A debate on raising funds from city's universities and nonprofits

Posted: September 27, 2013

The University of Pennsylvania, with its Ivy League pedigree and large health system, is one of the nation's most prestigious colleges and is Philadelphia's largest private employer.

With a $6 billion-plus budget, a $7.7 billion endowment, and a recently completed $4.3 billion fund-raising campaign, it's also arguably wealthy.

But Penn, like other nonprofits in the city, is largely exempt from paying property taxes on its West Philadelphia campus.

The Philadelphia School District's financial crisis has yielded a renewed cry from some corners for Penn, Drexel and La Salle Universities, and other colleges and nonprofits to make payments to the city - known as Payment in Lieu of Taxes, or PILOTs - as they did when Ed Rendell was mayor and the city needed every penny.

It's a cry also heard in Pittsburgh, Allentown, and Bethlehem, and around the nation as struggling municipalities look for revenue.

"The level of city services that the universities receive have value, and they are not taxpayers," said Donna Cooper, executive director of Public Citizens for Children and Youth, and a Rendell policy analyst during his mayoral and gubernatorial terms. "They should have to do PILOTs to compensate for costs that taxpayers subsidize for them."

Penn and other local universities argue against such a move, emphasizing that they already contribute services, expertise, neighborhood upgrades, and scholarships for city students - much more than they would under a PILOT.

Penn also gives up to $750,000 a year to Penn Alexander, a district elementary school in its neighborhood that opened in partnership with Penn in 2001.

"We are certainly having an enormous impact on our local community and the city," said Jeffrey Cooper (no relation to Donna), Penn's vice president for government and community affairs.

He said, Penn generates more than $170 million in city taxes annually - including $19 million in business taxes, $2 million in real estate taxes on its commercial properties, $9 million in sales taxes, and $144 million in wage taxes from its 31,000 employees.

The city will not ask nonprofits to make payments at this time but has begun reevaluating tax-exempt properties, said Mark McDonald, Mayor Nutter's spokesman. Nonprofits, he said, will be asked to certify that they are still using their property to further a charitable mission, and next year will face a detailed audit including property inspections.

When Rendell was mayor from 1992 to 2000, the city collected PILOTs from about 50 entities, bringing in about $9 million annually, including nearly $2 million from Penn. It established the PILOT program after a state Supreme Court ruling put pressure on nonprofits to prove their tax-exempt status.

But a 1997 state law made it easier for nonprofits to qualify for exemptions; the city's PILOT program has all but expired. Few institutions still make payments, bringing in about $400,000 a year, McDonald said.

Discussion was rekindled in some Pennsylvania municipalities after the same court ruled in 2012 that a summer camp could not keep its tax exemption, again shifting pressure onto nonprofits.

Rendell said the legislature should require a partial tax payment from nonprofits, perhaps 40 percent of what a for-profit would pay. "That would go a long way toward solving the problems of urban Pennsylvania," he said. "It would be a fair way to deal with this problem."

Given the legislature's lack of appetite for new taxes, however, that seems unlikely.

Nationally, PILOTs have gained momentum since the early 1990s, particularly in the Northeastern United States, according to a 2010 report by the Lincoln Institute of Land Policy in Cambridge, Mass.

Of eight Ivy League universities, Penn and Columbia, in New York City, are the only two that do not pay PILOTs. The largest is Harvard's at $10 million, according to Lincoln.

Penn's Cooper, though, contended that his school cannot fairly be compared with Ivies such as Harvard, which are in cities that, unlike Philadelphia, do not have a wage or business tax.

In Philadelphia, tax exemptions are particularly costly. According to a 2006 study by the Chronicle of Philanthropy cited in Lincoln's report, the value of nonprofits' exempt properties accounted for 10.8 percent of Philadelphia's property value - a higher percentage than any of the other 22 cities studied.

The tax exemptions have drawn criticism from Randi Weingarten, president of the American Federation of Teachers, who called on Nutter to go after the big nonprofits instead of asking teachers for givebacks, and most recently from Jay B. Cohen, a School District parent, who at a meeting of the School Reform Commission on Monday night said it was time to look at universities and hospitals that are exempt.

"We need to have a brave and honest conversation that could possibly provide tens of millions of dollars for our students and maybe even $100 million for students in Philadelphia," Cohen said.

Rendell, for his part, pointed to Penn president Amy Gutmann's $2.1 million compensation package - still leaving her only the third highest-paid official at the school.

"Amy Gutmann earns every nickel of that and she does a fabulous job," he said. "But it's hard to say the University of Pennsylvania is a charity."

David L. Cohen, formerly Rendell's chief of staff and chief implementer of PILOTs during Rendell's tenure at City Hall, has a different view. He now chairs Penn's board of trustees.

"Penn today is delivering far more value to the city than it was at the height of the voluntary PILOT program in the mid-1990s," Cohen said.

"It's unfair - and grossly inaccurate - to measure Penn's contribution to the city only by cash, and absurd to measure it by cash PILOT payments," Cohen said. "The in-kind value of Penn's contributions to the city represents millions and millions of dollars of additional value."

Penn, according to Cooper, supplies personnel, programs, and other support to public schools in its neighborhood (in addition to Penn Alexander). Its police force patrols beyond the campus. It sponsors the Netter Center, through which students, faculty, and staff help the community. The medical system gives over $100 million in uncompensated care.

But Donna Cooper said the universities' civic engagement was not a substitute for a PILOT during Rendell's tenure, and shouldn't be now.

As for wage taxes, she said employees for other large businesses, such as Comcast - where Cohen is a top executive - pay them too, in addition to real estate tax.

"It's a nice argument to try, but I'm not sure it holds water," she said.

Other universities, including Drexel, St. Joseph's, Temple, and La Salle, also touted their contributions to the city. Drexel, for example, cited its police force. Temple noted millions of dollars in health care through its medical, dental, and podiatry schools. St. Joseph's has brought public-school teachers to campus for professional development. La Salle has made service to the city part of its mission.

"What we have not done is write a check," said Edward Turzanski, counsel to the president at La Salle, "because we essentially have given at the office."





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