Pennsylvania Purely Public Charities Amendment (2015)

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The Pennsylvania Public Charities Amendment did not make the November 3, 2015 ballot in Pennsylvania as a legislatively referred constitutional amendment. The measure would have authorized the Pennsylvania Legislature to establish "uniform standards and qualifications" in order to determine what organizations are "purely public charity" and, therefore, exempt from property taxation.^[1]

The proposed amendment was introduced into the Pennsylvania Legislature as Senate Bill 4.

Supporters of the proposed amendment contended that the constitutional change was needed to override the judicial system's HUP test and provide the legislature with the ability to define "purely public charities." Opponents, however, were concerned about the legislature's empowerment to define "purely public charities" because municipalities may then lose tax revenue from large nonprofit organizations and need to increase property taxes on households.^[2]

Text of measure[edit]

Constitutional changes[edit]

See also: Article VIII, Pennsylvania Constitution

The proposed amendment would add a clause (vii) to Section 2(b) of Article VIII of the Pennsylvania Constitution. The following text would be added by the proposed measure's approval:^[1]

Background[edit]

HUP test[edit]

Senate Bill 4, the legislation proposing a constitutional amendment, was developed in response to the Pennsylvania Supreme Court's 2012 ruling in Mesivtah v. Pike County Board of Assessment Appeals, according to the bill's sponsors Sen. Ryan Aument (R-36) and Sen. Joe Scarnati (R-25).^[4] The Supreme Court concluded that Mesivtah Camp, a not-for-profit Orthodox Jewish camp located in Pike County, Pennsylvania, was not a "purely public charity" and, thus, it was ineligible for property tax exemption.^[5]

The court employed the "HUP test," a test originating in the 1985 case Hospital Utilization Project v. Commonwealth, which is designed to determine "whether an entity qualifies as an ‘institution of purely public charity’ under the Pennsylvania Constitution." An organization must meet the HUP test's five criteria in order to be designated a "purely public charity" with tax-exempt status. The criteria are:

“	(a) Advances a charitable purpose; (b) Donates or renders gratuitously a substantial portion of its services; (c) Benefits a substantial and indefinite class of persons who are legitimate subjects of charity; (d) Relieves the government of some of its burden; and (e) Operate entirely free from private profit motive.[3]	”
—Pennsylvania Supreme Court[5]

Camp Mesivtah argued that the organization does meet all five criteria, including relieving the government of some burden by "creating greater moral and social awareness in society." The Supreme Court, however, disagreed, ruling that Camp Mesivtah did not did not satisfy the HUP test and, thereby, is not a "purely public charity" eligible for property tax exemption.^[5] The court, following a ruling made in 1878's Donohugh v. The Library Company of Philadelphia, also noted that the intent of the constitution "was not so much to limit the scope of exemptions to charities as to destroy the obnoxious feature of favoritism by special legislature."^[5]

Senators Aument and Scarnati argued that the Supreme Court wrongly disregarded the state statute Act 55, which would have granted Camp Mesivtah tax-exempt status, although the court determined that constitutional law overrode statute law. The pair concluded that the issue could only be resolved by amending the Pennsylvania Constitution, contending:

“	By elevating its own judgment above the will of the General Assembly, the Court has created uncertainty as to the qualifications for public charities in Pennsylvania. Charitable organizations statewide could have their public charity status called into question based on this decision. In fact, tax-exempt statuses for Warren Hospital, the Warren County YMCA, Habitat for Humanity, and other nonprofits in the area have already been revoked since the Pennsylvania Supreme Court ruling... In short, the 2012 court decision will continue to cause confusion regarding the criteria for purely public charity status and will lead to additional protracted litigation if clarification is not provided. To address this issue, we intend to introduce legislation amending the Constitution to preserve the General Assembly’s role as policy maker in area of purely public charities and to provide certainty in this area of the law.[3]	”
—Senators Ryan Aument and Joe Scarnati[4]

Support[edit]

Supporters of the amendment contend that the Pennsylvania Legislature should be able to define "purely public charities" in statute and that the HUP test, derived from judicial interpretation of the Pennsylvania Constitution, is inadequate, unfair, confusing and inconsistent.^[6][7]

Officials[edit]

The following state legislators sponsored the amendment:^[1]

Organizations[edit]

• Hospital and Healthsystem Association of Pennsylvania^[8]
• University of Pittsburgh Medical Center^[2]
• Allegheny Health Network

Arguments[edit]

David W. Scott, president and CEO of the Ohio Valley Hospital, responding to opponents, stated:

“	People must realize that hospitals, in return for the privilege of being tax-exempt, provide charity care for thousands of patients each year. According to the Hospital & Healthsystem Association of Pennsylvania, hospitals in this state provide more than $5.8 billion annually in community investment and benefit, including charity care for uninsured and underinsured Pennsylvanians. In essence, it’s a tradeoff. If hospitals were suddenly forced to pay taxes in addition to providing charity care, many would not survive long-term. Pennsylvania hospitals must preserve their tax-exempt status in order to continue providing care at the level patients have come to expect.[3]	”
—David W. Scott[9]

Other arguments in support of the amendment include:

• Scott Bishop, government affairs director of the Hospital and Health System Association of Pennsylvania, said the amendment is needed because the legislature, and not the courts, should be deciding which nonprofit organizations are tax-exempt. He argued, "If there is a problem or a challenge, it should be the Legislature [and not the court] that hears it."^[10]
• Sen. Ryan Aument (R-36) similarly argued, "It's the residents of this commonwealth, through their elected General Assembly, who ought to determine what constitutes a purely public charity."^[6]

Opposition[edit]

The campaign against the measure is being led by Fair Share Pennsylvania.^[11]

Opponents of the amendment contend that the Pennsylvania Legislature would likely define "purely public charities" in such a way as to decrease municipal abilities to tax property owned by profit-generating nonprofit organizations, like hospitals.^[12] This would, according to opponents, put municipalities in a position to increase property taxes on households. As Rick Schuettler, Executive Director of the Pennsylvania Municipal League, noted, "Every time we declare somebody is exempt, somebody else is paying for it."^[13] They also argue the HUP test is adequate and fair.^[14]

Opponents[edit]

Officials[edit]

Municipalities[edit]

• Pittsburgh City Council^[19]
• Chambersburg Borough Council^[12]

Organizations[edit]

• One Pennsylvania^[15]
• Pennsylvania Municipal League^[20]
• Pennsylvania State Association of Township Commissioners
• Pennsylvania State Association of Boroughs^[16]
• Pennsylvania Professional Firefighters Association
• Pennsylvania Fraternal Order of Police

Arguments[edit]

Mayor Ed Pawlowski (D) of Allentown, Mayor Robert Donchez (D) of Bethlehem and Mayor Sal Panto Jr. (D) of Easton wrote an op-ed together denouncing Senate Bill 4. The three contended:

“	In the Lehigh Valley, some of our largest landowners (hospitals, colleges and universities) are nonprofits and provide essential services to our residents. Yet the auditor general shows that exemptions on tax-exempt land in Lehigh County cost our county, municipalities, and school districts some $122 million this year. In Northampton County, our own data show that these exemptions cost some $60.6 million. While the auditor general's report does not differentiate between governmental and non-governmental properties, many of those exemptions go to large nonprofit corporations. ... Every year, our cities and numerous surrounding townships work with these organizations – which prosper because they are located in our urban areas – to help fund our police department, our emergency services and new investments in infrastructure. We negotiate with multi-billion dollar organizations on win-win agreements that work for our needs and help these entities serve our cities well. The ability to have frank and meaningful conversations with the region's largest businesses is critically important to our success, especially while we address significant budgetary hurdles. In the past year, our school districts have faced large budget deficits and have made difficult decisions to cut costs. These are not easy decisions. They necessitate open, deliberate and continued discussion by our local leaders and residents. They require local understanding of local issues and concerns. Since the time of our founding fathers, Pennsylvania and cities throughout the Commonwealth have prospered precisely because our constitution trusts communities to overcome challenges and develop solutions that work best for local residents. But in Harrisburg right now, there are legislators who have forgotten John Adams's timeless definition of government and are on a path to changing the Pennsylvania Constitution that would inhibit our ability to work with large nonprofits on responsible, fair budgets. Known as Senate Bill 4, the proposed purely public charities amendment -- which is expected to face a vote in the upcoming legislative session -- would for perpetuity diminish local governments' ability to negotiate contributions to public services and give state legislators the sole authority to decide which of our local institutions pay taxes and which ones do not. The auditor general's findings that $180 million is lost in the Lehigh Valley each year due to tax exemptions, illustrates exactly why we can't risk being a casualty of blanket decisions that do not account for local partnerships and problem solving. What works for the Lehigh Valley may not work in other parts of the state, but one thing is clear – we know what works for our communities. Rather than give cities like Allentown, Bethlehem, Easton and communities throughout the Lehigh Valley the tools to raise revenue in a mutually agreeable manner, the purely public charities amendment will do just the opposite.[3]	”
—Mayors Ed Pawlowski, Robert Donchez and Mayor Sal Panto Jr.[17]

John L. Micek, Editorial and Opinions Editor for PennLive and The Patriot-News, argued that the amendment could move the property tax burden further onto individual households. He said:

“	So, did I mention that your property tax bill could go up if this change is approved? In case you need further convincing, consider this: Between 20 percent and 40 percent of all properties in the average city are owned by nonprofits, according to the Pennsylvania Municipal League, a lobbying group for city governments. That means these nonprofits, often mega-huge hospitals and universities, mostly get a pass on paying local property taxes, while the locals are asked to make up the difference... Further, some properties owned by larger nonprofits, like those hospitals and universities, also include parking garages and other profit-making entities. And they're tax-exempt. Taken together, that's a big chunk of change that municipalities are missing out on --about $1.5 billion's worth of tax liability in 10 counties -- according to a report released late last year by state Auditor General Eugene DePasquale.[3]	”
—John L. Micek[8]

Other arguments against the amendment include:

• Lock Haven Mayor Rick Vilello (D) stated, "What is the appropriate contribution for the services that are provided? [Nonprofits] get police protection, they get sewer and water and plowing, and fire protection. There is a value to that. What’s a fair value? And how is that determined? This constitutional amendment takes the power [away from] local officials and sets the standard for nonprofits that will just generate more tax-exempt property."^[16]
• Art Martynuska, President of the Pennsylvania Professional Firefighters Association, contended, “This amendment would further imperil our ability to protect our citizens... and it would cripple our EMTs and other emergency workers.”^[8] He also said, "Our fear is that if something like this goes through unchecked, then the big interests aren’t going to be held in check."^[13]

Media editorial positions[edit]

Opposition[edit]

• LNP said, "The Constitution put a limit on the Legislature’s ability to exempt properties for a reason — to keep special interests from undermining the uniform tax structure its framers sought."^[21]
• Reading Eagle said, "If the system isn't broken, and it isn't, there is no need to fix it."^[22]

Path to the ballot[edit]

See also: Amending the Pennsylvania Constitution

A simple majority vote in both chambers of the Pennsylvania Legislature during two successive legislative sessions would have been required to refer this amendment to the ballot.

The amendment, known as Senate Bill 4, was voted on in the Pennsylvania Senate during the first legislative session on March 20, 2013.^[23] The bill was voted on in the Pennsylvania House of Representatives during the first legislative session on June 26, 2013.^[24]

During the second session, Senate Bill 4 was voted on and approved by the Senate on February 17, 2015.^[25]

The measure did not make it a ballot. It was referred to committee and lawmakers did not take it up for discussion.^[26]

House vote[edit]

June 26, 2013, House vote

Pennsylvania SB 4 House Vote
Result		Votes	Percentage
a Yes		118	59.00%
No		82	41.00%

Senate vote[edit]

March 20, 2013, Senate vote

Pennsylvania SB 4 Senate Vote
Result		Votes	Percentage
a Yes		30	60.00%
No		20	40.00%

February 17, 2015, Senate vote

Pennsylvania SB 4 Senate Vote
Result		Votes	Percentage
a Yes		30	61.22%
No		19	38.78%

The bill was referred to the House finance committee on February 26, 2015. ^[27]

See also[edit]

• Pennsylvania 2015 ballot measures
• 2015 ballot measures
• Pennsylvania Legislature

External links[edit]

Basic information[edit]

• Senate Bill 4

Opposition[edit]

• Fair Share Pennsylvania
• Fair Share Pennsylvania Facebook

Additional reading[edit]

• LehighValleyLive, "Pennsylvania charities, cities at odds over tax exemption amendment," January 24, 2015

Footnotes[edit]

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