Small business gripes about growing competition from charities
For two years, Chuck Cook has been getting threatening phone calls from an unlikely source: the local hospital. Mr. Cook, who owns Cook's Ambulance Service in Columbus, Miss., beat the hospital out of a contract to provide emergency ambulance service to the county two years ago. Since then, he says, the hospital has waged a dogfight against him: ``verbally harassing us'' on the phone, telling the news media it would win the next contract ``if it took them charging the county a dollar a year to do it,'' and - most damaging - undercutting his price on non-emergency ``transfer'' business, ``which is my bread and butter.''Skip to next paragraph
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Now Cook, who concedes that part of the enmity might arise because he takes all emergency patients to the other local hospital in town, is struggling financially; cut-throat competition has reduced his profit margin from $20,000 a year to zero. And Cook is crying foul.
``I don't mind competition,'' he says. ``What I mind is their using tax dollars, federal funding, and basically unfair competition to put my people out of work.''
Cook's words are being echoed by hundreds of other small business owners who provide the same services as non-profit, tax-exempt organizations, including hospitals, churches, universities, even the YMCA. Now Congress is investigating the issue, with the House Subcommittee on Oversight hearing the last of five days of testimony from both sides on Tuesday.
The issue has been a sore point between business and charities for several years, as deregulation has encouraged private business to expand into heretofore unprofitable realms serviced by non-profit organizations. Meanwhile, non-profits like hospitals have been exposed to the rigors of the marketplace, and have started providing more goods and services to cushion their bottom line.
But the dispute has garnered little attention until recently. In part, that's because the competition is on the local level, and small business had never before organized a campaign. Perhaps a larger reason for the new interest, though legislators deny it, is that ``Congress is desperate for [tax] money,'' says Donald Berno at the Small Business Administration.
Under current law, tax-exempt organizations pay taxes only on ``unrelated income,'' that is, money they make on goods or services that don't relate to their primary mission. A university, for example, pays state sales taxes and federal income taxes on football ticket sales. But that leaves them free to engage in a whole range of commercial activities, and, their taxed competitors say, compete with unfair advantages.
Before 1976, Robin Holm, president of Washington Hearing Aid Center, had 15 tax-paying competitors selling hearing aids and other products to people in Seattle. Since then, four tax-exempt organizations (three hospitals and a United Way agency) have entered the business, and several small businesses have closed their doors.
The hospitals' tax-exempt status cuts their costs and gives them free advertising in the form of public service announcements (for free testing). Moreover, Ms. Holm says, they don't act like charities: their ``slickly trained sales force'' roams from fair to shopping center, ``anywhere a potential hearing aid purchaser may be found,'' to push their products.
``Beneath the veil of tax-exempt status,'' she told the subcommittee, ``there dwells a commercial, moneymaking business which pays no taxes.''
John Maher, managing director of the Northwest Speech and Hearing Center and Holm's chief rival, dismisses her arguments as sour grapes. He may get free public service announcements for hearing tests, ``but I also give away many thousands of dollars of services'' at those tests. ``What she would like is no competition whatsoever.''
At the bottom of Holm's arguments, Mr. Maher says, is the ``halo effect'' - the public goodwill because a hospital is perceived as existing to provide a service, not to make a profit. In the case of hearing aids, he says, that ``halo effect'' is well deserved: before his clinic began selling hearing aids in 1976, he says, ``consumers were getting ripped off.''