Immigrant millionaire Stephen Girard's 1830 will has benefited generations of Pennsylvanians: students at Girard College, the free North Philadelphia boarding school his legacy still supports, and the lawyers who have been fighting over the will and Girard Estate funds since his death.
The latest challenge will go before the Pennsylvania Supreme Court on Wednesday. Lawyers for the Girard Estate, which is administered by the Philadelphia Board of City Trusts, are fighting to protect its state tax exemptions.
Arguing that they should be able to tax Girard's real estate investments, lawyers for the tax assessor's office of Cumberland County, Pa., backed by county governments in the state, have resuscitated arguments Girard Estate trustees made in the 1950s, when they were resisting racial desegregation. (The will limited Girard College to "white male" orphans.)
"While the effect" of a 1958 Pennsylvania court ruling, which temporarily kept black students out, "is abhorrent," the same ruling's analysis of Girard as a private charity and not a public entity "was nevertheless good case law" and shows that its investments are private and taxable, wrote the tax assessor's lawyer, Stephen Douglas Tiley, of Frey & Tileyin Carlisle (even though federal judges later ruled Girard is a public institution as far as antidiscrimination laws go).
By contrast, Girard's lawyers, headed by Stephen Cozen of Cozen O'Connor, Philadelphia, note its board is selected by state judges, operates under a "unique" state law spelling out its public purpose, and has been recognized as tax-exempt by state and federal authorities.
The fight has dragged on for 10 years. Millions are at stake for Girard, which has already cut entering class sizes in half, blaming weak investment markets and difficulties refinancing its debt. A friend-of-the-court brief from Girard consultant Public Financial Management Inc.says the trust has had to delay bond refinancings that would have saved the estate $2.8 million because of uncertainty about the court case.
The estate could have to reimburse bondholders for millions more, plus "substantial fees and penalties," if its property becomes taxable. A pro-tax decision "would likely threaten the performance and, possibly, existence" of Girard College, Wills Eye Hospital, and other charities administered by the Board of City Trusts, PFM lawyer Sarah Chadwick Cocke wrote.
The struggle followed a decision by Girard trustees in the 1990s to borrow more than $100 million through public agencies in Philadelphia and Washington County to boost returns from Girard's old Schuylkill County coal mines and Philadelphia city blocks, with new investments in real estate and other assets.
Girard's new investments included a $4 million office building in Lemoyne, Cumberland County, which it leased to the state Attorney General's Office (which, though it has oversight responsibilities for Pennsylvania trusts, has not taken a position in this case). The county demanded taxes.
A decision in Cumberland County Common Pleas Court found for Girard, but a Commonwealth Court panel headed by Judge Daniel Pellegrini found for the county. Girard appealed to the state's top court.
Pro-tax lawyer Tiley compared Girard to Pennsylvania State University, whose status as a public agency "can shift." Courts have ruled that Penn State is a government agency for employment purposes, so taxpayers can be forced to help fund deans' and football coaches' six-figure pensions, but also noted that it has a mostly private board, so it's exempt from public-records rules. Penn State is state-funded; Girard isn't, making it more taxable, Tiley wrote.
He minimized Girard's complaint that more taxes mean less for students: "If that is true, it is certainly equally true for the students in the public schools throughout the commonwealth" when Girard properties are taken off local tax rolls.
"The Girard Trust is a public, charitable trust under any reading," since the 1869 state law regulating its governance, Girard replied.
A pro-tax ruling after so many years would "clearly damage philanthropy" in Pennsylvania, Cozen told me.