LEWISTON — If Gov. Paul LePage’s proposal to tax nonprofits became law, Lewiston would get $3.3 million a year in added property taxes from its two hospitals and Bates College.

Central Maine Medical Center’s property tax bill would be $1.17 million a year, St. Mary’s Regional Medical Center’s would be $535,000, and Bates College would pay $1.6 million, according to Lewiston City Assessor Joseph Grube.

The city would collect more tax revenue from other nonprofits that have more than $500,000 in property value: $15,000 from Kora Temple; $8,700, SeniorsPlus; $15,000, Franco Center; $11,000, Greater Androscoggin Humane Society; $40,000, John F. Murphy Homes; and $13,000, YWCA of Central Maine.

LePage’s proposal would exempt churches but not religious schools, which would mean St. Dominic Academy would be subject to Auburn property taxes. The governor is proposing that nonprofits with property worth more than $500,000 be subject to taxes at half the local rate. The revenue would help make up for state revenue-sharing to municipalities, which the governor’s proposed budget eliminates.

In Auburn, City Finance Director Jill Eastman estimated that under the proposal, nonprofits that would have to pay annual property taxes would include John F. Murphy, $81,381; Good Shepherd Food-Bank, $24,442; St. Mary’s Regional Health System, $63,424; Central Maine Medical Center, $31,308; and the YMCA, $13,020.

Peter Kowalski, chief executive officer of John F. Murphy Homes, said the tax would be a “severe amount of money. We’ve lived in a world where we have had nothing but cuts” for years.

John F. Murphy Homes helps adults and children with intellectual disabilities such as autism. It runs more than 20 residential group homes throughout Auburn, plus day treatment centers and schools. It owns 23 properties in Auburn and several in Lewiston. Many of the properties are group homes.

John F. Murphy Homes also faces a $1 million cut in Medicaid funding from the state, Kowalski said. If the $1 million cut and the property tax materialize, “there’s no way we could absorb that,” he said. “At some point, we may not even be there.”

Bates College President Clayton Spencer has said that the property tax bill would add significantly to expenses and threaten the college’s ability to provide community services.

She said Bates provides enormous economic and social benefits to Lewiston, including Bates students contributing 70,000 volunteer hours to Lewiston schools. The current cost for each student to attend Bates is $60,000. Bates provides $4.7 million a year to Maine students.

St. Mary’s Health System President Lee Myles said the governor’s proposed budget includes more MaineCare payment cuts, as well as taxing nonprofit hospitals.

Coupled with the recent rollback in MaineCare eligibility, which leaves fewer patients with health insurance, the proposals mean St. Mary’s would have to determine which services it would stop providing, Myles said in a written statement.

That could mean “we will begin to refer patients to either inside or outside of the state,” Myles said.

Central Maine Health Care spokesman Chuck Gill said his hospital is looking at the impact of the governor’s proposal.

“We will be talking to legislators,” Gill said. “The Maine Hospital Association has spoken out about this, calling it a ‘sick tax.’ We agree with that.”

Maine Hospital Association spokesman Jeffrey Austin said hospitals are disappointed in the governor’s proposal. Taxing nonprofits has come up before in Maine “and has always been rejected,” he said.

Like any business, hospitals have to cover their costs, Austin said.

“If we are obligated to pay a new tax, we have little choice but to ask our customers to shoulder a portion of the burden, making it a tax on people when they get sick,” he said.

Hospitals appreciate city services such as snowplowing and police protection, but hospitals give back by providing charity care to the poor, which represents between 5 and 7 percent of their patients, he said.

“We earn our exemption,” he said.

Good Shepherd Food-Bank President Kristen Miale said in a prepared statement that taxing nonprofits would be “an unfortunate step in the wrong direction.”

If Good Shepherd had to pay $24,400 in property taxes, “that would be 100,000 meals that we would no longer be able to distribute,” Miale said. “That would certainly be devastating for those of us who work tirelessly to make sure our neighbors have enough nutritious food to eat.” 

For years, the food bank has saved the state money, she said. Without food provided by Good Shepherd and local food banks, “more Mainers would need assistance. We also contribute to the tax base by employing more than 50 people.”

The governor’s proposal to eliminate revenue-sharing and tax nonprofits equates to the state taking $1 and giving municipalities 50 cents, according to an analysis by the Maine Municipal Association.

The majority of municipalities in Maine don’t have nonprofits with property valued at $500,000 or more to tax, said Geoff Herman of the MMA.

Sabattus is a good example.

“I cannot think of a single nonprofit in the town of Sabattus with half a million in value,” said Town Manager Andrew Gilmore.

Revenue-sharing was a promise made by the state in the 1970s to help with property taxes, Gilmore said.

“It’s a major revenue source for Sabattus,” he said. “It helps keep the tax rate down.”

In 2009, Sabattus received $532,000 from the state in revenue-sharing; this year, the town is expecting only $204,080, Gilmore said.

If the governor’s proposal is passed, “that’s a department,” Gilmore said. “The selectmen would not be in favor of passing it on to taxpayers. It’s almost certainly a loss of services.”

Nonprofits aren’t all charities

Common sense dictates that if an organization qualifies to become a nonprofit to perform a public good, it would be careful how it spends money.

But a few operate in ways that raise eyebrows.

Bates College, a nonprofit, charges students $60,000 a year. Many students receive financial aid. Bates has been cited in national publications for being one of the most expensive schools in the country.

The college ended fiscal year 2013 with net assets or a fund balance of $349.7 million, according to the federal 990 tax form.

In fiscal year 2013, Central Maine Healthcare paid President Peter Chalke $1.8 million in compensation, including retirement and benefits, according to the federal tax form 990. Laird Covey, then head of CMHC’s Central Maine Medical Center, earned over $452,000, including retirement and benefits. Several Central Maine Medical Center doctors were paid $500,000 or more.

Central Maine Healthcare ended that fiscal year with net assets or a fund balance of nearly $96 million, according to the tax document.

In 2013, St. Mary’s Health System paid President Leo Myles over $560,000 in compensation, including retirement and benefits, according to the Form 990. It ended the year with a deficit of $13.7 million.

Top hospital executives’ salaries may seem high to some, but they’re set by local boards “and by local people who pay the bills,” said Maine Hospital Association spokesman Jeffrey Austin.

Even if salaries were cut, as suggested by Gov. Paul LePage when he announced his tax plan, it wouldn’t be a realistic way to address cuts in the governor’s budget, Austin said.

Hospital expenses are too high, Austin said, adding that hospitals are working to cut costs.

Maine Municipal Association spokesman Geoff Herman said towns and cities have been concerned about the erosion of the tax base, which “is getting narrower.” When that happens, the burden gets shifted to homeowners.

The MMA has tried to get more specific information about which nonprofits are charitable.

“We tried it,” Herman said. “The Legislature rejected it.” 

Jonathan LaBonte, director of the Governor’s Office of Policy and Management, said the property tax proposal is an effort at fairness. LaBonte is also the mayor of Auburn.

Many nonprofits do make a profit and get the benefit of not being taxed on that income, LaBonte said. The 990 tax forms allow people to see what an organization’s annual fund balance is and what is paid to top executives.

The organizations have said they must pay the kind of salaries they do to attract talent, he said. “That’s a separate conversation” from the governor’s proposal, which is that nonprofits create demand for public services such as fire protection, public works and law enforcement, LaBonte said.

Excessive compensation has become an issue for some nonprofits, according to the Maine Association of Nonprofits’ website.

In most cases, nonprofit salaries lag behind leaders in business and government. The challenge for many boards is not reining in excessive compensation but how to pay appropriate salaries.

Fair salaries should be weighed with the size and complexity of the nonprofit, geographic location, qualifications for the job and the mission and financial condition of the organization, according to the website.

Scott Schnapp of the Maine Association of Nonprofits in Portland said the idea of taxing nonprofits comes up on a regular basis, but has not become law because state lawmakers wisely have not gone in that direction.

“Because in the end, nonprofits are offering services to the community that will be compromised if they end up being taxed,” Schnapp said. “These are services that communities consider important, valued, would lose and be diminished.”

The governor’s threshold of taxing those with more than $500,000 of property values is low, he said.

“It would catch a lot of organizations who may not be his target,” he said.

Many nonprofits are property rich but revenue poor. They serve vulnerable populations, including the disabled, the poor and the elderly.

“If colleges and hospitals are taxed, there would be services they offer that would stop,” Schnapp said.

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