Why nonprofits owe the city more

Posted: May 15, 2012

As Philadelphians listento the mayor and Council haggle over a new property-tax system and the School District’s need for $90 million from the city, it may be time for some fresh ideas on sources of revenue. One of the freshest also happens to be one of the oldest: Go to nonprofit institutions, which pay little or nothing in property taxes, for more help.

More than 2,000 charitable organizations, including large nonprofits like Penn, Blue Cross and Thomas Jefferson University, are exempt from most property taxes. One 2001 Inquirer report estimated that about 25 percent of the city’s total property value is off-limits to the tax collector.

A recent court ruling could help the city reinstitute Payments in Lieu of Taxes (PILOTs), voluntary contributions that nonprofits make to cities under the reasoning that nonprofits use city services. In 1995, the city was able to collect $9 million in PILOTs from more than 40 nonprofits; the schools received a portion of that.But in 1997, the state passed Act 55, which made it easier for institutions to get tax-exempt status, and the city lost some of its leverage to negotiate for PILOTs because challenging an institution’s tax exemption became harder. By last year, just nine nonprofits contributed, for a total of $383,700.

But the state Supreme Court ruled this month that the Mesivtah Eitz Chaim summer camp in Pike County was taxable because it didn’t relieve the government of some of its burden; this ruling re-introduced the possibility that the city could challenge the tax-exempt status of big nonprofits, and thus maybe extract some much-needed revenue.

The Nutter administration has declared its intention to pursue PILOTs more aggressively. Ideally, the city won’t have to put too much energy into this: Big-money nonprofits would choose to pitch in more on their own.

Philadelphia isn’t the only city to look to nonprofits for help with strained budgets. Boston collected $34 million in PILOTs in 2010, and Brown University recently agreed to pay $31.5 million to Providence, R.I., over 11 years, according to the Wall Street Journal. Recently, when the city of Pittsburgh threatened to tax tuition paid by college students, the University of Pittsburgh and Carnegie Mellon University increased their PILOT payments.

It’s not enoughthat Philly’s institutions create jobs and stimulate the city’s economy. In fact, in this city, “eds and meds” employ 20 percent of the city’s population, and according to a 2007 report from Select Greater Philadelphia, 88 colleges and universities in the area accounted for 4 percent to 7 percent of the region’s total economic activity.

This is a major contribution, but for-profit companies that do pay taxes also create jobs and stimulate the city’s economy. And it’s not enough that some big institutions like Penn pay for their own services, like police. That’s not how cities work: Philadelphia is an ecosystem, and it needs to provide services citywide to function.

Nonprofits do good and valuable work. And they contribute to the city in big ways. But the rest of Philadelphia needs them to be fuller partners in the city’s fiscal challenges — especially the challenges faced by the public schools. It takes a city to make a city — including those that are exempt from taxes. n

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