Taxing Nonprofits

A sad window in Michigan’s continuing decline and the ongoing collapse of state and local budgets, to be sure, but also an instance of a public policy oddity:

The mayor of Mount Clemens, Barb Dempsey, sent a letter this week to 35 tax-exempt organizations asking them to voluntarily contribute to the city’s general fund, which pays for services like fire protection, streetlights and roads. Ms. Dempsey said the city has already drastically cut its expenses, having disbanded the police department six years ago, but still faces a $960,000 deficit that is projected to reach $1.5 million next year.

“Those are all services that they utilize at no cost to them,” Ms. Dempsey said. “We figured it can’t hurt to send out letters. If you don’t ask, you never know.”

Mount Clemens, about 25 miles northeast of Detroit, collects no taxes from 42 percent of the property within its borders. The 4.2-square-mile city has about 17,000 residents and is home to 26 churches, a hospital, several schools and the headquarters of Macomb County, the third largest in Michigan. If not exempt, the properties would pay at least $1.2 million, enough to wipe out the deficit, Ms. Dempsey said.


The income tax-deductibility of charitable contributions is, I think, more of a mixed bag than people generally realize but I think it does have a valuable role to play. But I wonder about the impact of these broader exemptions from taxation. Over and above the sort of revenue issues Dempsey is pointing to, when certain kinds of institutions are exempted from property taxes it can end up promoting very inefficient uses of land. Conveniently located space is a precious commodity, and there are widespread benefits to making sure that it’s generally occupied by high-intensity uses.