THE DEBATE over the city budget year continues, since an adequate fund balance is still an issue.

Here's something that should be added to the debate: What tax-exempt nonprofit institutions should be contributing to the city? They're exempt from taxes, including property taxes. Considering the billions in property owned by nonprofits - including the city's big universities and hospitals - this lost revenue is especially troubling as the city scrambles to impose new taxes on everyone else. Until a state law was passed in 1995, some nonprofits made payments in lieu of taxes (PILOTS). Few make those now.

A panel of local college presidents affiliated with the Chamber of Commerce is poised to argue all that they do contribute; they're writing a report outlining the services and economic benefits their institutions provide to the city-the jobs they provide, the dollars their students spend and their community investments -in hopes of keeping the city from reaching into their pockets for more. To be sure, those contributions are considerable.

And yet, we hope that exercise has little impact on the city's strategy for getting PILOTS from nonprofits.

While part of their job is to cover the cost of delivering services, taxes should not be confused with fees. Calculating tax liability based on the number of services we do or don't consume is a dangerous policy. After all, if universities and other institutions get to do that, why not everyone? An average citizen could argue that since he has no children in public school, never calls the cops, has never had a fire, and spends every weekend down the Shore, he should pay less than someone else. In part, taxes are what we contribute to be part of society; no one should be totally exempt from that. *