Tax-Exempt Status:  The Challenge for Non-Profit Hospitals and Their Communities

(© Michelle Sahl 2000)

 

I.  Introduction

Philadelphia has been experiencing an exodus of city residents for more than three decades.  In fact, numbers of municipalities across the country have been struggling with losses of population and other challenges that result in an erosion of their tax base, and in turn, for Philadelphia, a general decline of individual inner city neighborhoods.  While regions nationwide may point to different issues as their own specific ‘Achilles’ heel,’ the reality of tax-base erosion invariably bubbles to the surface as the key factor in the undoing of municipal viability.  In this context, Philadelphia is not alone.

 

Over the past fifteen or more years, locales and regions have increasingly sought creative ways to enhance their dwindling revenue bases.  One avenue toward that end has prompted a number of regions to re-evaluate the status of their historically ‘sacred’ nonprofit tax-exempt institutions (i.e., hospitals and universities in particular) that live and thrive on the jurisdiction’s tax-exempt real estate, all the while accruing tax-exempt ‘income.’  A brief look back upon the history and development of nonprofits’ tax-exempt status in this country, with a particular eye toward hospitals and the health care industry, will provide a foundation for further discussion....