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Many nonprofits bail on payment deal with city
by Holly Otterbein
MAYOR NUTTER wants residents and businesses to fork over an additional $90 million in property taxes in the fiscal year that begins July 1.
But many well-known institutions on valuable land have nothing to worry about - like the University of Pennsylvania, Thomas Jefferson University Hospital and Drexel. They're nonprofits, so they don't pay property taxes.
There was a time when they would have chipped in anyway.
In the 1990s, then-Mayor Ed Rendell coaxed many nonprofits into "payments in lieu of taxes," or PILOTs. The nonprofits agreed to pay a portion of what they would owe in property taxes were they not tax-exempt. In return, the city promised not to challenge their nonprofit status.
In 1995, the city reaped more than $9 million annually from PILOT arrangements with more than 40 nonprofits.
But by 2009 the money had fallen to just $687,000 from 17 institutions. In 2011 only $383,700 trickled in from nine nonprofits.
Big institutions like Penn that once chipped in no longer do. Most of the money now comes from lesser-known institutions, like the retirement community Cathedral Village and the Commission on Graduates of Foreign Nursing School.
Kathleen Rohrbaugh, marketing manager of the Commission on Graduates of Foreign Nursing School, says she had no idea PILOTs had dwindled.
One likely reason is the poor economy. Another is a 1997 state law that eliminated the city's leverage over nonprofits, according to Christine Bak, an attorney in the city's Law Department.
Before that law, several state Supreme Court rulings narrowly defined a nonprofit. This made it possible for the city to threaten to sue to take away nonprofits' tax-exempt status - which gave the city a hammer.
But the state passed Act 55 in 1997, spelling out what organizations must do to become tax-exempt.
"We don't have that ability to twist their arm" anymore, Bak says.
Critics say the city could do more to wrangle PILOTs from well-heeled institutions. A few years ago, Pittsburgh Mayor Luke Ravenstahl convinced Pittsburgh universities to beef up contributions by threatening to impose a 1 percent tax on tuition.
Gloria Gilman, executive director of the civic group Neighborhood Networks, says she'd like to see that kind of muscle-flexing in Philly.
"Maybe the city can't take away their nonprofit status," she says, "but they can embarrass them."
Not everyone thinks the city should beef up its PILOTs program.
Jeffrey Cooper, Penn's vice president of government and community affairs, says Philadelphia's "meds and eds" stimulate the city's economy and employ workers who pay a large sum in city wage taxes.
When asked how this distinguishes them from for-profit businesses, Cooper says nonprofits like Penn also give back to the city by offering services like police support.
But Kevin Gillen, vice president of the economic adviser Econsult, points out that these nonprofits still use city services.
"Penn and Temple use Philadelphia police, Philadelphia trash collection, Philadelphia Water Department, Philadelphia Fire Department," he says.
Bak says many nonprofits are "hurting as much as the city." She also points out that although nonprofit PILOT plans have dwindled, the city recently began persuading some for-profits to make voluntary payments (see accompanying story.)
Bak says the city is open to striking more PILOT deals with nonprofits. But without a change to Act 55, it seems unlikely the city will resume getting millions of dollars from those arrangements anytime soon.