Do State‐Funded Property Tax Exemptions Increase Local Government Inefficiency? An Analysis of New York State's STAR Program

This study tests the effects of a growing form of indirect state aid—state‐supported property tax exemptions—on local government efficiency. We hypothesize that larger exemptions, by lowering the effective tax price paid by local homeowners and thus their incentive to monitor efficiency, will reduce local government efficiency. We test this hypothesis by examining the introduction of New York State's large state‐subsidized property tax exemption program, which began in 1999. We find evidence that, all else constant, the exemptions have reduced efficiency in districts with larger exemptions, but the effects appear to diminish as taxpayers become accustomed to the exemptions.     

The future of the nonprofit sector: Its entwining with private enterprise and government

The nonprofit sector—neither private enterprise nor governmental—is growing rapidly, and not only in the United States. This article explores three questions about the sector, which includes large elements of such service industries as universities, hospitals, nursing homes, day-care centers, museums, social services, and organizations promoting medical research, environmental protection, and the arts. These questions are: (a) Why is the nonprofit sector expanding worldwide?; (b) How is the growth of nonprofits affecting other parts of the economy?; and (c) What evidence is there that nonprofits make a difference, that they perform functions which private firms or government cannot perform? A major theme is that the sector's growth necessitates finding ways to increase revenues, and that has brought side effects, particularly as nonprofits have become more and more “commercial.” In the process, borders between the nonprofit and both the for-profit and public sectors are being crossed increasingly, and with consequences that often pose problems.     

Competition,commercialization, and the evolution of nonprofit organizational structures

This article explores competition both in settings where nonprofits compete among themselves and where they compete with for-profits. Growing competition among nonprofits raises questions as to the impacts of this rivalry. How does competition affect nonprofit behavior and does it cause nonprofits to become more commercial in orientation? Does it alter organizational structures and does it cause nonprofits to become less focused on their charitable missions? The answers to these questions can influence public policy toward the nonprofit sector. A definition of competition is presented and Porter's five competitive forces are introduced and used to explore competition in nonprofit marketplaces. Conditions under which commercialization is likely to occur are discussed and the nature of competition is then examined in settings where nonprofits compete in mixed (for-profit/nonprofit) markets. Organizational structures from the health care industry are then used to highlight the evolving legal structures that nonprofits employ in competition with for-profits. Five policy implications of the analysis are examined and the need for additional information is highlighted.     

Differential taxation of nonprofits and the commercialization of nonprofit revenues

The effects of the favorable tax treatment of nonprofit commercial activities are best understood in a framework that explicitly accounts for a number of interactions. These involve differential taxation of nonprofits and for-profits and of nonprofits’ “related” and “unrelated” activities; the preferences of nonprofit executives who may be averse to commercial activity; donors whose giving may be sensitive to nonprofit organization commercial activity; and cost-complementarities between nonprofit core mission-related activities and their secondary money-raising efforts. Differential taxation encourages nonprofits to pursue otherwise avoided commercial ventures by providing excess financial returns that nonprofits can exploit because of their tax-exempt status. Data from the 1992 Statistics of Income (SOI) public use file of Internal Revenue Service (IRS) Form-990 returns indicate that the propensity of nonprofit organizations to undertake both tax-exempt and taxable activities depends on their primary mission-related output and size, the relative importance of government versus private contributions, and the size of the excess return created by differential taxation of nonprofit and for-profit business. Additional analyses of SOI data also show that organizations that engage in taxable commercial activities are likely to allocate joint costs in ways that reduce, and in most cases eliminate, their taxable income.     

How nonprofits grow: a model.

When nonprofit organizations operate in a field of service that might otherwise be provided by government or by for-profit organizations, such as schools, hospitals, or museums, their decisions on the type and amount of services to be delivered are motivated by factors that are quite distinctive. Because they must operate on a break-even basis with revenues raised on a voluntary basis, nonprofit organizations typically take on activities from which they derive no satisfaction in order to subsidize activities that they regard as of higher value. As a result, the mix of services they offer and the charges they impose will generally be quite different from those of a government institution or a for-profit organization.     

Local Officials’ Support for PILOTs/SILOTs: Nonprofit Engagement,Economic Stress,and Politics

Nonprofit property tax exemption has become a major policy issue as the collapse of the housing market, the Great Recession, and property tax caps have threatened local tax collections. Consequently, many local governments have sought to obtain payments in lieu of taxes (PILOTs) from charities that are formally exempt from property taxes. Using a 2010 survey of local government officials in Indiana, this article examines whether support for PILOT policies is related to officials’ personal involvement with nonprofits, their views on government–nonprofit relationships, the type of position they hold, the level of economic distress in the county, local political conditions, and local nonprofit wealth. The findings support most of these hypotheses but also show that attitudes toward PILOTs appear to be shaped by somewhat different concerns than attitudes toward services in lieu of taxes (SILOTs).     

The "common sense" of the nonprofit hospital tax exemption: a policy analysis.

Although rarely discussed prior to the 1985 Utah Supreme Court ruling against Intermountain Health Care Inc., the question of whether to grant tax exemptions to nonprofit hospitals is currently being debated by federal, state, and local legislators, and by the courts. Changes to current policy seem likely. This policy analysis: (1) presents the historical and legal background; (2) examines the economic, political, and organizational implications of current tax-exemption policy; and (3) offers three alternatives to this current policy. The analysis indicates that the current policy provides little incentive for nonprofit hospitals to make contributions of charity care. Of the alternatives, eliminating the exemption is not politically feasible at this time; regulating hospital operations and outputs portends an implementation nightmare; and tying tax subsidy levels to output levels of charity care--perhaps the strongest and most efficient incentive--would require an unlikely political consensus on what constitute valid and reliable measures of charity care. If there is a movement toward subsidies, then linking subsidy amounts to levels of charity care will depend on whether policy analysts can design satisfactory empirical measures. With the advent of universal health coverage, the demand for charity care will decrease. The problem for tax-exempt hospitals will then become justifying the exemption by demonstrating the extent to which they generate community benefits at no or reduced cost to society.     

Organizational form and performance: An empirical investigation of nonprofit and for‐profit job‐training service providers

While research on the distinctions between for‐profit and nonprofit organizations and their changing service sector shares is vast, there is comparatively little empirical evidence on the consequences of their differing attributes for social program outcomes. This article presents research on publicly subsidized for‐profit and nonprofit job‐training service providers, namely whether organizational form influences client enrollment, service delivery activities, or performance, as measured in terms of participant outcomes. The findings show that nonprofit providers were not more likely to serve more disadvantaged clients and that neither for‐profit nor nonprofit service providers were consistently more effective in increasing participants' earn‐ings and employment rates. When performance incentives were included in service providers' contracts, contractors of all forms performed significantly better across all participant outcomes examined. © 2000 by the Association for Public Policy and Management.     

The political economy of sales taxes and sales tax exemptions

I analyze the choice politicians face when seeking votes from groups that lobby for sales tax rate decreases or tax exemptions, given the constraint that politicians want to raise a certain amount of revenue. Using data on sales taxes, I develop a model predicting a positive relationship between the number of exemptions and the sales tax rate. The estimation results provide support for this prediction. Each additional exemption is associated with an increase of between 0.10 and 0.25 percentage points in the tax rate.

     

Managerial Networking in Nonprofit Organizations: The Impact of Networking on Organizational and Advocacy Effectiveness

Public management scholars are interested in the ways that public managers can improve the performance of their organizations and, by extension, public service outcomes. However, public sector outcomes are increasingly being produced by nonprofit organizations. Nonprofits have encountered increased pressures to improve effectiveness in recent years, both from their funding entities and from the public. A growing body of public management research has shown that managerial networking can pay dividends for organizational effectiveness, yet no studies to date have considered the effects of managerial networking on nonprofit effectiveness. This is the first study to apply the basic elements of Meier and O'Toole's model to the nonprofit sector. Using survey data from a random sample of 314 nonprofit human service organizations in 16 U.S. states, the authors explore the frequency of various networking relationships on organizational and advocacy effectiveness. The findings reveal that political networking increases advocacy effectiveness and community networking increases organizational effectiveness.     

How does government funding affect nonprofits' program spending? Evidence from international development organizations

Under the new governance models, the scope of government funding of nonprofit activities in service delivery and policy implementation is extensive. There is a long‐standing concern that government funding may compromise nonprofit operations and lead to unintended consequences. This research examines the concern by exploring the effect of government funding on nonprofits' spending on programs and services. Existing theories and empirical evidence propose competing arguments concerning the relationship between government funding and nonprofits' program spending. Using a 20‐year panel dataset of international development nonprofits registered with the United States Agency for International Development, we find that nonprofits receiving more government funding spend significantly higher proportions of their organizational resources on development programs. Government funding seems to increase nonprofits' program spending and to make them more focused on their mission‐related activities.     

Taxation and citizen choice: The effect of a county charter on property taxes

As saliency of the tax burden increases, the preference for a lower burden increases, but most counties are restricted by the state from adopting new taxes or changing the existing rates. Some states allow counties to adopt a charter, freeing them from state control. Using a panel of Florida counties from 1980 to 2017, we explore whether citizens act to reduce their property tax once a charter is passed. Citizens act against their preferences not by lowering burden but rather by increasing it in the case of debt service, suggesting citizens are maximizing their optimal tax burden in exchange for services.     

The tax-welfare mix: explaining Japan's weak extractive capacity

Abstract

Despite having the highest level of public debt in the Organisation for Economic Co-operation and Development (OECD), higher than Greece or Italy, Japan has one of the lowest aggregate tax burdens of the advanced industrial democracies. This paper asks why Japan, once described as a strong developmental state, has had such a weak extractive capacity, an inability to raise revenues to confront deficits and public debt? In contrast to the existing explanations that focus on political institutions, partisan preferences, or economic globalization, this article argues that Japan's ‘tax–welfare mix’ – the combination of taxes and redistributive welfare polices – undermined the state's long-term capacity to secure adequate tax revenue. More than just a source of revenue, taxes can be used directly to achieve redistributive goals, such as targeting low taxes and exemptions to specific groups. This study shows how Japan's tax–welfare mix diminished its extractive capacity through three mechanisms: the political lock-in of a redistributive social bargain struck around low taxes, the timing and sequencing of its tax policy and welfare development, and the erosion of public trust, which undermined tax consent. Beyond offering a new theory of extractive capacity, the tax–welfare mix explains aspects of Japan's tax structure that defy existing explanations and contributes to our understanding of the capitalist development state by highlighting the redistributive political function of tax policy and its long-term impact on state capacity.     

Conversion from nonprofit to for-profit legal status: Why does it happen and should anyone care?

The conversion of a nonprofit firm to the for-profit form is commercialism carried to an extreme. Conversion is increasingly common, most notably in health care. We seek to advance understanding of why nonprofit conversions occur and what public policy should be toward them. A transfer of control—the essence of a conversion—over nonprofit assets can be accomplished in various ways. Thus, it would be a public policy mistake to focus narrowly on formal legal conversions or outright sales. We explore the possible motives for conversion, and speculate about the reasons for the flurry of conversion activity in hospitals and health maintenance organizations (HMOs). We conclude that there are three central public policy questions raised by conversions: (1) under what circumstances is conversion appropriate—when does it represent an efficient reallocation of resources and when only a redistribution of wealth?; (2) how should the nonprofit's assets be valued?; and (3) what should happen to the financial assets that remain after a conversion?     

The Power of Nonprofits: Mechanisms for Nonprofit Policy Influence

The dramatic increase in public funding for nonprofit organizations has raised concerns about the potential disadvantages of a nonprofit sector that is too reliant on government funding. Using nonprofits to deliver public programs also presents risks for the public sector, but the question of nonprofit policy influence is largely absent from discussions of public–nonprofit service collaborations. The motivation for this article stems from the contradiction between the perceived weakness of publicly funded nonprofits and their potential for policy influence. This research asks, how do nonprofits exert policy influence? Using a grounded theory approach, the research draws on the attitudes and experiences of professionals and elected officials involved in policy making and policy implementation in the area of low‐income housing. The findings indicate a variety of mechanisms through which the government–nonprofit relationship can strengthen the power of nonprofit organizations, sometimes while weakening their government counterparts.     

Commercialism in nonprofit hospitals

The private nonprofit hospital is the dominant organizational form in the U.S. hospital industry. Various reasons have been advanced for its high market share. As hospitals undergo massive changes due in large part to changes in payment practices, there is widespread concern that nonprofit hospitals may become less committed to noncommercial activities. This may even be more likely when such hospitals convert to for-profit status. The empirical evidence indicates that, on average, hospitals of nonprofit and for-profit ownership are similar in the provision of uncompensated care, the quality of care, and the adoption of technology. Conversion of a nonprofit to for-profit status does not adversely affect the provision of uncompensated care on average. However, for-profits are more likely to be located in areas where consumers have the ability to pay for care. As hospital markets become more competitive and the opportunity for cross-subsidizing more unprofitable, collective-good activities will become increasingly difficult. Support for such activities, if they are to exist, will have to come from explicit public subsidies.     

The Fiscal Impact of Federal and State Aid to Large U.S. Cities: An Empirical Analysis of Budgetary Response

This article examines four types of aid programs to thirty-nine large U.S. cities federal revenue sharing, federal categorical aid, state general aid, and state categorical aid. The central finding is that there is significant variation in the magnitude of property tax reduction resulting from different types of state general aid. Property tax credits and exemptions are less effective approaches in reducing local property taxes than are state lump-sum aid or city use of piggybacked taxes Categorical state and federal aid mostly fund additional city spending and have small but important stimulative effects on the revenue side These results suggest that differences in the design of aid programs have important implications for their fiscal impact and their effectiveness in reducing property taxes.     

Mayoral Public Sector Work Experience and Tax Collection Performance in Colombian Local Governments

ABSTRACT

Local governments in Latin America tend to have limited capacity to collect taxes. Existing theory explains tax collection performance as a function of political, socio-economic, and cultural factors. Yet across Latin America, tax collection performance varies greatly between localities that are similar along these dimensions. We suggest that organizational capacity, represented by managers' human capital, explains variation in local tax collection performance. We test this theoretical idea against panel data on most Colombian local governments, where elected mayors are the top managers determining the local tax collection strategy. We examine two indicators of tax collection performance: (1) the per-capita amount of property tax collected and (2) property tax collected as a percentage of total property valuation. Controlling for important confounders, the length of the mayor's prior public sector work experience is positively associated with the per-capita amount of property tax collected but not the percentage of total property valuation collected in property tax. Our results suggest that Colombian mayors gain relevant skills over their career. Our study has implications for other developing countries with a similar property tax collection system.     

Privatizing Public Nursing Homes: Examining the Effects on Quality and Access

This study examines the effects of local government divestment on quality and access to care for Medicaid recipients in privatized nursing homes. The central hypotheses are concerned with the impact of new ownership on both aspects of organizational performance. The analysis indicates that privatization of nursing homes involves a complex set of trade-offs. Changing organizational ownership to for-profit increases the number of regulatory violations, decreases residents' quality of life, but does not influence Medicaid admissions. While no decline in quality is found among divested nonprofit facilities, access to care declines in the comparison groups of nonprofit homes. The author concludes that as counties minimize their roles as service producers, federal, state and local governments should enhance their regulatory capacity by improving quality assurance mechanisms and providing adequate reimbursement for low-income clients.     

Why most private hospitals are nonprofit.

In recent decades, restrictions that have been imposed on hospitals organized for profit have served to restructure the industry, generating a constant trend toward nonprofit organizations. Small proprietary hospitals in particular have disappeared while corporate chains have come to dominate what is left of the for-profit hospital sector. The trend toward nonprofit hospitals is not explained by the failure of the health service markets and is not the result of a desire to serve the public interest more effectively. Although a number of arguments have been advanced to explain the shift, the hypothesis that seems most consistent with the existing evidence is that the nonprofit form of organization serves most effectively to strengthen the restrictive character of the market for physicians' services and thereby to serve the individual economic interests of the physicians.