Philadelphia Prepares for PILOT Push

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March 5, 2013; Source:Philadelphia Inquirer

The City of Brotherly Love may be the next major city to enact a comprehensive regime of taxation of otherwise tax-exempt property owners. Historically, Philadelphia hasn’t been aggressive in negotiating payments in lieu of taxes with its bevy of universities and hospitals, but City Council members Blondell Reynolds Brown and Bill Green want the city to get more out of its nonprofits. This spring, the Council will hold hearings on whether, how, and what to exact from tax-exempt property owners. The Council will be able to ride the emotions of property owners in some neighborhoods slated for large increases in their property tax bills due to Mayor Michael Nutter’s reform of the city’s real estate tax structure.

Green has two bills aimed at nonprofit property owners ready to go. One will require them to prove their qualifications for a property tax exemption. The other is an aggressive effort to examine nonprofit operations to see if they are engaging in activities that would warrant their paying business taxes. According to Green’s oddly antagonistic phrasing, his bills and the upcoming hearing will be “forcing the charities’ hands and maybe have them come to us rather than have us going to them.”

Green’s analysis is that this could generate “tens of millions of dollars” for the city budget. If so, that would put it on a playing field accompanied by the likes of Boston, the nation’s largest recipient of PILOTS, which collected $19.4 million from tax-exempt property owners last year (amounting to 0.58 percent of the city’s budget). In Philadelphia, the motivation for PILOTs may be as much about politics as it is about finances.

Zack Stalberg from the government watchdog group the Committee of Seventy delivered a comment that reflects the political tenor of the times: “At a time when the city is looking in every dark corner it can for money, it’s not a crazy thing to be talking about,” Stalberg told the Philadelphia Inquirer. “To some degree, it’s emotionally a potent issue because people notice that most of the cranes around town are working on buildings at the big hospitals and universities.” The political sensitivity of the issue is also reflected in the city’s failure to provide the Inquirer with a list of the voluntary payments it received from tax-exempt organizations in 2012. A voluntary payment program negotiated under former Mayor Ed Rendell expired some time ago, leaving only a few tax-exempt property owners to continue making payments on their own volition.

The Inquirer quotes Laura Otten, executive director of La Salle University’s Nonprofit Center, who describes PILOTs as “the cost of doing business as a charitable organization,” a stance that essentially throws the “voluntary” nature of these payments out the window. What are Philadelphia’s tax-exempt property owners going to say at the City Council hearing this spring? What they say is going to matter not just to Philadelphia’s nonprofits, but also to nonprofit peers in other cities that are facing similar financial demands. —Rick Cohen

  • Laura Otten, Ph.D.

    While several folks proclaiming their love of the nonprofit sector (my life has been committed to building the sector and my 30-year record speaks for itself) immediately jumped on my comment in the Philadelphia Inquirer, cited in the article above, I would like to amplify it to provide greater clarity on the reasoning behind it:
    • Nonprofits are always accused of “trying to get away” with things. I’ve never figured out exactly what it is the scores of accusers think we have gotten away with, but they think we do. Certainly, here is a situation where they could point to something specific and say, “See, nonprofits are always trying to get away with things, like paying their taxes” and that I would understand.
    • Competition for that work we do in service to the community is now coming not just from other nonprofits but increasingly from B Corps, other for-profits and the growing number of L3Cs, resulting in more organizations that can do what we do and pay taxes. If we want to stay competitive, should we continue to expect the government to waive our tax payments when we know that very same government could turn to our tax paying competition and get the service and the tax revenue.
    • We cannot have it both ways, as it seems so many nonprofits want to do. We cannot hide behind the cloak of “We are a nonprofit and thus we are entitled to …” (or worse, the whine of “Oh, we are just a poor nonprofit”) when it suits us and then be annoyed when nonprofits get treated as the lesser, insignificant relation of the for-profits. Either we are businesses, have solid products and services and should be taken seriously or we aren’t. If the former, then we should pay for the services we use just like those others to whom we claim to be the equal.

  • rick cohen

    Thanks for amplifying. I don’t think we did. Actually, in the original version of the newswire, I had referenced the Phila. hospital’s contention that it gave back through its own mechanisms with the UPMC strategy in Pittsburgh (giving to the Pittsburgh Promise scholarships) and I think your comment was useful in explaining that. Without those points in my newswire, I think your comment still stood well. I am particularly intrigued by your point about B Corps and L3Cs among others, a point I have made too. Perhaps that’s a topic you might want to expand on as a feature for the NPQ website? If so, let me know. Thanks.