Archives for July 16, 2012

CNN On Romney’s Tax Returns



Hoisted From the Archives: ArtsQuest Should Pay Property Taxes

Seeing as this is in the news again, I thought I’d repost my argument for why ArtsQuest should pay property taxes. Bernie O’Hare is saying that Steve Barron and Lamont McClure are just playing politics, and maybe so, but I think if you look at the substantive case for exempting ArtsQuest from property taxes, it’s really quite weak. Bernie’s argument seems to be that ArtsQuest provides popular services that lots of people like, ergo they shouldn’t pay taxes. That’s ridiculous. Lots of businesses provide services people like. The issue is whether ArtsQuest is mostly a charity, or if they’re mostly a business, and performing services that other for-profit businesses sell.

One more point that I don’t make in the original post is that the property tax exempt encourages ArtsQuest to waste land. Air Products Town Square and PNC Plaza are nice, and maybe people think plazas are the  optimal use of that land – instead of, say, another ArtsQuest building or some office buildings or something. But maybe it’s not! A firm that had to pay property taxes would be thinking harder about whether or not it’s wasting the Steel land. Surface parking is an example of a land use that should definitely not be tax-exempt.

This is a good example of a case where a land value tax would be better than the current property tax system. I don’t want building taxes to discourage ArtsQuest from building more buildings on the Steel land. But I also don’t want to see them wasting a bunch more land on surface parking and other non-productive land uses. A land tax would create an incentive for them to make sure most of the land they own is occupied by buildings, and not unimproved space. If the city wants more public goods like plazas and parks and stuff on the Steel land, then they can buy that land and turn it into whatever they want. But all the rest of the non-city-owned land should face development pressure from land taxes.

Here’s the original post:

The point of creating a Tax Increment Financing (TIF) district on the former Bethlehem Steel land was that future property tax collections would finance development in the here and now.

The imperative, then, is to fit as many property tax-paying businesses inside the TIF district.

The basic shape of the issue is that the more property tax-paying businesses in the TIF, the better a deal it is for residential taxpayers . The fewer property tax-paying businesses there are in the TIF, the worse a deal it is for residential taxpayers.

So when the government grants tax-exempt status to businesses inside the TIF, or land inside the TIF is devoted to value-subtracting uses, people need to understand that that’s a problem. There’s a real cost to doing that. Non-profits are great, but the point of the TIF is to subsidize development that will contribute to the tax rolls.

Everybody likes ArtsQuest. Everybody agrees that ArtsQuest provides great programming, and that they have been an important contributor to the resurgence of Southside Bethlehem.

But ArtsQuest should absolutely pay property taxes on all its properties inside the TIF.

SteelStacks is no different from a normal for-profit concert venue. They’re going to make a ton of money from their programming. That’s great for them, and it’s great for the city, but the simple fact is that ArtsQuest is using valuable land inside the TIF that now cannot be used by a for-profit tax-paying business. These properties need to be on the tax rolls.

If you look at the criteria for tax-exempt status in Pennsylvania, you’ll see that they are over-broad, and that granting tax-exempt status to ArtsQuest would require a big stretch of the imagination:

  • Advance a charitable purpose.
  • Operate entirely free of profit motive.
  • Donate a substantial portion of services.
  • Benefit a class of persons who are legitimate subjects of charity.
  • Relieve the government of some of its burden.

ArtsQuest is providing market services, not charity. Some of their paid programming is subsidizing other free programming, but if you look at the totality of the services they provide, you’ll see that most are non-essential services that people pay money for in other contexts.

“Operate entirely free of profit motive” may be technically true, but ArtsQuest is competing with other concert venues and they are subject to the same market forces and competitive pressures as other businesses in the entertainment industry. There’s no reason you couldn’t run the same organization as a for-profit business. They’re just choosing to to get the special tax status.

ArtsQuest offers a lot of “free” programming, but of course nothing is free. They’re provided for free but the costs are priced into the paid programming.

I’m not totally sure what their market demographics look like for free concerts, but it seems to me that Steel Stacks is being marketed to an upmarket clientele who are not the “legitimate subjects of charity”

And on the last one, nothing ArtsQuest does can realistically be understood as taking some burden away from the government. The government doesn’t have a responsibility to provide entertainment. It’s useful for a city government to create the market conditions that are favorable to entertainment industry businesses, but the direct provision of entertainment is not a job for municipal government.

I understand that people feel grateful to ArtsQuest, and the city probably wants to signal that they appreciate all they’ve done by supporting their bid for tax-exempt status. But that’s what greeting cards are for. You don’t cut 10 public sector jobs and then say you want to turn down $120,000 in revenue. ArtsQuest is making money, just like other valued businesses, and they should pay taxes.