Taxing nonprofit groups will paralyze health care
Nonprofits play a critical role in filling gaps in health and social services that states cannot afford to address, particularly poor and economically struggling states like New Mexico. In 1989 President George H.W. Bush recognized nonprofits’ value to America, coining the term “A Thousand Points of Light” to describe the contributions of community organizations “that are spread like stars throughout the nation, doing good.”
New Mexico’s primary care safety net provides points of light in 90 communities throughout the state. Relying on a fragile mix of federal, state and local support and patient fees, 18 New Mexico nonprofit corporations and a handful of local entities have built one of the most comprehensive safety nets in the nation.
They provide affordable access to high-quality primary care and in dozens of communities provide the only access to health care. They help 83,000 New Mexicans keep their diabetes and high blood pressure under control. They treat 18,000 patients for alcohol and substance abuse disorder. They provide critical mental health services to more than 55,000 New Mexicans suffering from depression, anxiety and PTSD and they provide over 250,000 dental treatments each year. They serve half of the state’s uninsured, and low-income patients are charged a nominal co-pay to ensure that high costs do not prevent patients from accessing the right care at the right time.
House Bill 412 seeks to reform New Mexico’s gross receipts tax system and raise revenue by broadening the tax base through the closing of tax loopholes, which is a laudable goal. Many of those tax credits or “loopholes” were created on the promise that new jobs created and increased capital investment would generate more than enough increased taxes to offset the cost of the credits. Sadly, over the years, many of those rosy projections failed to materialize.
Unfortunately, HB 412 repeals the exemption of IRS-designated 501c3 nonprofit organizations from paying gross receipts taxes on their revenues. This exemption bears no resemblance to the loopholes the bill’s proponents say they are seeking to close. They have been in statute for over 50 years and are designed to allow nonprofits to reinvest the receipts from revenues to provide more charitable and educational services. The repeal ignores the benefits nonprofits provide for the state, such as the fact that every student educated at a nonprofit or religious school saves the state $8,000 they would otherwise have to spend on public education.
Repealing these exemptions will cost primary care clinics $14 million annually. Combine this with the loss of the $7 million in state support the Legislature and governor have already cut from the safety net funding in fiscal 2017 and 2018, and you have a major financial stability problem.
If a clinic is forced to lay off a physician to save $200,000 in salary and benefits, they must also cut the $250,000 that the doctor generates each year in patient revenues. A nurse, a care coordinator, a community health worker and a billing clerk also lose their jobs, and 1,200 patients lose access to care. With this negative multiplier, the $21 million loss of funds will result in $40 million to $45 million in budget cuts.
The bill’s proponents claim that the removal of these exemptions will “level the playing field” in the health care sector. Will this leveling result in for-profit health providers flocking back to the rural communities they abandoned 50 years ago? Will the for-profits fill the newly created gaps in access caused by taxing the struggling nonprofits? Will the for profits provide over $100 million in uncompensated health care to this vulnerable and unprofitable population? Let’s not be misled into believing that this is not a new and harmful tax on essential services. Upward of 50,000 New Mexicans in dozens of communities will lose many or all of the services that keep them healthy and help them avoid more costly care.