The recent controversy involving the Schenectady city assessor and several local nonprofit organizations prompts me to comment and offer my perspective as a former auditor.
[The city case involves about a dozen nonprofits that were added to the tax rolls after they failed to file their tax-exemption paperwork in time. Half of those nonprofits will get their taxes refunded, thanks to a special act of the state Legislature.]
I tend to be someone who takes a cautionary approach to any proposals for creating nonprofits unless sponsors of such groups can demonstrate that they have the wherewithal to provide capable leadership and a strong commitment from volunteers to ensure the operation will be conducted according to its stated mission and in accordance with all federal and state regulations.
Without this assurance, nonprofits soon begin to falter, causing them to dissolve and/or abuse their tax-exempt status to stay afloat, and to produce financial statements that are less than credible. I have read all of the articles written by Gazette Reporter Kathleen Moore regarding the Schenectady matter and it appears, possibly through no fault of hers, that much of what has been written puts the city assessor in a tenuous position, given the lack of support he has received from many of the city council members.
It becomes apparent from the relief bill sponsored by Sen. Farley, and from those who urged the senator to introduce the bill, that a vast number of nonprofit members would have registered their displeasure in the fall election if they were not accorded some special consideration.
The Gazette’s June 29 editorial offered an interesting perspective of the controversy, but I find troublesome the suggestion that “nonprofits are often run by volunteers who deserve to be cut some slack if they don’t adhere strictly to every rule.” This assertion is an invitation for nonprofits to run afoul of the regulatory material that protects the public from abuses. It not only brings discredit on the good work nonprofits do, but ultimately discourages the public from contributing to worthy causes.
Far too often we hear about nonprofits enriching their officers and members with lavish social events and other perks — a sure sign that donor contributions are disproportionately being siphoned from their original intent, and soon the nonprofit becomes charitable only in name.
Opportunities for abuses within the nonprofit sector become especially fertile when there is little or no oversight over finances and reporting requirements. As for these shortcomings, one only has to reflect on how often we hear or read about persons associated with nonprofits or donor-based charitable activities embezzling funds or using charitable property for personal use.
On July 9, The New York Times disclosed that Acorn, one of the nation’s largest community organizing groups operating as a nonprofit, hid from the public for almost eight years that the brother of its chief organizer embezzled close to a million dollars from its coffers. Only recently, someone “blew the whistle” and revealed that the books were “cooked” to show the missing funds as a loan to the embezzler and he was allowed to remain with the nonprofit with a salary of $38,000 per year and under an agreement that repayment would be $30,000 per year.
The recent disclosure of this deal resulted in the firing of the embezzler; his brother, who sanctioned the deal, was reassigned within the organization. As for the missing funds, $210,000 was recouped under the repayment plan that was hammered out in 2000. Currently, there is some talk that a donor will repay the outstanding balance.
What makes this such an interesting story is the fact that the Acorn organization recently established roots in the Hamilton Hill area. At this point, it appears questionable what the sanctions will be, but already numerous contributing foundations and large donors are gathering to consider how they should proceed. Foremost in my mind is the fact that the brother of the embezzler and other officers involved in the cover-up are still employed with Acorn. They all should be treated as conspirators to a crime and dealt with accordingly by the federal government.
Federal and state laws authorizing the formation of a nonprofit are complex, and once approved, the nonprofit takes on the continuing burden of providing to the Internal Revenue Service periodic financial reports and other documentation to enable the IRS to determine whether the nonprofit is still operating within its stated mission and entitled to retain its tax exemption status.
Copies of this documentation and other proof of compliance are used by the assessor to determine how much of the property is exempt, depending upon its use and the type of income derived from such use. In other words, not all property owned by a nonprofit is tax-exempt if it is used for other-than-charitable purposes. Without this documentation, the assessor has to utilize extraordinary means to make this determination — adding significantly to his workload to accommodate nonprofits that, for one reason or another, find it inconvenient to file.
In this regard, I am particularly bothered by the fact that one of the delinquent filers, who has hopes of obtaining some relief under a future relief bill, opted to pay “tens of thousands of dollars” in property taxes rather than hire an accountant for a few hundred dollars or so to sort out their finances and prepare their exemption documents for submission to the assessor by the deadline date.
Hopefully, the worst of this situation is over — unless veterans, the elderly and others entitled to certain exemptions, who, for one reason or another, failed to file by the deadline date, decide to seek relief from our politicians, relief similar to that granted the nonprofits. In the meantime, the outrage over this incident should be put aside and everyone should concentrate on “cleaning up their act” before the next tax roll comes dues.
If anyone deserves some slack, it’s the city assessor, who is bound by state regulations to provide a tax roll that is fair and equitable for all persons and entities subject to property taxes and entitled to exceptions.
Anthony P. De Luccia lives in Schenectady. The Gazette encourages readers to submit material on local issues for the Sunday Opinion section.
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