Nonprofits like Penn, Drexel and Jefferson Hospital are tax exempt, so they don’t normally pay anything — that could change under Mayor-elect Jim Kenney.

Mark Dent, Nov. 13, 2015, 9:45 a.m.

Freeloaders. College grads who move back to Mom and Dad’s house and eat all the food without paying anything.

They’re even wearing shirts that ID them: Penn. Drexel. Jefferson Hospital.

Freeloaders?

Well, some city leaders — Mayor-elect Jim Kenney, Councilwoman-elect Helen Gym, others on Council — see Penn, Drexel, Jefferson Hospital and other tax-exempt nonprofits that way. They want these nonprofits to start paying money back to the city, like they used to.

See, back in the ’90s, dozens of Philadelphia nonprofits did just that in what is called a PILOT program. Kenney made a point of reviving the program part of his campaign. He believes getting these huge nonprofits to pay up could direct more money into schools. 

City Council would likely side with him. It passed a resolution 15-1 asking Mayor Michael Nutter to request these payments earlier this year, but Nutter wasn’t a fan. He said he didn’t envision them as long-term, sustainable solution for schools.

So let’s take a closer look at them. Billy Penn explains PILOTs and whether there’s a good chance Philadelphia will be collecting some revenue through this type of program under Kenney’s administration.  

Real quick — what are PILOTs?

They are Payments In Lieu Of Taxes. Nonprofits are tax exempt, so they don’t normally pay anything. In a PILOT program, nonprofits enter agreements with cities to make voluntary payments that generally approximate the amount they would owe in property taxes.

Agreements, voluntary? So they can’t be forced to do it?

That’s correct.

How would the city convince these nonprofits pay up?

That’s the hard part. Back in the 90s, Philadelphia exerted more control over how local organizations could be categorized as nonprofits. Then along came a state law that essentially set guidelines organizations needed to meet to be nonprofits. With this law in the books, the city couldn’t threaten any lawsuits to take away someone’s nonprofit status, as it could in the past. 

Six nonprofits, according to a study by the Lincoln Institute of Land Policy, have still been participating in a PILOT program. They are Salus University, Albert Einstein Health Care Network, American College of Physicians, Commission on Graduates of Foreign Nursing School International, Cathedral Village and Philadelphia County Dental Society. They contributed about $491,000 in 2011, the most recent year studied.  

How many nonprofits does Philadelphia have?

A helluva lot more than six. The website GuideStar, which documents nonprofits nationwide, displays about 7,900 results for nonprofits in Philadelphia. Many of these nonprofits own little or no property and bring in very little money. But some of them are massive organizations that bring in as much revenues as businesses, employ hundreds of people, disgorge tons of vehicles on the streets, and have as much or more property as for-profit entities. Higher educational institutions are some of the most prominent. According to that study from Lincoln Institute of Land Policy, higher ed institutions account for about 24 percent of organizations in PILOT agreements but about 67 percent of revenue made from PILOTs. 

Philly has several universities, so if Kenney and Council jumpstart this PILOT program, we’re talking a decent chunk of change?

Yeah but “decent” is probably the best word. In the mid-to-late 90s when the PILOT program was operating at a high level, the city brought in about $9 million annually from a total of 46 nonprofits.

Adjust that $9 million for inflation and today we’d be talking $13.6 million. The city of Philadelphia anticipates $2.8 billion in tax revenue next year. An injection of $13 million would impact the budget about as much as a pocket fan would cool a desert.    

But when people talk about PILOT programs they generally talk about aid for schools. Any amount of money would be beneficial to the beleaguered Philadelphia School District.

How much would the universities pay up?

Here are the top 10 highest PILOT payments in the United States, according to the Lincoln Institute of Land Policy, and eight of them are universities.

So a handful of prestigious universities are paying millions. Philadelphia would likely ask Penn to pay something commensurate with its peers.

How did the city determine how much each nonprofit would pay in the 90s?

The nonprofits paid 33 percent of their assessed real-estate values.

How would Kenney do it?

Kenney’s press secretary, Lauren Hitt, declined to answer specific questions about Kenney’s strategy. She said via email nothing would be known until negotiations actually pick up between the city and nonprofits. 

In the education plan available on his website, Kenney discusses PILOTs and SILOTs (services in lieu of taxes) as a way to provide more revenue to schools. He gets as specific as saying he would have the Office of Property Assessment involved, but doesn’t go any further with details about methodology.

Kenney also suggested modeling Philadelphia’s PILOT program after Boston’s. Boston collects about $23 million annually from PILOTs.

Could it be tough for Philadelphia to convince nonprofits to pay up?

We’ll find out, but it certainly could be. Philly’s biggest nonprofits are the universities and hospitals, aka the eds and meds, aka the industries considered to be two of the primary drivers of Philadelphia’s economy. That’s a pretty good case for the upper hand in negotiations.  

Penn, for instance, thinks it does plenty for the city without contributing any tax dollars. Its representatives routinely tout contributions through the Penn Alexander School and other programs with city schools. Penn and Temple also have their own police forces, saving the city money on that front. 

Nutter mentioned the voluntary nature of agreements as one reason he didn’t favor PILOTs. Kenney will have to figure out how to get hesitant nonprofits to pay up.

More Billy Penn