Hospital Lobby Drives Forward with Constitutional Amendment to Increase Profits at Cost to Local Taxpayers

As local governments begin to challenge the charitable status of major institutions,
Special Interest Lobbyists Encourage Legislators to Amend Pennsylvania Constitution without Public Hearings 

Harrisburg, PA – Today the Pennsylvania State House passed Senate Bill 4 (SB 4), a constitutional amendment that would pave the way for the State Legislature to relax the standards for qualifying for charitable tax exemptions. This would severely limit the ability of local governments to make sure tax-exempt organizations are fulfilling their charitable missions, while placing additional burdens on local municipalities and local property owners.

“Senate Bill 4 would open the door to expanding non-profit tax exempt status to institutions that are not purely public charities,” said State Rep. Bob Freeman (D-Northampton). “That would hurt local property taxpayers who would face higher property taxes as a result of certain institutions that are not purely public charities being able to hide behind an arbitrary tax exempt status granted them by the legislature. This bill is special interest legislation at its very worst.”

The Hospital Association-backed bill passed by a vote of 118-82 without any public hearings. In a showing of the growing support for efforts to hold major hospital systems and other large charitable organizations accountable to their communities, yesterday Rep. Frankel, together with other representatives from across the Commonwealth, introduced 11 amendments to  ensure accountability from tax-exempt mega-charities. The proposed amendments, including Rep. Frankel’s appeal to his colleagues to bring the measure up for public debate, were voted down on largely partisan lines.

“My constituents, my local municipality, and even some not-for-profit organizations in my area have come to me with serious concerns about how we designate institutions of purely public charity. The potential ramifications of passing Senate Bill 4 are alarming and for that reason, I made a motion on the House floor yesterday to send this bill back to committee so that we could hold public hearings to gather input from all stakeholders to help us make an informed decision,” said State Rep. Dan Frankel (D-Allegheny). “Unfortunately, Senate Bill 4 is being steamrolled through the process in spite of serious questions and concerns. We can and should do better than Senate Bill 4.”

This legislation moves forward as local municipalities are questioning and challenging the tax-exempt status of major institutions that may not, in fact, be abiding by the charitable designations that shield them from paying millions of tax dollars a year to support local and state programs, including schools, healthcare, and transportation. In Pittsburgh, Mayor Ravenstahl has challenged the tax status of UPMC on the grounds that the healthcare giant is acting more like a for-profit business then a charitable institution. As the largest landowner and employer in Pittsburgh, it is estimated that UPMC is avoiding over $200 million in local, state, and federal taxes every year thanks to its designation as a charity. Meanwhile, UPMC is making $1 billion in profits every two years and have been reducing access to healthcare by turning away patients with Highmark insurance and closing hospitals in underserved areas.

“Charities in Pennsylvania are doing important work,” said Neal Bisno, President of SEIU Healthcare Pennsylvania. “But this real charitable work, as well as our schools, healthcare, and transportation, are being undermined by mega-institutions that are benefiting from tax breaks without fulfilling their missions. Taxpayers cannot afford to pick up the bill for offenders like UPMC, and the state should not be institutionalizing a problem that is already holding back our cities and our state.”

The amendments introduced during yesterday’s debate on the bill sought to lessen the fiscal impact on municipal governments, in part by requiring the largest institutions and landowners claiming a charitable tax exemption to make payments to local schools and other public services equal to a percentage of their would-be tax liability. One proposed amendment, which was originally introduced by Republican Speaker of the House Sam Smith as an amendment to Act 55, would require the state to reimburse municipalities for revenue lost due to nonprofit tax exemptions.

“We can all agree that real charities deserve tax exemptions, but this amendment is overreaching,” said Art Martynuska, President of the Pennsylvania Professional Fire Fighters Association.  “The amendment would damage the fiscal health of our communities by making it nearly impossible to compel the largest nonprofits to help pay for public services. What’s most concerning is that this amendment will cause further cut backs to fire and police services in cities across the Pennsylvania.”

SB 4 was first introduced under a different bill number in last year’s legislative session, after a Pennsylvania Supreme Court decision confirmed that the state courts – and not the State Legislature – have sole authority to set the requirements for established a stricter standard to qualifying as an “institution of purely public charity” under the Pennsylvania Constitution. The bill was reintroduced as SB 4 in the Senate and HB 724 in the House at the start of this year’s legislative session, and came under criticism from local elected officials and community groups who wanted to preserve their ability to hold large charities accountable. After the bill passed the Senate, despite considerable opposition, the House Finance Committee advanced the bill without a public hearing.

SB 4 will now await a second vote by a new General Assembly in 2015, after which it will go to statewide referendum no sooner than November of 2015.

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