The Philadelphia Museum of Art. Lincoln Financial Field. The former Aramark Tower.
Together, those Philadelphia landmarks are worth $794 million, according to city assessment records. But they are among the nearly 23,000 properties in Philadelphia exempt from paying property taxes because they are owned by nonprofit or government institutions.
In sum, the $29.6 billion value of all exempt properties account for 17% of the city’s total real estate value, according to an Inquirer analysis. Their combined tax breaks equal about $414 million annually.
It’s not unusual for cities like Philadelphia, with a high concentration of universities and hospitals, to have a large amount of untaxed property. Adam Langley, who studies tax exemptions at the Lincoln Institute of Land Policy, a Massachusetts-based think tank, said he often cites the city when referring to places with lots of tax-exempt properties.
Still, Langley said, Philadelphia is “kind of an outlier” because it does not seek payment in lieu of taxes (PILOT) agreements with its largest nonprofit institutions, a step that has enabled other cities to recoup millions in extra revenue.
When he ran for mayor four years ago, Jim Kenney said the city should pursue PILOTs or comparable service agreements. Now, as Kenney asks voters in November for a second term, other types of tax exemptions have come under scrutiny from City Council, activists, and residents, and property reassessments have led to tax hikes for thousands of homeowners in the last two years.
And some of the same activists who have urged the city to eliminate or reform its 10-year tax abatement for new construction or rehabilitation have called for PILOTs for institutions such as the University of Pennsylvania, which owns at least $3.2 billion in property and has a $14.7 billion endowment.
But no negotiations for PILOT agreements are underway, said Jim Engler, Kenney’s chief of staff.
What kinds of properties are tax-exempt?
State law dictates that churches, cemeteries, hospitals, institutions of learning, charities, and government-owned properties are exempt from taxes, as long as their revenue goes toward the support of the institution or charity. Many argue that they help the city in other ways, as large employers, tourist attractions, or health-care providers.
Government properties — owned by the city, state, and federal governments, housing authorities, SEPTA, and other agencies — account for nearly 40% of the value of all tax-exempt properties, the records show. The remaining exemptions are for nonprofits.
Educational institutions in Philadelphia own about a quarter of the value of tax-exempt properties, the Inquirer analysis found.
Among the city’s most valuable tax-exempt properties is the office tower at 11th and Market, known as the Aramark Tower until Aramark left the building earlier this year. It is owned by the Girard Estate charitable foundation and would have an annual tax bill of $1.7 million without its exemption.
The estate supports Girard College, a tuition-free boarding school in the Fairmount neighborhood for needy students. “And 1101 Market is a key asset in the service of this mission,” Joseph Bilson, executive director of the Board of Directors of City Trusts, the agency that manages the charitable foundation, said in a written statement.
Bilson said the building raised $5.5 million in net rental income in 2018. The revenue projection for 2019 decreased to $3.1 million because Aramark left; Thomas Jefferson University has agreed to a long-term lease and the building is undergoing renovations for the new tenants.
Philadelphia also has other tax breaks not included in the Inquirer analysis of nonprofit exemptions; the 10-year tax abatement for new construction and rehabilitation exempts $11.6 billion worth of property, and Keystone Opportunity Zones (KOZ) — intended to spur investment in underdeveloped neighborhoods — exempt an additional $1 billion, according to property records.
The land values of properties with the 10-year abatement are still subject to taxes; the exemption only applies to the new construction or improvement. Owners of about 50 KOZ properties have agreements to pay 110% of the school district property-tax rate, Engler said.
How does the city make sure exemptions are legitimate?
The Office of Property Assessment is required to periodically confirm that the use and ownership of exempt properties still qualify for tax breaks, said Mike Dunn, a city spokesperson. But after resistance to plans for full audits in recent years, the office currently only does so for properties with known changes.
In an attempt to review exemptions and raise more tax revenue, the city sent letters to nonprofits in 2015 requiring them to justify their exempt status. Many church leaders complained, saying that the measure was intrusive and that they would struggle to find the correct documents to comply. City Council sympathized with their outrage, and passed a bill eliminating that requirement.
The owners of many exempt properties do pay real-estate taxes on a portion of the site’s value. They can be taxed on using their building for reasons not directly related to their nonprofit, such as “a fast-food operation leasing the first floor,” Dunn said.
And the city does have some existing agreements in place to collect payments on exempt properties.
The Phillies and Eagles, for instance, together pay $3 million per year to the city, which owns their stadiums and signed leases with them 19 years ago, said Sam Rhoads, executive vice president for the Philadelphia Industrial Development Corp. Without the exemption, Citizens Bank Park and Lincoln Financial Field would have a combined annual tax bill of $12 million.
The city also has agreements with the American College of Physicians, which pays about $32,500 per year and has its headquarters in Old City, and a few other small institutions.
Should Philadelphia have more PILOT agreements?
The city had PILOT agreements in place in the 1990s, and collected about $5 million each year from various organizations. A 1998 Pennsylvania Supreme Court decision that upheld the tax-exempt status of Longwood Gardens in Kennett Square — citing its legacy of community service — offered a boost for nonprofit exemptions and hurt the city’s leverage to negotiate or collect PILOTs.
“They’re not legally required,” Langley said. “The city cannot seize property for not paying a PILOT like the way you can for the property tax.”
Still, some activists have pushed the city to pursue PILOT agreements.
“For any institution … as wealthy as Penn to not pay any property taxes while Philly public schools are really struggling because they’re underfunded is just wrong,” said Zeyu Chen, a Penn junior and a member of Penn Student Power, a group that has held rallies calling for the university to pay more to the city.
Eric A. Lustig, a professor of law at New England Law in Boston, said that city’s PILOT program asks universities and hospitals to pay about 25% of the amount they otherwise would pay in property taxes. The city has calculated that amount to be roughly what it spends on core services such as fire, police, and road upkeep, he said. Boston’s program raised $34 million in the last fiscal year, according to the city.
“I think Boston’s view is … [the nonprofits] have to view this as an obligation and as they create budgets and raise money and set tuition,” Lustig said. “They should treat this basically like the power bill and it just has to be paid.”
Nonprofit institutions in Philadelphia are quick to point out the contributions they make to the city.
Penn and other nonprofits help Philadelphia “by being able to leverage their people and their assets through programs” rather than paying the city, said Jeffrey Cooper, Penn’s vice president for government and community affairs.
Temple University, like other universities in the city, has its own police force, and its hospital treats patients who can’t always pay. “In lieu of a community hospital, Temple University Hospital, and the medical, dental, and podiatry schools provides millions in health care benefit to the communities that need it the most,” Temple spokesperson Ray Betzner said in a statement.
Engler, Kenney’s chief of staff, said the administration is conscious of such contributions, which make it “a little more complicated” when considering PILOTs. He also said the city could consider services in lieu of taxes agreements. He cited Penn’s support of Penn Alexander School, its neighborhood public elementary school, as a partnership the city could consider expanding to other schools.
But PILOT agreements are not off the table entirely.
“We haven’t foreclosed the opportunity,” Engler said. “It could be something that we look into in the future.”
Inquirer graphics editor John Duchneskie contributed to this article.
Correction: An earlier version of this story incorrectly characterized Boston’s PILOT program. The city asks nonprofits to pay but cannot require it.