Category Archives: nonprofit property taxes. arts economic development

Privatizing Community Quality of Life: Coming Soon to a Community Near You

Imagine this scenario: by 2020 your parks, your performing arts centers, your community art gallery, your neighborhood community centers, your soccer fields, your local walking trails, your zoo, maybe even your library will be operated on contract by businesses that find ways to make a profit. Those businesses will form the nucleus of a growing new economic sector of real profitability to America. Some of them will no-doubt even trade on the NY Stock Exchange. Too strange to believe? Not any more.

Cities across America have spent decades upping the ante on investment in livability as their mechanism to up the tax revenues they have received, and it has been a profitable strategy. Build the aquatic center, the new tennis courts, the lovely performing arts hall, the zoo, the botanical gardens, the gallery complex, the fabulous library and then reap the rewards with high property values and a desirable community that in turn attracts businesses and on-going economic investment.

Don’t accept any of it as a given any more. In fact, anticipate and get out ahead of the ways where quality of life investment has been and will continue to evolve.

In the past few months there have been all sorts of interesting RFPs for private management of civic assets, and the tempo seems to be increasing, not slowing. “Private management company sought for pool complex.” “ Private management sought for community neighborhood centers.” “Private management sought for arts centers.” “ Private management sought for operation of city parks.” “Private management sought for zoo.” Not “local nonprofit” sought. Not “local partner” sought. Private management sought.

It is a sea change, and it could be coming to a neighborhood near you before you blink twice. Cities are actively soliciting and searching for profit businesses to take on many of the quality of life assets that are not producing. Basically, they are dumping responsibility for under-performing or deficit-causing assets while still seeking ways to benefit from the property tax revenues all municipalities need to earn through having a comprehensive set of quality of life offerings. And in the process, they don’t want to become once again potentially saddled with bailing out non-profit operators that would stand to become permanent arms-length extensions of government. No more “hand over the arts center to a nonprofit that you’ll end up, in turn, having to fund to operate the arts center.” Cities have had it with that shell game. Instead contract a management company to run it and let them figure out how to craft a financially viable model. And they will.

What does it mean?

First, it means a real civic fatigue with the given assumptions of subsidy is a norm. Debt is just too big to be willing to enter into partnerships that are simply going to remove direct red ink from one column only to put the red ink – in the form of operating grants, for example – into another column. Frustration with subsidy-as-norm approaches is over the top.

Governments are looking for something better. They want flourishing, brightly lit and well maintained public amenities that work for the facility operators – who, ideally, make a profit – and that aren’t a drain on public resources. They want a win-win out of a dead-end.

What are the results of this trend?

Chances are, citizens will be paying more out of pocket to use those assets. Have you had to pay for your kids’ music or sports in school lately? Steep, right? Well, expect the same thing for swimming classes at the pool this summer or for art camp for your eight year old in August. Expect the same thing for the water color class you always wanted to take through parks and rec, and anticipate paying commercially competitive rates to rent the neighborhood center for your family reunion. Your library card? How’s $25 a year for one person or $40 for a family?

Really affordable “public” amenities are going to disappear. It will be pay-as-you-go. Your first graders’ soccer team will pay to rent the soccer fields. You’ll have to pay a competitive “for profit” rate to take your pottery class. Your community band will pay more to rent the performing hall.

The businesses that contract to operate these once-public assets aren’t stupid. They know they have to find the price points for their markets and still be able to turn a profit. There will be different prices at different locations. Looking for a way to save? You may drive to the other side of town to get a better deal than your own softball fields offer. Chances are, these new service-merchants will focus only on what can sell, and sell out. Rather than broadening the offerings, they may limit the camps, sports classes, arts classes and after school programs to those that have a large enough popularity to work.

Does it have to happen? Will it be terrible? Or, will it be at least be tolerable?

It probably does have to happen, because we as a society have let it happen. We’ve just assumed and assumed that more amenities can be added every year, no matter the cost, and that somehow it will all work out fine in the end. Too much red ink and too many required subsidies later, our elected officials are drawing lines in the sand.

As for how terrible it will be depends on your perspective. Chances are there will be some real messes out there. But maybe we are in for a complete redo in the way we think about delivery of amenities, and in the process there may be an entire new industry of service providing businesses that excel and thrive and grow to become a valued economic sector. Maybe we’ll find out that a lot of the amenities we thought needed subsidy don’t, and that we’ll all pay for those amenities we value.

If we look at it through the lens of the American entrepreneurial eye, the benefits can be huge. Why not? “Zoos, Inc.” as a Fortune 1000 company. “Arts –n-Kids” as a national provider of quality arts learning in summer camps at parks in 500 cities across the country, and growing. “Community Center, Inc.” as the leading provider of facilities and program management for neighborhood centers in the northeast. You get the idea. It has happened in higher education. Our community amenities could possibly move from subsidy rolls and taxpayer responsibilities to businesses with values that attract investments and shareholders. And, possibly, there is something attractive about seeing quality of life elements that had no determinable financial value potentially transformed into businesses that could provide share-holder benefits to thousands.

Stay tuned. I have a feeling we won’t have to wait too long to find out.

Trend # 6: Should Cultural Institutions Pay Property Taxes in 2011?

Happy New Year everyone! May your year be creative and exciting as you lead the way in the world of arts, culture, and creativity.

Today is the first business day of 2011, and today’s trend in our Eleven Trends for 2011 sets the tone for thinking about the relationships between local governments and nonprofit cultural organizations this year.

Does your organization expect to pay taxes on your building this year? NGO watchers expect municipalities to look increasingly at various forms of tax on land-owning nonprofit institutions that have traditionally remained exempt. While the early targets of this have been entities such as nonprofit senior living centers and educational institutions, along with some churches, it will be increasingly hard for governments that are starting to tax these types of nonprofits to leave museums, cultural centers, and nonprofit cultural facilities off the municipal tax rolls. Some of the taxes will come in the form of user fees – sewer, water, street maintenance, snow removal, security – but others will be a straight property tax. Expect this to come up for discussion as budget season starts everywhere and local government face shortfalls. Be ready to advocate, and organize to develop win-win solutions.

And win-win scenarios can happen. Economic development specialists and many others recognize the importance of nonprofit cultural institutions and related districts to economic vitality. Cultural districts that work can literally save urban areas, which economic leaders well know.

Performing arts centers or museums that need a subsidy to keep their programming alive, at the same time create the restaurant scene that keeps downtowns lit, exciting, safe at night, and create business for nearby parking facilities, retail, and more. The net positive economic impact is usually much greater than any subsidy, but this equation may need to be stated and documented with more clarity than ever before.

When good documentation of this net positive benefit is offered, look to economic development and planning specialists to be strong advocates and important allies in finding equitable solutions that keep tax/fee costs down while stressing -and building – the value of nonprofit cultural institutions as drivers of business and property values. Cultural organizations that have never met their colleagues in local economic development agencies need to start building good partnerships now for this to happen.

A tested and viable approach is service in lieu of taxes (or fees) that can be win-wins for the public sector and NGO cultural organizations. These approaches have typically included options such as free admission days to the public for museums, or free performances for civic celebrations. While not always easy to arrange – i.e. the contractual issues of professional musicians or actors doing free events – the public willl see tremendous benefits and the in-kind arrangements are almost universally more favorable than the tax or service fees would be.

Among other scenarios: look to more currently unaffiliated groups of nonprofits in a downtown or other part of the city to define themselves as a group and establish BIDs or similar districts, with strength to market themselves as a group and create an advocacy base that establishes favorable contracts with municipal departments and works toward building the excellent reputations that attract developers to a neighborhood. While this, too, has been a tested practice, count on seeing it more widely used with the goal of creating economic value for the municipal government by boosting the overall property values in what could be multiple small cultural and creative districts. (Sometimes smaller districts, each with a unique identity and niche, can be more effective in notching up investment a few blocks at a time.)

Look, too, at the marketing and fundraising opportunities that may come about as groups see strength in banding together. Even donors that aren’t particularly interested in, say, a historical society or community arts center may get behind “The Cultural Centers of City X” based on what the group of institutions make possible in economic growth.

Consider this to be a newly focused type of united fund concept, in which savvy organizations work in small and symbiotic coalitions – perhaps subsets of larger cultural funds, or groups coming together for the first time – to attract attention from today’s cause-oriented donors. Look to coalitions like this to develop joint case statements about their combined contributions to the six or eight block areas they anchor, demonstrating their value in social and economic stories that compel more financial support – even in the face of municipal fees – because of their combined net value. When groups can show that “in our six blocks, our four organizations make X economic difference” and when they can show that the net positive difference far outpaces the cost of public services for their few blocks of geography, they can develop quite a case for support.

At the end of the year, expect there to be some impressive new models in place, where marketing, advocacy, and excellent working partnerships with municipal governments and economic developers pave the way for actual boosts in overall local support for cultural institutions.