Pennsylvania Governor Rendell Vetoes House Bill 101, Cites Constitutional Concerns

Oct 22, 2010, 13:56 ET from Pennsylvania Office of the Governor

Measure Would Give Inappropriate Tax Break to Handful of Nonprofits, Reduce Revenue for Communities and Public Schools

HARRISBURG, Pa., Oct. 22 /PRNewswire-USNewswire/ -- Governor Edward G. Rendell today vetoed a bill that would provide inappropriate property tax exemptions to a handful of nonprofit organizations that rent space to a charter school, saying the provision is unconstitutional and does not even guarantee that any property tax savings would be passed on to the charter.

"While I support charter schools, this bill inappropriately and unconstitutionally singles out certain types of organizations for tax breaks," Governor Rendell said in returning House Bill 101 without his signature. "Charter foundations would get tax breaks while other types of nonprofit foundations would not. That's unfair and it's unconstitutional.

"It would give a small handful of nonprofits special access to tax breaks, and encourage others to create new nonprofit corporate entities in order to 'game' the system -- and reduce revenues for already-beleaguered communities and public schools."

Charters that own their own buildings already are property tax-exempt, and charter schools pay fair market rent to the entities from which they lease. Fair market rent means a payment sufficient to cover the cost of a landlord's property tax payments.  Governor Rendell also noted that the law did not require the lessor to pass along any savings to the charter school.

The Governor said the bill would provide a tax exemption to nonprofit organizations that do not qualify as "purely public charities" under Pennsylvania law and would also treat landlords with charter school tenants differently from landlords with other nonprofit tenants, such as senior centers, religious organizations or health clinics.

Under the bill, any lessor who rents space to a tax exempt organization other than a charter school – space for a day care center, a religious organization, or a health care provider, for example – would not benefit from this legislation, Governor Rendell said.

"That, in and of itself, violates the Uniformity Clause of the state Constitution, which requires uniformity of taxation," said Governor Rendell. "What's more, another provision of the Constitution that declares exceptions to the Uniformity Clause says that even real estate that belongs to nonprofit 'purely public charities' is not property tax-exempt unless it is actually used for the purposes of the charity – and leasing it to a charter it does not own isn't the purpose of the charity under the law, so HB101 fails on that count, too.

"I support many of the initiatives included in this legislation, so withholding my signature is not easy for me," said Governor Rendell. "But this bill does not meet the threshold of constitutionality or basic fairness."

The positive elements of the bill must now be reintroduced and passed in the next legislative session, the Governor said. These include provisions on training students about date rape and other forms of sexual violence, programs on financial literacy, and affordability of college textbooks.

Media contacts:

Steve Weitzman, Department of Education; 717-783-9802

Gary Tuma, Governor's Office; 717-783-1116

Editor's Note: the text of the Governor's veto message to legislators follows.

To the Honorable, the House of Representatives of the Commonwealth of Pennsylvania:

I am returning herewith, without my approval, House Bill 101, Printer's Number 4389.  I regret doing so, as there are favorable provisions within the legislation which I support.

Prior to the passage of House Bill 101, the Administration put the legislature on notice that this bill was seriously flawed; we informed the Education Committees of the House of Representatives and the Senate, the Appropriations Committees in both chambers, and the Leaders' Offices of the serious constitutional infirmity in the provision of the bill which exempts non-profit entities that rent to charter school entities from payment real property taxes.  

Having supported many of the initiatives included in this legislation-- including provisions related to dating and sexual violence education and prevention, affordability of textbooks for college students and recognition for Vietnam veterans—withholding my signature from this bill is certainly not easy for me. It is my hope that the legislature will act quickly in January to pass legislation encompassing these reforms.  Though I understand the importance of the aforementioned provisions of this legislation, I am required to review each bill that reaches my desk for any constitutional defects, and this bill is constitutionally flawed.

Our Constitution requires uniformity of taxation, with limited exemptions which are enumerated as follows: (a) the General Assembly may by law exempt from taxation: (i) actual places of regularly stated religious worship; (ii) actual places of burial, when used or held by a person or organization deriving no private or corporate profit therefrom and no substantial part of whose activity consists of selling personal property in connection therewith; (iii) that portion of public property which is actually and regularly used for public purposes; (iv) that portion of the property owned and occupied by any branch, post or camp of honorably discharged servicemen or servicewomen which is actually and regularly used for benevolent, charitable or patriotic purposes; and (v) institutions of purely public charity, but in the case of any real property tax exemptions only that portion of real property of such institution which is actually and regularly used for the purposes of the institution.

This bill is constitutionally infirm insofar as it would provide a real property tax exemption for property that is leased to a charter or cyber charter school or an associated foundation by a nonexempt entity.  Leased property does not constitute real property "of" the public charity under Pennsylvania's Constitution or under the existing statute which defines a purely public charity, Act 55 of 1997.  Although I am not supportive of this purpose, and many respected parties who understand our school funding system share my view, as evidenced by the letters attached, if the legislature wishes to legally provide for this property tax exemption for these entities, they can do so by amending Act 55 to include these entities in the definition of a purely public charity.  Further, as written this exemption would itself constitute a violation of the Uniformity Clause, as lessors of property to other tax exempt entities would not enjoy a similar exemption, and, as such, I must withhold my signature from this bill.


Edward G. Rendell, Governor

(Hardcopy letter includes additional attachments)

SOURCE Pennsylvania Office of the Governor