State lawmakers are expected to vote this year on legislation granting tax exempt status and reserving the power to determine tax exempt status to the General Assembly. If Senate Bill 4, which passed the House and Senate in the last legislative session, is passed, it could appear as a referendum for voter approval later in the year.

Defining what constitutes a “purely public charity” seems arcane, but the impact could be significant.

By design, it would take away from the courts the power to rule on what is or is not a public charity. This part of the proposed law change is tied to a 2012 ruling by the state Supreme Court in which the court said “The ultimate power and authority to interpret the Pennsylvania Constitution rests with the Judiciary, and in particular with the court.” Some lawmakers felt the court was intruding into legislative territory on the issue of charities.

In addition, the proposed law is designed to clarify the qualifications for a public charity and the associated tax exempt status.

Supporters of the legislation say it will reduce legal challenges over tax exempt status. Critics say the proposed change would loosen the standards and limit the ability of local authorities to challenge tax exempt status, putting futher strains on city, municipal and public school budgets.

There seems to be a power play element to the proposed amendment with lawmakers wanting to prevent the courts from ruling on these cases. Some fear the legal changes could lead to an expansion of non-taxable entities. There is also the reasonable concern that lawmakers will politicize the granting and challenging of tax-exempt status.

Beyond the pros and cons of SB4, it’s worth looking further into the issue of nonprofits and their impact on local budgets.

State Auditor General Eugene DePasquale released a report last month showing that $1.5 billion in property tax revenue is lost every year in a sample 10-county area due to tax exempt properties, which include government offices, charities, public schools, churches and hospitals. Though there would be very little public support for eliminating the tax exempt status for schools, churches, charities or hospitals, there might be support for changing the rules.

Not surprisingly, non-profit hospitals represent some of the largest tax exempt properties in many communities, along with government buildings and public schools. In Pittsburgh and elsewhere, a drama has been playing out for years between large nonprofits and city officials over property taxes. In some cities, large institutions such as hospitals or universities have made voluntary payments instead of traditional property taxes. These are part of a program called PILOT — Payments In Lieu of Taxes. While some large nonprofits make PILOT payments, many others do not.

The dispute in Pittsburgh went so far that under former mayor Luke Ravenstahl the city sued the University of Pittsburgh Medical Center, the giant hospital network that owns billions of dollars’ worth of real estate in the city, over its tax exempt status.

One reform idea would be to look at a charity’s total budget, its payroll, executives’ salaries and the square footage of property owned. In the case of UPMC, for instance, with billions of dollars in revenue, multimillion-dollar executive salaries and lots of real estate, there should be a new classfication of a “super-nonprofit” that mandates some payments in lieu of propety taxes.

A second issue that should be considered involves the free care that most hospitals say justifies their non-profit status. In fact, most hospitals argue that they provide free care that is worth more than the money they would pay if they were not tax exempt. The impact Obamacare is having on the amount of free care provided by hospitals should also be part of the public debate.

Changing criteria for tax exempt property deserves thorough public understanding, so do any changes to the state constitution.