Inquirer Editorial: Tapping nonprofits is worth a discussion

Before Philadelphia starts lifting couch cushions to find enough change to pay for basic services, it should consider ways to generate revenue from tax-exempt nonprofits.

In a recent article, Inquirer business writer Harold Brubaker pointed out that nonprofits hold about $13 billion in exempted city real estate, or nearly 10 percent of the total market value.

One might think of nonprofits as small-time operations, but some are among the city's largest employers and landholders. Still, in looking at nonprofits as a source of new revenue, City Hall must be mindful of the contributions these job creators make otherwise to Philadelphia.

The city does get some money from nonprofits through payments in lieu of taxes (PILOT). Unfortunately, though, some nonprofits in the late 1990s successfully lobbied the legislature for a state law that neutered the city's ability to use that vehicle.

Councilman Bill Green wants to wring whatever the city can still get by requiring charities to annually report why they deserve special treatment. Any that fail to comply, could lose their real estate tax exemptions.

This would be a good way for the city to routinely keep track of its growing number of nonprofits, and weed out those not actually providing a service to the public. The Nutter administration already examines for-profit areas of charities, such as a museum store or campus coffee shop, to determine what should be taxed.

Any extraction of more money from nonprofits should occur through reasonable negotiations that recognize in-kind contributions like the $68 million in charity care city hospitals provided in fiscal 2011. That's three-fifths of the roughly $112 million in taxes that would be due on health-care and university properties if they were not exempt. Collecting that remaining two-fifths, if not offset by other factors, could really help the city pay its bills.

Other cities have been looking at nonprofits, too. Annual revenue from PILOTs nationally increased last year from $20 million to $52 million. Boston, which modeled its program on Philadelphia's, was the top recipient of PILOT cash. It collected $19.4 million last year, which was half a percent of its general fund revenue.

Councilwoman Blondell Reynolds Brown wants to hold hearings to consider collecting revenue from nonprofits. The hearings could shed light on the potential for additional revenue while also evaluating the important services that nonprofits provide.

Philadelphia could put any additional revenue to work to better fund public safety, sanitation, and other vital services. But if it asks nonprofits to pay more, it must be careful not to damage that sector of the local economy.