Editorial Suggests Taxing Philly’s “Eds and Meds”

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September 27, 2012; Source: Philadelphia Public Record

Sometimes the press calls for nonprofits to “contribute” to municipal finances given many cities’ long running fiscal debacles. The Philadelphia Public Record doesn’t pull any punches. Tax ‘em, it says in no uncertain terms: “Before the City figures out its new property-tax rate, it needs to tax all the property it’s supposed to tax. And that includes property owned by nonprofits.” The Record characterizes the colleges and hospitals (but not the churches) that dominate in nonprofit land ownership as “nonprofit enterprises.” “A hospital needs streets and sewers, teachers and cops just like a cookie factory does,” the Record’s editorial states. “But the factory pays taxes to support these public services; nonprofits don’t.”

The interesting twist in Philadelphia is that part of the nonprofit sector appears to be lining up in favor of taxing the “eds and meds” and perhaps other tax-exempt property owners. The Record cites Philadelphia Area Jobs With Justice (JWJ) Executive Director Gwen Snyder, who opines, “When a university like Penn buys a hotel and runs it for profit, or a hospital lets land lie vacant and undeveloped—then, Mayor Nutter is legally obligated to collect property taxes.” The Record calls on the Nutter administration to “be aggressive” in quickly negotiating “proper PILOTs” with tax-exempt property owners.

It may be that the Record’s editorial writers and other advocates for taxing the tax-exempts have read the substance of the new report from the Lincoln Institute of Land Policy tabulating what it says is the extent of PILOTs collected by municipalities around the nation. According to the Lincoln Institute, at least 218 local governments collect PILOTs of some sort, amounting to a collective annual value of $92 million (the Lincoln study surveyed 600 municipalities with the largest nonprofit sectors).

Because the largest areas of PILOT activity are in Massachusetts and Pennsylvania, and because two-thirds of PILOTs come from universities and one-fourth from hospitals, the pressure on Mayor Nutter to get stronger on exacting PILOTs from the several eds and meds in the City of Brotherly Love must be intense. It must gall groups like JWJ to look at the list of top PILOT-payers in the nation—Harvard University, Yale University, Stanford University, Brown University, Boston University, Massachusetts General Hospital, Dartmouth College, Brigham & Women’s Center, Massachusetts Institute of Technology, and Princeton University—and not to see an Ivy League institution like the University of Pennsylvania.

The Philadelphia controversy might benefit from a discussion of the practical issues connected to PILOTs; that is, they’re really small money. Scattered among 218 cities, that $92 million generally contributes a tiny percentage to municipal budgets, meaning that PILOTS are hardly the panaceas that their proponents seem to suggest. One wonders whether municipal officials that turn PILOTs into a huge cause célèbre are actually more focused on the political symbolism PILOTs might offer than their fiscal return. The other issue to note is what’s missing from the Record’s recommendation. The editorial is tough on the eds and meds, but omits an equally big—if not bigger—landowner in most cities, the churches. Where’s the equity in calling for other nonprofits to pay taxes while religious institutions get a pass?—Rick Cohen

  • Gwen Snyder

    To be clear, Philadelphia Jobs with Justice is calling on Mayor Nutter to issue property tax bills to all nonprofits, not just eds and meds. Part of the issue at hand is that the PA State Supreme Court just reinstated a more stringent test for eligibility for nonprofit property tax exemption, one that many nonprofit properties in our city do not actually pass.

    We support tax exemption for nonprofits that qualify as charitable under these new rules (it’s a simple process to reapply for exemption under the new ruling), but the obsolete rules that our current exemption system is based on were simply too lenient and let profit-generating or vacant properties slide under the property tax radar.

    The reality is, our city is in serious financial crisis, one that affects our schools, our services, our libraries–and despite this state of desperation, 25% of our property still goes untaxed. As nonprofits, we need to be sure that we are part of the solution, not deepening the problem. ‘We need to be good neighbors, and pull our own weight. If a nonprofit or church is using a property to generate revenue without providing charitable services to its neighbors, it’s only fair that the organization be held to the same rules as everyone else, and pay their fair share.

  • rick cohen

    Dear Gwen: Thanks for your comment. You’re right that the headline focused on eds and meds, though I hope the Newswire got the point clearly that you were talking about all nonprofits that fit the PA Supreme Court standards. My concern was that somehow these discussions of taxing nonprofits, particularly as described by political leaders, leave out the option of taxing “charitable” religious organizations. Having been a Philadelphian at one point in my life, I’d guess that a good chunk of the tax exempt property you cite is religious property. There’s no justification for taxing nonprofits and not taxing churches, if that is what a community chooses to do. Hopefully, a tax exempt entity that is using a property for income producing commercial purposes, based on the concept that taxation is based on use, not based on ownership, should be taxed. Do keep us informed of what happens in Philadelphia. In fact, you should consider writing a piece for NPQ explaining in more detail exactly what Philadelphia Jobs with Justice is calling for and explain it against the opposition that I’ll bet your getting from some nonprofit associations. Thanks very much for your comment.

  • Gary Sweeten

    Another example of greedy government trying to cover their inability to run things efficiently and effectively. Eds and Meds add so much more to the common welfare of a city that they need government money not the other way around.