improving our services and hopefully make a positive difference in the world at large.
We have seen the philanthropic marketplace grow and strengthen remarkably over the past 21 years. From a “slap on the back” network of unseen agreements and elite charitable circles, it has matured into a sophisticated, more scientific, accountable and increasingly transparent (though not enough) environment. Giving is now a $300+ billion dollar industry, accelerated by committed professionals with a drive to achieve substantial, measureable results.
The fact remains, however, that with all of the tools and the science, the real work is still built around relationships and connections with people. Giving is an act of passion, not a business transaction, and the connections between people are, and will always remain, the driving force.
Successful organizations know that connections are key, and always work hard to cultivate those personal bonds. Those who rely on technology and “arm’s length” communication will be forever doomed to struggle with difficulty. And besides, connecting with people is far more fun!
Our team at EHL Consulting is very optimistic about the future of philanthropy and we look forward to ever greater growth and productivity in the months and years to come. Thank you to all of our past and present clients for their hard work, enthusiasm, and dedication. For all of you who we have not worked with yet…we hope to meet you soon!
While the most common way to satisfy charitable commitments is with cash and appreciated securities, an often uncommon means available to donors is to utilize “stuff:” items of value that are often very attractive to collectors and which can become practical ways to satisfy philanthropic obligations.
Donors at all levels, but most notably high net worth contributors, periodically utilize non-cash giving. Art museums have received benefactions of pieces of art for decades and other types of nonprofits have welcomed real estate, especially when property was highly valued and represented an easy way for a donor to avoid costly capital gains taxes while satisfying a pledge.
A recent synagogue client received a valuable sculpture, valued at $300,000, when a member inherited the piece from a deceased relative. The donor did not want the piece and made the gift with two important stipulations: the congregation had to hold the piece for at least three years and that it is displayed prominently (requirements made for tax considerations subject to the related-use and tax exempt purpose rules of the 501(c)3 ).
Another congregation was nearly the recipient of a time-share at a Poconos resort, carrying with it a value of about $10,000. Fortunately formal Gift Acceptance policies prohibited the institution from accepting a gift of this type and the donor ultimately made cash payment for a campaign pledge instead.
Laura Linder, executive director of the Jewish Foundation of Memphis, is talking passionately these days about two gifts the Foundation has received within recent months from older Jewish philanthropists originally unaware of the power of gifting valuable collections.
The Foundation received the first gift in late 2011 when a member of the Jewish community, Susan Adler Thorp, began breaking up the estate of her late parents, Herta and Dr. Justin Hans Adler, and considered ways to deal with a Tiffany glass collection her mother had amassed. Determining that no living relatives wanted the collection, she contacted the Foundation and made arrangements through Mrs. Linder to transfer a significant portion of the collection that took more than 50 years to create.
After cataloging the objects and working in concert with one of the nation’s top auction houses, the Foundation received very significant proceeds earmarked for and added to the Herta and Justin H. Adler Philanthropic Fund, the family’s donor advised fund (DAF). Proceeds from the auction of that collection will be used in part to help fund the purchase of life-saving prescription medications for senior citizens, the Temple Israel Museum, and other charitable organizations designed to help make life better for others.
While the Adlers were avid collectors of art, they also were dedicated philanthropists, often saying that “charity is the gift you give for having a good life,” noted Mrs. Thorp. “My parents shared an eye for beauty and a love for art,” she said. “My mother’s passion was collecting Tiffany glass. Nearly everything in the collection was found as my mother searched for Tiffany glass.” All of the items in the collection were sold in a special Heritage Signature Auction of Lalique and Art Glass in New York City on November 19th. The much- anticipated live auction generated far more than the book value of the collection.
A second non-cash gift came to the Memphis Foundation earlier this year as a result of an anonymous Jewish couple preparing to downsize. The donor had passionately developed an enormous coin collection, including U.S. coins, shekels, and other pieces of varying value. The Foundation has contracted with an auction house to catalogue the coins and it is expected to go to auction in several venues later in 2012. Proceeds could exceed $500,000 and will also be used to create a DAF for an as-yet-to-be-determined set of purposes.
“During the ten years I have been at the Foundation, we have received several real estate gifts,” Laura Linder told us. “But until recently I had never even considered the power of encouraging donors to make non-cash gifts of this type or of this magnitude. This is an eye-opener for all of us at the Foundation.”
Tax implications for donors using collected items are a motivator, for sure, especially if offspring have little or no appreciation for or interest in “the stuff,” a commonly used term voiced by Bob Koo, a Palm Beach-based art and philanthropy consultant to the high net worth philanthropically-focused. “While our work is focused especially on successful individuals and families, there are certainly implications for donors of all levels,” he says.
Koo conducts educational seminars across the U.S. and has written extensively about the approaches that nonprofits might consider to attract part or all of collected possessions. Very often, he says, “things” that people have collected probably have no significant value … other than to the collector. “But in other instances, fine art of all types, books and manuscripts, coins and medals, clocks and watches, entertainment and space memorabilia, furniture, jewelry, vintage motor cars or wines and whiskeys can have large price tags. And when estate planning requires significant taxes, nonprofits can benefit significantly when they openly encourage donors to make gifts of this type … prior to their passing.”
Both Koo and Linder have told us about other circumstances where donors have talked about people who have considered charitable gifts to either satisfy current priorities or pave the way for other charitable opportunities. Both share a common recommendation to nonprofits: market the concepts actively and showcase the values of gifting collectables.
One other important consideration for nonprofits accepting non-cash gifts: carefully review your Gift Acceptance policies and update the written, formal documents so that you minimize jeopardy and are prepared with responses when potential donors inquire about gifting collectibles. Nonprofits should review such policies annually but giving beyond “conventional” methods requires careful strategies and policies.