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Non-profits off the hook — for now

February 20, 2013

WOONSOCKET – Some two dozen non-profit charitable, cultural and civic organizations in the city can rest easy for a while – the Budget Commission has pushed back the timetable for stripping them of tax-exempt status until July 2014.
As commissioners voted 4-0 to spare the tax-exempts until then, they said that in the meantime, the city must do more to make sure the process is legally defensible.
The chief worry is that the non-profits might sue the city, arguing that the appraisals used to calculate their taxes are obsolete because they weren’t performed during the most recent revaluation cycle. Consulting lawyer Michael McElroy has advised the city to rectify the problem before putting the non-profits on the tax rolls, but commissioners say there isn’t enough time to do that before the next billing cycle, which begins in July.
“You could obtain a separate appraisal for each one...” said McElroy. “You could also conduct a ‘mini-revaluation’ of these properties using a revaluation company instead of an appraiser.”
McElroy also counseled the city to take a gradual, thorough approach to advising the newly taxed of their status, including two advance notifications, with an invitation to submit evidence challenging the city’s position. They should also be advised of their rights to petition either the City Council or the state legislature to pass a special law to restore their tax exempt status.
Despite the proceed-with-caution signals from the legal counsel, some members of the commission appear increasingly resistant to the notion of taxing non-profits. Commissioner Peder Schaefer, for one, said he isn’t optimistic about the evolution of the process in East Providence, the only other city in the state under a Budget Commission and the place where the idea of taxing non-profits to raise revenue originally gained traction.
Schaefer, who lobbies at the Statehouse regularly as deputy director of the Rhode Island League of Cities and Towns, says East Providence’s efforts have triggered new interest among non-profits in getting their tax-exempt status preserved through state law.
“There’s a new ingredient where East Providence has raised this issue to a new level,” he said. “The lobbyists are already circling the Statehouse to get the law changed for these organizations.”
Schaefer said he expects many of the organizations Woonsocket intends to go after will do the same by the time the city gets around to sending them out a tax bill.
“Maybe the list is going to be different after the conclusion of this session of the General Assembly,” Schaefer said.
Chairman William Sequino also expressed an aversion to taxing non-profits, especially when organizations like the YMCA are mentioned. If the issue comes back to the commission again, “I’m not going to be in favor of taxing them.”
No one is questioning the civic-minded goodwill of the agencies in the crosshairs. On the contrary, McElroy says, “I want to emphasize that in rendering an opinion than an applicant is not exempt from property taxation, I am making no judgment regarding whether the applicant is performing good works for the city and/or the state.” But McElroy says that many of the organizations are listed as 501(c) entities under the federal tax code, which makes them exempt from income taxes, not property taxes.
Commissioner John Ward, president of the City Council, however, says some of the non-profits at issue deserve to be getting tax bills. He excoriated some of the currently exempt as little more than “restaurants operating under the guise of being run as a non-profit.” He also said the Seven Hills Foundation, a Worcester-based psychiatric services group that operates as a non-profit, recently purchased one of the biggest office buildings in the city, removing it from the tax rolls. He said there is no rational reason why the organization enjoys non-profit status, which has also been unjustifiably extended to the private, for-profit businesses that rent space in the building, also known as One Cumberland Street.
As Schaefer suggested, there mere talk of reviewing the tax exempt status of city non-profits has already prompted one prominent group, The Stadium Theatre Foundation, to petition state lawmakers to preserve the exemption, according to Tax Assessor Christopher Celeste.
The tax assessor has been a strong advocate for moving cautiously as the city inches toward implementing the plan, saying the downside risk might outweigh the benefits. The cost of defending one legal challenge of taxable status in Superior Court could easily eat up the gains the city envisions from the program.
“If you have legal expenses you could exhaust the savings defending the values – even if you win,” Celeste said.
Celeste says the pool of new taxables represent perhaps $17 million worth of real estate in all. Taxing it will not bring in new revenue, he says, but ease the pressure to raise taxes on everyone else who gets a tax bill.
In the most optimistic scenario, the net result of capturing taxes from the currently exempt non-profits would tamp down the tax rate by about 45 cents, he says.

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