Compromise Proposed on Tax of Nonprofit Groups

Nonprofit organizations may be able to dodge a controversial plan to include them in the city business license tax, under a compromise agreement worked out this week.

Reached during Tuesday’s meeting of the city Finance Committee, the agreement would allow the estimated 600 nonprofit groups in Pasadena to voluntarily contribute a total of $250,000 to the city instead of being taxed for it.

The agreement, which stems from a recent decision by the Board of City Directors to levy business license taxes against nonprofit organizations, is expected to be presented to the board next week.

The compromise, however, has raised skepticism on both sides of the issue. Worked out between a small group of nonprofit representatives and the three-member Finance Committee, the agreement stipulates that the nonprofit organizations must raise $250,000 by Dec. 31 or face inclusion in the business license tax.

Controversy over the issue began two weeks ago when the Board of City Directors voted to double the yearly fees paid for business licenses and made a last-minute move to include nonprofit organizations in the tax base. City officials said the increased fees and the inclusion of nonprofit groups was designed to raise an additional $2 million annually in city revenues, $250,000 of which was to come from business license fees paid by nonprofit groups. The base rate for each nonprofit group was to be $50 plus $10 per employee, with a maximum of $5,000.

The additional revenue will be earmarked for $20 million in street repairs to be completed over the next 10 years.

After intense criticism from nonprofit organizations that claimed they had not been consulted about the plan to tax them, the board tabled the issue. City directors said at the time that they nonetheless intended to tax the nonprofit groups, but would meet with them to discuss the amount.

City Director William Thomson said Tuesday that he doubted the compromise plan would work and told the nonprofit representatives that “you are indeed a part of the business community whether you accept it or not.”

“I think we’re beginning an exercise that is just unnecessary,” Thomson said of the compromise agreement. “I guess I remain skeptical that this is going to be realistic.”

Bob Monk, executive director of the Pasadena Boys Club, also expressed doubt over the agreement. “There’s something basically troubling here. If the charities have to come up with $250,000 by December anyway, it’s the same as being taxed,” he said.

Monk, who did not participate in Tuesday’s negotiations, said he had “no problem with making a voluntary contribution. But having to come up with a quarter of a million dollars by December leaves a bad taste in my mouth.

“I just think the city’s approach stinks. I don’t like being told what to do and how long I have to do it.”

Representatives of most of the local nonprofit organizations said they objected not to helping finance street repairs, but to being taxed for it. “If they start taxing nonprofits over something like this, the list could be endless,” said Donald Fowler, general counsel for Caltech, one of the largest nonprofit organizations in Pasadena.

Fowler, who was present at Tuesday’s committee meeting and has emerged as a spokesman for the nonprofit groups, said he strongly favors the compromise agreement. “From our standpoint, we were more concerned about the imposition of a tax and the precedent that would set, than about some reasonable amount that might be paid to help solve this problem (of financing street repairs),” he said.

According to Pasadena officials, taxing nonprofit organizations is not unprecedented. Other cities, including San Gabriel, Azusa and Baldwin Park, levy municipal taxes against convalescent homes, private schools and day care centers, said Terence Belanger, director of Pasadena’s Employee and Community Services Agency.

Under the agreement, the groups were given a deadline of Sept. 30 for devising a way to collect the $250,000 from the estimated 600 nonprofit organizations.

“What you’re going to need,” City Director Rick Cole told the handful of nonprofit representatives at Tuesday’s meeting, “is virtual, across-the-board compliance. Otherwise, you’re going to have some groups paying double or triple to make up the difference. Trying to get 600 (groups) to agree on something is nearly impossible.”

Admittedly, Fowler said, he did not know if all the organizations would agree to donate. “My guess is that there’s going to be some who won’t want to contribute,” he said after the meeting. “But it seems to me it’s at least worth trying.”