Non-profits are non-payers
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Non-profits are non-payers
Editor's note: This story appears in today's Daily News. It's Our Money decided to look into which big non-profits participate in the city's voluntary "payments in lieu of taxes" program, and what they pay. What we found might surprise you.
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For a city or state, having a big nonprofit entity - like a hospital or university - within your borders is a double-edged sword. On one hand, nonprofits create jobs and provide services. On the other hand, they use city services but don't pay property taxes.
Some cities have tried to find a middle ground with these entities by collecting something called "payments in lieu of taxes," or PILOTs. Basically, the entities agree to fork over a certain amount of money, and the city doesn't challenge their nonprofit status.
Philly has had a PILOT program since 1995. But, at a time when the city is struggling to raise money to plug a budget deficit, it doesn't appear to be very successful.
Last year, Philly's PILOT agreements with 17 institutions brought in only $686,922. In a $3.7 billion operating budget, that's a rounding error. Boston collects $4.9 million from Boston University alone.
Even more surprising are the names of the institutions that are, and aren't, contributing, "It's Our Money" has found.
Though PILOTs were designed to snag money from the city's big hospitals and universities, the largest contributor was the Cathedral Village retirement community, in Roxborough, at $275,000. (Cathedral Village had no idea until a reporter mentioned this.)
Some big institutions contributed nothing at all. Most conspicuous in its absence was the University of Pennsylvania, the city's largest nongovernmental employer. It declined to renew a PILOT agreement that expired in 2000. Drexel, Temple, St. Joseph's and the Children's Hospital of Philadelphia also lacked PILOT agreements.
All of these institutions either declined to comment for this story or didn't return calls.
Thomas Jefferson University, the Albert Einstein Health Care Network and the Temple University Health System all had agreements through 2009. But not all contributed much. The Temple health system, for instance, paid $5,000 for each of its three hospitals last year.
The city is renegotiating PILOT agreements with six institutions whose agreements expired at the end of the year.
How it fell apart
Things weren't always this bad. When then-Mayor Ed Rendell signed the city's first PILOT agreements in 1995, 46 nonprofits agreed to pay a total of $9.4 million annually.
How did a nearly $10 million-a-year program involving some of the city's largest institutions diminish to the point that a retirement community in Roxborough is its most generous participant?
The city blames Act 55, a state law that effectively eliminated the city's leverage in its negotiations with "eds and meds."
Before the act was signed into law in 1997, a series of state Supreme Court rulings that narrowly defined what constituted a nonprofit under the state Constitution gave nonprofits reason to believe that the city could sue them and strip them of their tax-exempt status.
Rendell used this possibility as leverage: Large institutions were told that if they agreed to sign PILOT agreements worth 40 percent of their assessed tax values, the city would promise not to sue.
He even sweetened the deal, in the end charging the nonprofits only 33 percent of their assessed real-estate values.
Act 55 changed the equation, however.
Christopher Cummings, chairman of the real-estate practice at Stradley Ronan Stevens and Young, said that Act 55 was intended to clearly define what organizations had to do to qualify for tax-exempt status, ensuring a more "businesslike" approach to PILOTs and stopping threats against nonprofits by cash-strapped municipalities.
Rendell, for instance, once threatened to levy a rooming- house license fee on dormitories under construction at Penn and Temple. The fee, Cummings said, had previously been assessed only on flophouses.
At the same time, the law was meant to "encourage" PILOTs, said Cummings, who represents nonprofits.
When told the current status of the program, he said he was "a little shocked."
"Something's wrong somewhere," he said.
The problem, according to Deputy City Solicitor James Zwolak, is that the statute makes it easier for nonprofits to claim tax-exempt status by clarifying the definition of a nonprofit that the courts had settled on.
Under the law, any organization that doesn't have to pay sales taxes can probably avoid paying real-estate taxes, too. And though Act 55 has a provision encouraging participation in PILOTs, the law doesn't force institutions into the agreements.
(To be clear, nonprofits do pay real-estate taxes on space used for explicitly moneymaking purposes, like retail. PILOTs apply only to space set aside for nonprofit uses like research and education.)
Ending tax exemptions?
Across the country, cash-strapped states and municipalities are considering ending the tax-exempt status of nonprofit groups.
Here in Pennsylvania, bills that would allow localities to tax new real-estate purchases by nonprofits have been introduced by both houses of the Legislature (though neither measure is expected to advance far this session). And Pittsburgh Mayor Luke Ravenstahl recently used the threat of a 1 percent tuition tax to get area colleges to increase their PILOT contributions in that city.
Not everyone thinks large nonprofits should be forced to pay more, however.
Rob Wonderling, president and chief executive officer of the Greater Philadelphia Chamber of Commerce, argued that the city's eds and meds "are significant economic-development assets."
The chamber believes that it's important to take into account the money that nonprofits save the city. Some universities, for instance, run their own police forces, which take some of the burden for policing those neighborhoods off the Philadelphia Police.
Priscilla Koutsouradis, spokeswoman for the Delaware Valley Healthcare Council of HAP, a regional hospital trade group, said that her organization also opposes mandatory PILOT payments.
She said that hospital finances are suffering in the face of the recession, with the margins of hospitals in southeastern Pennsylvania dropping 85 percent, on average, in the first six months of fiscal 2010.
But Amie Downs, chief of staff to state Sen. Wayne D. Fontana, D-Pittsburgh, who introduced one of the bills in the Legislature, argued that nonprofits still have an obligation to support municipal services.
Even colleges with their own police forces rely on municipal fire departments, she said, adding that "plenty" of organizations pay taxes to support services that they never use.
Downs said that Fontana simply wants to make sure that nonprofits carry their fare share of the burden.
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wow. That's amazing in so many ways. No wonder Cathedral Village is so expensive. IOM, you're doing good work here. Although I'm curious about how this was so deep under the radar if UPenn stopped making payments in 2000 but city services are perennially underfunded. Very interesting. Question about this: "To be clear, nonprofits do pay real-estate taxes on space used for explicitly moneymaking purposes, like retail." HUP has (or had) chain-operated coffee bars scattered throughout the hospital around waiting areas for patients' families, similar to the kiosks in airports. Are they regarded as explicit money-making purposes? If so, does HUP pay real-estate taxes on those portions of their real estate? I recall them as chain-operated, for-profit coffee shops but my memory of this is from a few years ago.— MB6- @MB6 I'm not sure about those coffee bars, specifically, but I do know that nonprofit real estate can be split pretty finely. Taking Penn as an example, it has an administrative building (the Franklin Building, on Walnut Street) in which only one of the floors is tax exempt. The others are assessed the full rate. The BRT property assessment website is good for playing around with things like this: http://brtweb.phila.gov/brt.apps/Search/Disclaimer/disclaimer.aspx?url=search— Anthony Campisi
- Try to extort more taxes out of nonprofits is very short-sighted. The schools bring people from out of the area into Philadelphia. The schools and hospitals are huge employers, and all of these employees pay the city wage tax, regardless of whether they live here. The hospitals and schools contribute far more to Philadelphia than they use in services, and already pay their "fair share."— jfar86
- Two other questions to research are First-How much money do each of the Non-profits in Philadelphia receive from the city? Second-how much do the non profits pay in Political contributions to city elected officials?— DennisR
- I don’t know if that is fair to all to raise real estate taxes. Yes you can right it off but it is not worth it. What we need to do is start collecting taxes from these keystone projects supported by the state that don’t pay taxes like kvaenner ,blue cross and the new Comcast center and others that I m not aware of for x amount of years. I say start collecting this tax if the state doesn’t like it make them pay for it. Our city is so over regulated by the state like pica. Let pica pay for it all the businesses down the navy yard they were giving incentives to move there and don’t pay real estate taxes. Let PICA or the state pay for it, PICA is the first one that squeezes the City to meet their expectations how about we hold them up to a standard. Does anyone audit them to see if we are getting our moneys worth let the city controller audit them. Yes it builds up our tax base but it was so minimal it didn’t put a dent in lour coffers. Let’s see how much money that would generate first before considering raising taxes. And for all the new properties we should suspend the tax waiver until we are fiscally sound. Then we can continue it when we are in better shape. All of us have to pitch in. And let’s stop funding for profit charter schools and let them borrow money like everyone else why should we pay for that. It’s only killing the public schools and catholic schools and the taxpayers are suffering because of it. Councilman Dicicco means well but he is under the gun .election time is around the corner.— cityslicker
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- Politicians manipulating markets. Special interests win; taxpayers lose.— Falls Ed
- At the very least, no child who graduates from public school should have to pay for a college education in Philadelphia. This would be a wonderful PILOT (Pittsburgh already has a similar program). It would give children who always thought there was no chance of going to a school of higher education some hope. It would also give businesses a wonderful pool of educated workers to draw upon, making Philadelphia a great place to come and open a business. And that benefit would only be from the educational non-profits. There are also medical entities taking up huge amounts of previously taxable real estate.— phillyjud
- look around philly and then imagine the collages and hospitals moving to the suburbs,a trip to Detroit might clear the vision if the city didnot have many of those institutions the city would be completely dead instead of half dead. The tax and policy's drove a lot of businesses out in the 50 and 60s— jr23
I really can't see any difference between this PILOT program and extortion.
