As Philadelphia’s City Council ponders whether to raise more property tax revenue for the third year in a row, the issue of payments from non-profits is creeping back into the city’s consciousness.
The handy name for these contributions is PILOTs – or “payments-in-lieu-of-taxes.” PILOTs are voluntary payments from non-profit institutions that are exempt from paying local property taxes.
With new construction enlarging and enhancing big tax-exempt non-profits, some cash-strapped local governments are stepping up their PILOT programs. Here’s the latest:
• Brown University in Rhode Island – saying it was “deeply concerned about Providence’s financial situation” – made national headlines by agreeing to pay the city a whopping $31.5 million over 11 years on top of its existing $2.5 million annual PILOT.
• A recent Pennsylvania Supreme Court decision raises questions about whether some of the state’s non-profits will continue to enjoy their tax-exempt status.
• Pennsylvania’s Commonwealth Court ruled that the trust that runs Philadelphia’s Girard College does not deserve a tax exemption for property it owns in Lemoyne, Pa. The case goes before the Pennsylvania Supreme Court this Wednesday.
• Both the Daily News and the Philadelphia City Paper have explored PILOTs recently. (You can read those stories at http://www.philly.com/philly/news/local/20120504_Court_ruling_may_help_city_cash_in.html and http://www.citypaper.net/blogs/nakedcity/Pay-Up-Penn-and-other-wealthy-non-profits-pay-nothing-to-the-city-.html.
With Philadelphia’s property tax debate heading down to the wire, HOW PHILLY WORKS takes a brief look at PILOTs.
- May 7, 2012
Are PILOTs a new issue in Philadelphia?
No, but reinvigorating the PILOT program hasn’t gotten much attention until lately. One explanation could be that public officials, their financial supporters and other influential Philadelphians often have strong connections to non-profits.
What do you mean by a “reinvigorated” PILOT program?
Philadelphia once had a robust PILOT program. Mayor Ed Rendell persuaded 46 non-profits to make voluntary payments totaling $9.4 million in 1995. In 2011, nine institutions donated $383,652. The biggest giver, by a long shot, was Cathedral Village, a retirement community in Roxborough, which contributed $272,250. The list is here: http://www.philly.com/philly/hp/news_update/Non-Profit_PILOT_payments_to_the_city.html
Is this fair?
It depends who you ask. The University of Pennsylvania, which completed the last of five annual $1.93 million contributions to Philadelphia’s PILOT program in 2000, takes the position that it makes a huge economic contribution to Philadelphia. Penn reported that the university and its health system’s 2010 city impact amounted to $9.5 billion in total expenditures, 57,200 jobs, generating $4 billion in salaries and wages and $172 million in local taxes (including, as the city’s biggest employer, $144 million in wage tax revenues). You can read Penn’s report at: http://www.upenn.edu/almanac/volumes/v57/n19/pdf_n19/2010EconomicImpact.pdf
Penn also points to the countless services the university and its health system provide to city residents, often free of charge, and its significant investments to economic growth in West Philadelphia. Penn’s Vice-President for Government and Community Affairs recently told the university’s newspaper: “[T]he services delivered by the ‘eds and meds’ in Philadelphia’s non-profit community outweigh any benefit that might be obtained through a voluntary PILOT program.”
Why even consider asking a place like Penn for a PILOT?
Those in favor of a more aggressive PILOT program argue that the city’s tax-exempt institutions own a significant percentage of land that, if it were privately owned, would generate enormous property tax revenues. While cautioning that its estimates were rough, a 2009 Lincoln Institute of Land Policy report found that 10.8% of the total value of Philadelphia properties in 2006 was owned by institutions exempt from paying property taxes – more than in 23 of the country’s largest cities.
That assumes all this land would be privately owned if the non-profits didn’t exist.
Yep. And that is a big assumption.
Exactly what does all this mean in dollars?
The Philadelphia City Paper asked city officials the same question in March of this year and was told: “[L]and in the city of Philadelphia is worth about $56,258,370,844. Of that, $13,237,113,300 belongs to tax-exempt institutions, and a minimum of (they say this is a conservative estimate because not all university and hospital properties are included) $3,622,362,900 belongs to universities and hospitals that could pay PILOTs―6.4 percent of the total market value of city land. Taxed at current rates, these universities and hospitals would pay at least $106,713,620.”
Any other arguments in favor of PILOTs?
Proponents of PILOT programs say tax-exempt non-profit institutions should pay something – even a minimal amount – for using public services such as snow removal, trash collection, street cleaning and, in many cases, police protection. And, especially when their hometowns are in financial trouble, some say the non-profits have a “moral imperative” to directly assist in the economic recovery.
Why don’t non-profits pay property taxes anyhow?
The Pennsylvania General Assembly, acting on its state constitutional authority to exempt “purely public charities” from taxation, has enacted laws excusing many non-profit institutions – religious organizations, colleges and universities, museums and hospitals, among them – from paying local property taxes. This is seen as a fair exchange for the essential and costly services they provide to residents – such as education, health care and social programs -- that local government would otherwise have to pay for.
That makes sense. Are all non-profits exempt from paying property taxes?
No. In 1985, the PA Supreme Court, in response to legal challenges to various institutions’ tax-exempt status, created a test to determine what qualifies as a “purely public charity.” Twelve years later, and after intense pressure from non-profits, the General Assembly passed a law (Act 55, in case it comes up in your dinner conversation) that made it much tougher for courts to overturn an institution’s designation as a tax-exempt purely public charity.
But not all activities non-profits do are “purely” charitable. Don’t some make a lot of money?
Yes, and that’s why some non-profits are not completely exempt from property taxes. For example, they can be required to pay taxes on rental properties or income-generating activities that are not “charitable” in nature.
You mentioned a Pennsylvania Supreme Court decision on tax-exempt non-profits.
In April, the state’s top court ruled that most of the land on a 61-acre camp owned by a religious group is taxable because it did not pass its 1985 “purely public charity” test. Some legal experts think this will open the door to the pre-Act 55 days of more challenges to the tax-exempt status of non-profits.
Back to PILOTs. You said other cities are stepping up their PILOT programs.
In Boston, the city’s mayor convened a Task Force to come up with recommendations to create a PILOT program that would be applied fairly and consistently to Boston’s tax-exempt non-profits. The Task Force asked institutions with property worth over $15 million to voluntarily increase their PILOTs according to a formula that takes into account the size and quality of their land and their commitments to the community. You can read the Task Force’s December 2010 report here:http://www.cityofboston.gov/Images_Documents/PILOT_%20Task%20Force%20Final%20Report_WEB%20_tcm3-21904.pdf
Did the recommendations take hold?
They are starting to. In February 2012, Mayor Thomas Menino reported that Boston received $9.4 million in PILOTs for the first half of this fiscal year, a 24% increase over what would have been paid under the city’s prior PILOT program and 88% of the $10.8 million amount of total contributions requested.
And other cities?
Results are mixed. New Orleans’ mayor dropped his plans to get Louisiana’s legislature to enact rules that would allow him to impose property taxes on existing tax-exempt entities after the non-profits warned this would force them to cut down on their services to the community. In 2010, in exchange for an agreement to not raise any more taxes for six years, Baltimore reached an agreement with the Maryland Hospital and Maryland Independent College and University Associations to bring in $20.4 million. Johns Hopkins and its health system will contribute the highest amount over the six years: $11.07 million.
Back to Pennsylvania. What about Pittsburgh?
A coalition of 46 nonprofits, including the University of Pittsburgh and its medical center, Carnegie Mellon University and Highmark – pledged $2.6 million for 2010 and 2011. But that agreement expired. They are not happy with Mayor Luke Ravenstahl's plan to raise $15 million to help Pittsburgh’s troubled pension fund by imposing new charges on college students and hospital admissions, and maybe raising water rates for medical and educational institutions.
Is anyone in Philadelphia pushing PILOTs?
The guy who started PILOTs here: former Philly mayor and governor Ed Rendell. A rabid supporter of his alma mater, Rendell believes Penn should restart its voluntary payments. “The city does a lot of things for Penn it doesn’t get compensated for. You could say Penn has a private police force. Yes, they do. But they depend on the Philadelphia Police Department, too.” You can read the story here: http://thedp.com/index.php/article/2012/03/exploring_penn039s_financial_contribution_to_the_city
What about Mayor Nutter?
That’s unclear. Two years, Mayor Nutter’s chief education officer told Temple University’s newspaper that the city is conducting a study on “how to best incorporate higher education and nonprofit contributions to Philadelphia.” No timetable was given.
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