State lawmakers in Pennsylvania are advancing legislation that would give the General Assembly the authority to craft the definition of a charity, granting the associated tax exemptions. The measure would let legislators establish uniform standards for public charities rather than have the issue determined by standards crafted by the state courts.

Part of this issue appears to be a power struggle, with the Legislature wanting to remove from the courts the ability to define a public charity. But the issue is important because it could result in a voter-approved amendment to the state constitution. It’s also important because it’s a reminder that while charities do important work, the property tax exemption charities get costs cities and municipalities millions of dollars a year in tax revenue.

In California, an issue making news should trigger a broader conversation in Harrisburg about big tax-exempt charities. Rather than pressing for a legislative definition for charities, lawmakers in California are considering the impact of property tax exemptions while crafting a formula for payments in lieu of taxes by large, wealthy charitable organizations. We should have the same debate here.

Based on the fact that health insurer Blue Shield of California has $4.2 billion in reserves and pays its executives millions of dollars annually, the California Franchise Tax Board has stripped the Blue Shield of its tax exempt status. If that decision stands, California’s third-largest health insurer would have to pay tens of millions of dollars a year in property taxes.

Last year, Blue Shield of California earned $13.6 billion in revenue and employed 5,000 people.

Blue Shield’s critics point to revenues in the billions, executives being paid millions of dollars and controversial rate hikes; they argue the organization is acting more like a for-profit corporation and should lose its tax-exempt status.

As further evidence, critics noted the company spent $10 million to defeat a state ballot measure aimed at premium rate regulation and it also paid $2.5 million for a luxury box at a new professional football stadium in Santa Clara.

Blue Shield of California’s $4.2 billion in cash reserve is four or five times larger than the level recommended by the Blue Cross and Blue Shield Association for covering future claims. The California insurer defends the large level of reserves saying it wanted to have extra cash on hand due to the uncertainty over the implementation of Obamacare.

Beyond the details of the California debate, there are some parallels that should apply in Pennsylvania, particuarly looking at Highmark (Blue Cross/Blue Shield in Western Pennsylvania), UPMC (University of Pittsburgh Medical Center), and possibly large health insurers, large hospitals as well as Blue Cross/Blue Shield operations in other parts of the state.

This issue might impact Butler County, but it certainly would help Pittsburgh and other larger cities if the biggest nonprofits paid something in lieu of taxes.

Following California’s lead, state lawmakers in Harrisburg should look at the overall budgets of these organizations and the compensation for top executives. They should examine the cash reserves and value of real estate owned.

Clearly, most of these multimillion-dollar “nonprofits” could manage to contribute something in local tax dollars, even if at deeply discounted rates compared to for-profit companies.

Instead of just defining what qualifies an organization as tax exempt, Pennsylvnia lawmakers should create special designations for a few “super charities” with billions in revenue, multimillion-dollar salaries or real estate worth tens of millions, that would trigger payments in lieu of taxes to local municipal budgets.

California is starting a worthwhile debate over which organizations are true charities deserving tax exemptions and which operate more like a big business.