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The freeloading days of some nonprofit organizations and big businesses located in the District may be numbered: Mayor Marion Barry is pushing revenue initiatives that could bring an end to a host of tax-free rides. As part of his multiyear budget proposal submitted earlier this month, Barry wants to change federal law so he can impose franchise taxes on Fannie Mae, Sallie Mae, and Freddie Mac, and, extract payments in lieu of taxes (PILOTs) from a host of other nonprofits.
The Brookings Institution and the National Geographic are among the 22 nonprofit organizations that have operated free of local taxes courtesy of Congress but would have to start paying their way, if the mayor’s proposals are approved. Barry also wants the Kennedy Center and the Smithsonian Institution, among others, to pay sales taxes on retail items sold in their specialty shops.
In his recent budget, Barry anticipates that his initiatives could bring in $824 million—$62 million from Fannie Mae, Sallie Mae, and Freddie Mac alone—in new revenue for the cash-strapped District government, while bringing equity to a system that has permitted hundreds of millions of dollars to slip through the city’s hands each year.
“We can’t have a reciprocal [commuter] tax, and if we can’t get these other taxes, then we are going to have to refigure the federal payment to compensate for these kinds of things,’’ Barry said at the press conference where he released his $4.9-billion budget for fiscal 1997. Barry’s proposals, however, may be part of a strategy to squeeze a larger federal payment from a Congress that seems unlikely to support a commuter tax.
Currently, the city receives a $660-million annual payment from the federal government. The money is supposed to compensate the District for lost property-tax revenues on government-owned land. But that payment does not account for broad exemptions mandated by Congress, which prohibit the city from taxing more than 50 organizations, along with property owned by foreign governments. And while numerous universities in the District are not specifically protected by the congressional shield, they still are exempted from all taxes by federal law.
D.C. Councilmember William Lightfoot also hopes to change the District’s revenue picture. On Tuesday, he intends to introduce a resolution that calls on Fannie Mae to make a $100 million PILOT to the District government. The resolution does not have the force of law; legislation must be introduced and passed by Congress before Fannie Mae would be required to make the payment.
“We’re simply asking Fannie Mae to recognize its responsibility to the public institution,’’ Lightfoot says, adding that the money would be used solely to repair and maintain city schools.
But Fannie Mae won’t be strong-armed by District officials. David Jeffers, vice president for corporate relations, says the company has no intention of making any payments in the form of taxes to the District, voluntary or otherwise. Jeffers was not aware of Barry’s proposed franchise fee until reached by a reporter. He asked for faxed copies of relevant pages.
“We think we make a major contribution as a housing provider, employer, and taxpayer now,’’ says Jeffers, ticking off statistics that might matter if the city weren’t mired in red ink. Jeffers points out that Fannie Mae is already subject to millions of dollars in real estate taxes and says those payments, combined with its philantrophic efforts, constitutes a $1 billion annual payment to the District. Besides, says Jeffers, “that proposal came up a year ago in a different form, and Congress had no desire to change the way it structured Fannie Mae.’’
Like Fannie Mae, the Brookings Institution was caught off guard. Spokesperson Stan Wellborn says his organization’s board of trustees had not seen Barry’s proposal and therefore could not comment.
Prior to home rule, many nonprofits received special tax treatment, and when the District won semi-independence, Congress forced the local government to continue the tax exemptions.The list of the tax-privileged in the District includes some fairly robust institutions: National Geographic, the American Pharmaceutical Association, the Medical Society of D.C., the National Lutheran Home, the National Academy of Sciences, the Carnegie Institution of Washington, and the National Education Association. Each year the city loses an estimated $300 million because of the congressional exemptions. (See “The Tax-Free Zone,’’ 12/2/94).
The move toward PILOTs and franchise fees by Barry and Lightfoot is not without precedent; similar devices have been used by local governments throughout the country including New Haven, Conn., and Cambridge, Mass. In the second year of her term, former D.C. Mayor Sharon Pratt Kelly suggested that universities and hospitals be required to make PILOTs to cover the costs of police, fire, and other municipal services,but she was roundly excoriated for her efforts. She eventually withdrew the proposals before the council ever had a chance to vote on them.
But Barry’s sudden financial realism on both the spending and revenue sides of the budget could mean that PILOTs and franchise fees get a longer look on Capitol Hill. If the District cuts its budget to the bone and still comes up short, federal overseers might look for sources of revenue outside their wallets.
While city officials are working the Hill seeking support of new revenue initiatives, others have decided to fight from within the target organizations. D.C. Shadow Representative John Capozzi and his band of civic rebels, including the Rev. Graylan Ellis-Hagler of Plymouth United Church of Christ, have begun buying Fannie Mae stock as a way of forcing the issue of PILOTs at the company’s annual meeting this May.
“This is a nonviolent way to go after corporate America,’’ says Capozzi, adding that he believes Fannie Mae can afford to pay because it made $3 billion in 1995. “They were printing money in the basement,’’ he says.
Capozzi hasn’t done too badly, either. He says he purchased 100 shares of stock last year at $35 per share and the stock split four for one, giving Capozzi a total of 408 shares valued at $135 per share. Lightfoot recently purchased 150 shares of Fannie Mae stock and plans to join Capozzi at the May meeting.
Capozzi, Ellis-Hagler, Lightfoot, and others began their fight against the mortgage giant, which is the largest purchaser of mortgages on the secondary market, a year ago. They have picketed the company’s headquarters on Wisconsin Avenue NW and lobbied Congress for changes in how the lenders are assessed. They see infiltration as stockholders as a next step.
Ellis-Hagler called Barry’s aggressive tax move and Lightfoot’s resolution steps in the right direction. “We have to reassess the kinds of benefits we’re offering to sizable organizations and institutions.