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Witness the striking full-color, 56-page report issued by the universities that sings the praises of the wonderful work they do, the great contributions they make and the vital role they play in Philadelphia’s economy, accompanied by a mother lode of data compiled by Econsult Solutions that pounds the point home.
To summarize, our universities and hospitals contribute a lot — a whole lot — to the city, except in one area: taxes. Being non-profits they are tax exempt. They provide zero, nada, zilch in taxes to the city and school district treasuries.
Is this a bad thing? It is not, according to the authors of the report. They call this the “Philadelphia Model,” which is described as a “synergistic partnership between the Higher Eds and City government for the benefit of the city and its residents.”
How is this model different than other cities with major higher ed institutions?
Under the Philadelphia Model, the institutions pay no local taxes. Other cities get money from the institutions in the form of PILOTS — it stands for payment in lieu of taxes — which often yield millions for local governments.
This is a bad model, the report states, a very bad model that creates “controversy, confrontation and litigation” between the institutions and local government. This approach is transactional, the report adds, and leads to bad mojo, whereby the institutions become angry and upset and sometimes withdrawal some services they once offered.
In my mind, the report has the distinct undertone of a threat: You try to get money from us, pal, and you’ll get nothing but grief.
At this point, let’s step back and stipulate the following:
Our institutions of higher learning and their affiliated hospitals do great public service to the city. We are enriched in many ways by their presence, not the least of which their role as major employers. By providing jobs, they provide tax income for the city in the form of wage taxes — though, in this report, the institutions seem too eager to claim these payments as their own. They are not. These taxes are paid by their employees.
The institutions also act as resources — for ideas, for manpower, for volunteers — for a panoply of social and educational services. This help is priceless, though that didn’t stop Econsult from putting a price tag on it — $440.6 million a year worth of community service.
As an aside, it seems tacky to me to cost out volunteerism. It makes it sound too…well, transactional, to use the pejorative the report applies to cities that collect PILOTS.
So, let us give these institutions all the praise they deserve and bring up three additional points.
Point One. Every statement made in this booklet and a variation of every number used could be applied to dozens of cities blessed with major eds and meds institutions. Yet, in many of those cities, the institutions contribute directly to the local government treasury with PILOTS.
Point Two. Seen through the prism of law and tradition, these institutions of non-profits and they are granted that status because of the services they render. Seen through the lens of reality, though, these institutions are big businesses, whose operations often generate substantial profits, though no one calls it by that name. It is called “Revenue less Expenses,” on Line 19 of the Form 990 each institution must file with the IRS.
To use two notable examples, in the last 10 years, revenue has exceeded expenses at the University of Pennsylvania to the tune of $2.9 billion. At Children’s Hospital of Philadelphia (CHOP), the figure is $700 million.
What do they do with these, um, surpluses? Do they offer rebates on students’ tuition to share in the bounty? Do they lower the medical bills of their patients by an amount commensurate with their surplus/profit? They do not. The money is used to feed the endowments of the institutions, whose role in part is to act as super-sized Rainy Day funds to see them through downturns in their business.
In 2012, the 15 largest higher ed institutions and hospitals in the city had combined revenue of $12.1 billion, combined expenses of $11.1 billion, for a total profit/surplus of $1 billion.
My curbstone analysis of that figure tells me that had these non-profits been for-profit businesses, they would have paid about $225 million last year in city taxes, of which about $70 million would have gone to the School District. This is not chump change.
The PILOT payments similar institutions give their local governments represent a small fraction of the money they would pay if they were for-profit businesses. The most I see on the lists is $17 million contributed by Boston institutions to city government there.
Point Three. These are tough times. The school district nearly went under because of massive cuts made by state and federal government. We are scrounging around the money just to buy stationery supplies. Mayor Nutter has raised taxes three times in the last three years to help the schools. The 1-point add-on the sales tax, which was supposed to expire next year, is going to stay tacked on to help the schools. Every dollar counts. No one is asking these hospitals and universities to eliminate the deficit of the district or to give hundreds of millions. Like the old Depression Era song, we simply ask, “Buddy, can you spare a dime?”
Our local non-profits have just answered with a loud, emphatic, 56-page, Technicolor “No.”