Tax-exempt YMCAs criticized for imitating ritzy health clubs. Do $800 fees, fancy equipment conflict with community image?

YMCAs used to be known as a place where sweaty guys - mostly working-class kids - pumped iron, thundered up and down basketball courts in canvas hightops, and swam laps in pools with too much chlorine. Today, the urban Y is more and more likely to be decorated with chrome and potted ferns as svelte yuppies in designer togs boogie aerobically to disco music. Critics, notably the International Racquet Sports Association (IRSA), a trade association of private fitness clubs based in Boston, say the Y's have taken a wrong turn. They say the poor, the young, and the elderly, which the Y has traditionally served, are losing out. They say the YMCAs, nonprofit organizations able to charge lower fees because of their tax-advantaged status, are competing unfairly with luxurious private health clubs designed to capture the same market.

As a charity, the YMCA gets money from the United Way and is exempt from local and federal taxes. The YMCA also gets volunteer labor and free services from the community. The health clubs, says Timothy Haake, a lawyer for IRSA, ``have none of these advantages.''

On the other hand, most private health clubs don't run summer camps for disadvantaged youths, food banks, outreach centers for troubled youths, and services for refugees, as many YMCAs do. ``We earn our tax exemption every single day,'' says Thomas B. Hargrave Jr., president of the YMCA in Washington, D.C.

The Metro Y has come into controversy recently as an example of the kind of new Y that Haake describes. Its state-of-the-art Nautilus rooms are a far cry from the fond Y memories of many baby boomers' youth. The fees, too, are getting heftier, ranging at the Washington Y up to $800 a year (plus a one-time initiation fee of $250). Paying $800 instead of $470 entitles one to a private kit locker, a dressing room with steam bath and whirlpool, and a lounge with color TV.

Metro members with a yearly income less than $14,000 pay about $170 a year (initiation fee of $25), and some young people are bused in from the other branches for special projects. But there are not enough young people in the neighborhood to warrant a youth program in the Metro facility, Mr. Hargrave says.

``Charitable'' doesn't have to mean just serving the poor, says Celeste J. Wroblewski, spokeswoman for national Y headquarters in Chicago. Under the IRS code, nonprofit organizations are required only to be accessible and affordable to those in the community.

In spot checks by the IRS of Y's across the nation, comparisons of income levels of Y members and income levels of the community have found very little difference between the two. The IRS has not disallowed tax-exempt status to a single YMCA.

But the local tax assessor of Multnomah County in Oregon defines ``charity'' differently. In June 1985, he withdrew the property tax exemptions enjoyed by Portland's Metro Center Y. ``In our judgment, this organization is not engaged, as its primary purpose, in charitable activity.'' The tax assessor based his decision, in part, on considering whether the fact that 2.6 percent of the Metro Center's membership is on a scholarship renders the facility a charitable activity.

James F. Chapel, president of the YMCA serving the greater Portland Metro area, is appealing the decision through the tax courts, and points out that this narrow definition of charitable, based on the assessor's interpretation of an ambiguous state law, could lose tax exemptions for hospitals and other non-profits in the area.

Ms. Wroblewski of the Y's Chicago headquarters says the fitness centers are charitable in and of themselves, because they provide a broad benefit, fitness, to the community. Also, ``profits'' from the new facilities help subsidize other Y programs for the needy. And no individual ever pockets profits made by the Y's.

``The issue is not competition with the health clubs,'' says the Washington Y's Hargrave. ``The issue is that 15 years ago entrepreneurs found that they could make money on fitness. Then they saturated the market and it peaked. ... I find it incredible that they [private health clubs] take our [fitness] programs and then turn around and say `unfair competition.'''