A Journey into the World of Nonprofit Exemptions
A grayscale illustration of a rat in a top hat holding cash. Behind the rat there is a building, and surrounding the rat is money and cheese. Illustration by Artemesia Trapeze.

After COVID-19 hit, Sia Karamalegos was among the many New Orleanians whose loss of work left her unable to make rent. Considering the economy was in total freefall, she hoped her landlords would be sympathetic. Karamalegos’ Uptown home is owned by Newman, a wealthy private school with a long history of educating the New Orleans elite. When they refused to give her a break on the rent, she began thinking about what it meant that an institution with so much would offer to give back so little to the community. Their multiple revenue streams include the $24,000 yearly tuition, donations from parents and alumni, and multiple rental properties that bring in over $165,000 of their $31 million yearly revenue. And, because they are classified as a nonprofit, they are also exempted from paying property taxes on any of their holdings, whether or not they are used for the purposes of education.

As someone who worked in New Orleans public education, Karamalegos has seen firsthand that this tax break comes with larger consequences. “I know property taxes help pay for public schools,” she says. “It makes me angry thinking about how this impacts us macroeconomically.” Property taxes are the largest source of revenue for the city of New Orleans, providing 46% of the Orleans Parish tax revenue; the Orleans Parish School Board receives 27% of the property tax. Newman is classified as a nonprofit under the Louisiana Constitution because they serve the purpose of education. But if the money they don’t pay on their commercial properties bolsters their own programs instead of going to the severely underfunded school system, exactly whose education is benefiting from this exemption?

New Orleans is home to a dizzying number of nonprofits, and thanks to the nonprofit exemption, currently about 4,400 properties worth about $3.9 billion have been left off the tax rolls in Orleans Parish. Louisiana is one of the only places in the country with an almost unqualified nonprofit exemption. Some states require that exempt property has to directly serve the public good, and must be accessible by the general public. Other states specify that nonprofits benefiting economically from the exemption must serve vulnerable populations, or else they clearly explain which commercial activities are included in the exemption and why.

Because Louisiana has such an expansive nonprofit exemption, New Orleans recipients of this property tax break include everything from small neighborhood churches and community centers to Mardi Gras krewes, the Roman Catholic Archdiocese, and Tulane University, which has an endowment of $1.43 billion, an annual tuition of over $56,000, and owns about 19.5% of the assessed value of nonprofit property. In the former case, the nonprofit exemption often makes it possible for these smaller organizations to contribute to the social safety net, which both benefits the public and lessens the burden of taxpayers. However, when it comes to nonprofit institutions with enormous revenue streams like Tulane, the exemption allows them to capitalize on their exclusivity while avoiding paying their fair share for public infrastructure that benefits their staff, administrators, students, and of course, the city as a whole.

The question of who pays taxes and who doesn’t is a delicate one for politicians, since many nonprofit leaders are power players in the city. For years, bringing up the millions of dollars missing from the property tax rolls was considered a political taboo. “Nonprofits are sacrosanct in a poor city,” says Councilmember Kristin Palmer, who says she has been a supporter of tightening their exemptions as long as she has been in office. “I think the words I heard were ‘political suicide.’” As Councilmember Jay Banks puts it, “Nobody wants to talk about this. But the fact of the matter is we have been kicking the can down the road a long time.” To Councilmember Banks, it may make sense to exempt nonprofits from paying taxes on properties that serve a public function; but, as he says, “The wheels come off when you have these investment properties that are off the rolls. It’s an attitude of, ‘everybody should pay taxes except me.’”

In the past, attempts to hold nonprofits accountable for paying taxes on commercial properties have been unsuccessful. In 1982, current Orleans Parish tax assessor Erroll Williams, then serving as finance director under Mayor Dutch Morial, tried to argue before the Louisiana Supreme Court that an office building and parking garage owned by the hospital Hotel Dieu should not be tax exempt because it was being operated commercially. The state supreme court said that in keeping with the 1973 Constitutional Convention, the Louisiana nonprofit exemption would not limit “activities that can be classified as commercial.” Because the Louisiana Constitution is so broad, pursuing legal action made the tax base lose ground instead of gaining it. In 1997 then-tax assessor Thomas Arnold tried to argue that a vacant lot inherited by Tulane should not be tax exempt, suggesting that no one’s education was being served by Tulane sitting on land, waiting for its value to go up. “The Louisiana Supreme Court said that when Tulane sells the property, whenever that is, the money will go into Tulane’s education fund,” says Williams. “So we had to start taking all the vacant land off the tax rolls.”

The implications go further than just the opportunity cost for the city’s continually underfunded infrastructure. “We don’t have enough units going into the marketplace,” says Councilmember Palmer, pointing to the fact that the severity of the New Orleans housing crisis means that the city is in desperate need of affordable housing development: “Nonprofits are holding onto lots for future redevelopment when we need them now.” According to the Jane Place Neighborhood Sustainability Initiative, “61% of New Orleans renters are cost-burdened, spending more than a third of their income on rent and utilities, while 38% spend more than half their income on housing costs,” and that to begin addressing the current crisis, “more than 33,000 new affordable housing units are needed over the next 10 years.”

The commercial activities of Tulane University, including investment properties like these vacant lots, are protected under the reasoning that they all contribute to the university’s educational fund. Considering this comes at the direct expense of housing the New Orleanians who are most in need, it is worth looking closer at that educational fund. Tulane University has a $1.4 billion endowment, which is essentially a donor-driven investment portfolio. As such, the endowment provides substantial income to Tulane each year. According to the website of their investment management office, “the Endowment is unique among the University’s revenue streams since it provides perpetual support… To put the power of the Endowment in perspective, a $1.0 million gift made 10 years ago and invested in the Pooled Endowment generated more than $500,000.”

At over $50,000, the yearly tuition at Tulane costs almost double what the average New Orleanian makes in a year. Top notch resources, like their endowment and their four million library books (which city residents can only fully access if they pay a $250 yearly subscriber fee), are part of what justifies the hefty tuition. One of their recruitment strategies is presenting the city’s unique culture as an integral part of the Tulane educational experience. Other elite schools may have a similar ranking to Tulane, but they don’t have New Orleans. “You can take classes like ‘New Orleans Cities of the Dead,’ about cemetery architecture, or ‘The Music and Culture of New Orleans’ as part of our Tulane Interdisciplinary Experience Seminars,” reads the admissions website. “The classes are cool­ but the way so much of what we do is woven into the fabric of our city is even cooler.” If students are willing to pay so much for an education that is intertwined with the city of New Orleans, shouldn’t Tulane be paying for that classroom?

“I don’t want to single out Tulane,” says Councilmember Banks, adding that his mother was the first Black woman to receive a degree from Tulane. “All of these entities need to be stepping up.” Tulane is the biggest individual player in the New Orleans nonprofit commercial property game; they even receive a special $5 million exemption in the Louisiana Constitution that was originally given to the university in 1884. But they are not alone. Loyola University also owns significant amounts of exempt properties, as does Xavier, Touro, Ochsner, Children’s Hospital, and the WWII Museum. As of 2019, the assets of the Archdiocese of New Orleans included an endowment of $306 million, as well as a conservative estimate of $77 million worth of land and buildings.

For Banks, asking these nonprofits to pay their fair share of the public infrastructure is non-negotiable, especially in light of the current economic crisis. Mayor Cantrell recently told city council that New Orleans is “facing budget shortfalls of over $100 million.” The biggest impact of the shortfall will be felt by those 297 personnel slated to be cut, and the City’s general fund, which consists of locally generated taxes and fees and accounts for most City departments’ operations and personnel funds. “I’m hoping that people will come to the realization that we are coming to the end of the road,” says Banks. “There is no qualifying that it has to happen. The budget has to be balanced at some point by somebody, and the more people carrying the load the lighter the load is on each individual.”

In February of 2020, the Ad Valorem City Council Committee, chaired by Councilmember Helena Moreno, released a report designed to address “an already stretched” city budget and “explore all options to find funding and best utilize every dollar.” The committee acknowledged that the state constitution’s “definitions for the exemptions are overly broad and out of step with national norms,” and contradicts the need to expand the tax base. According to the report, raising revenue from tax exempt properties is at the top of their agenda. As their next step, the committee created the New Orleans Task Force on Nonprofit Parcel Fees to explore how the City might go about bringing nonprofits into the tax base.

Because the exemption is provided for in the state constitution, changing it falls outside the city government’s purview. The council would therefore have to create a separate fee to apply to nonprofits in lieu of property taxes, rationalized essentially as an infrastructure fee. However, there is a fundamental problem: not all nonprofits abuse the exemption. As the New Orleans Baptist Association protested in a released statement, “removing exemptions for religious nonprofits would disproportionately disadvantage under-resourced communities by forcing the closure or forfeiture of property of small, neighborhood churches which oftentimes perform a central social and religious function.” If an already struggling neighborhood church that provides necessary services to their parishioners were forced to pay a fee that prevented them from keeping their lights on, the added tax dollars would then come with a serious cost to our larger social fabric. “In one corner you have the big boys, Tulane and the Catholic Church, with the smaller churches and organizations in the other,” says Andreanecia Morris, the Executive Director of HousingNOLA and the Chair of the New Orleans Task Force on Nonprofit Parcel Fees. “Somehow both realities need to be addressed.”

The question of how to fairly charge two essentially different types of organizations that are lumped into the same category is the question the task force is now facing. According to a report completed by the Louisiana Budget Project in May of 2020, there are a few different formula options going forward, including applying the fee by land square footage, per land parcel, and by building square footage. If the fee charged per parcel, it would hit the smaller property owners the hardest, whereas under the building square footage scenario, the smaller organizations would be least affected, and the biggest property owners would pay the most. The downside is that charging by building square footage leaves the vacant lots untouched, which in the case of Tulane means $100 million worth of property left on the table. Still, it would be a real start for bringing the big nonprofits into the tax base.

The task force was just gaining momentum on the issue, intending to have a measure on the ballot this fall, when the pandemic hit. Since then the process has stalled. According to Councilmember Moreno’s office, the committee fully intends to pick it back up when city government is once again able to safely meet, and the public can expect to see something more concrete this spring. When the measure does go on the ballot, the bigger the voter turnout the more impactful the precedent will be.

However, if we are serious about applying real fairness to our tax structure, this proposal only scratches the surface of a deeper issue. Currently there are 17,000 registered nonprofits in Louisiana. “We have to have a whole conversation about the concept of nonprofits,” says Morris. “Saying this as someone who runs three nonprofits, there are too many here in Louisiana.” The problem with having such a vast network of nonprofits goes beyond tax evasion. As Morris puts it, “the nonprofit industrial complex aids and abets the responsibility of the social safety net being removed from government.” When a nonprofit does the work of meeting the needs of vulnerable people, they are having to both expend their resources on the work itself as well as fundraise from wealthy donors. Because these donations count as tax write-offs, the rich are able to pick and choose where they put their money, instead of paying the same taxes as the rest of us. Public infrastructure suffers as a result, and the nonprofit network is left fighting over whatever scraps fall from on high.

In New Orleans, the problem is further compounded by the fact that even if the city were able to unite around making wealthy institutions pay their fair share, we would then have to contend with the state Legislature. Under the current state constitution, New Orleans’ autonomy is completely undercut by Baton Rouge. The Bureau of Governmental Reporting has been fruitlessly petitioning the state to change the nonprofit exemption since 1996. Politicians have consistently supported institutionalized tax evasion for the wealthiest and most powerful Louisiana institutions, and as a result, the tax structure relentlessly bleeds those who have the least to give.

Tax exemptions for wealthy nonprofits come at the cost of failing and outdated public infrastructure, which can result in street flooding, as seen here at N. Claiborne and St. Philip Streets, November 2020 (photo by Angela Calonder).

As COVID-19 austerity continues to wreak havoc on the New Orleans economy, we need more from our politicians than a hastily thrown together package of misleading propositions that, at best, would be a band-aid for our infrastructural bullet wounds. With the city in crisis, we must think carefully about the consequences of addressing budget shortfalls by cutting government jobs and ignoring major infrastructure needs. The outcome of this scenario is predictable. The fewer people are employed, the less money will circulate to restaurants, shops, and artists who badly need the work. Government will continue to weaken the social safety net, and more and more people will fall through the cracks.

But there is another possibility. Faced with the task of making up for budget losses, we can look to restructure the tax system in the interest of reclaiming money that rightfully belongs to the public from those who have more than enough. By bringing more wealthy taxpayers into the base, we may end up with enough to inject funds into areas that badly need it, while simultaneously lowering tax rates for everyone. With this option, the outcome is less certain; Louisiana has not once attempted it since the colony was founded in 1674. Maybe 2021 is the year we find out.

illustration by Artemesia Trapeze

graphic by Tyler Rosebush



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