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There is a way to help the beleaguered Philadelphia schools by calling on the Philly’s unbeleaguered schools. I am thinking of Penn, Drexel, Temple, La Salle, Jefferson Medical School and the other multi-million dollars operations in town.
The method is called PILOTS, as in Payments in Lieu of Taxes, and it is used in a number of cities to extract aid from non-profit organizations, many of them huge institutions that pay not a dime in local taxes.
The exemption dates back to the days when non-profit was synonymous with charities or religious institutions. Since they existed to provide charitable services, they were given a tax break. It made sense.
Remember, this was the era before government got in the business of educating children or helping the needy. These were needs met by civic and religious institutions.
But, that was then and this is now.
What would you call the University of Pennsylvania, with its $5 billion annual budget, its $7 billion endowment, its network of 15 hospitals?
A charity? A multi-billion dollar business? A tax freeloader?
Certainly it is the last. Unlike for-profit businesses, Penn makes no direct contribution of taxes to city coffers. It does not pay real estate taxes, or business taxes, or the sales tax.
It does serve as a workplace for thousands. It does contribute mightily to the city’s economy, but hardly at all to its tax base — except for the wage taxes that are paid by its employees, not the school.
Leave it to Ed Rendell to strip it down to the essentials. In a recent article in The Inquirer, the former mayor said he favored PILOTS and pointed to Penn President Amy Gutmann’s $2.1 million salary.
“Amy Gutmann earns every nickel of that and she does a fabulous job,”
Rendell told reporter Susan Snyder. “But it’s hard to say the University of Pennsylvania is a charity.”
This put Rendell at odds with his former chief of staff, David L. Cohen, now head of the Penn trustees. He was not amused by his former boss’s belief that the Ivy League institution pony up some of its millions.
“It’s unfair — and grossly inaccurate — to measure Penn’s contribution to the city only by cash, and absurd to measure it by cash PILOT payments,” Cohen told Snyder. “The in-kind value of Penn’s contributions to the city represents millions and millions of dollars in additional dollars.”
To which I say, calm down David.
Geez, you’d think he was trustee at a school for indigent children run by an order of mendicant nuns. The reality is that Penn is a very profitable non-profit, which sounds like an oxymoron but really isn’t.
According to the school’s latest IRS non-profit disclosure forms, it had revenue of $5.3 billion in 2011-2012, expenses of $4.7 billion and a profit of $643 million.
Of course, IRS Form 990 doesn’t use the word ‘profit’ to describe this surplus. Line 19 reads: “Revenue Less Expenses.” In business, they call that the bottom line.
For the record, DrexelUniversity penciled in $102.5 million on Line 19; Temple wrote in $106 million and Jefferson Medical School put down $62 million.
In all, the largest 17 non-profits in Philadelphia — all of them colleges or hospitals — grossed $12.1 billion in 2012 and had a total of $1 billion on Line 19.
Meanwhile, the PhiladelphiaSchool District is running at a $300 million deficit and had to lay of 4,000 employees over the summer. It has no money for paper and other school supplies, it is closing its libraries, and it has too few counselors, school nurses and other support personnel.
The contrast between the array of services offered to the 136,000 undergraduate and graduate students enrolled the city’s colleges and universities and the 134,000 students enrolled in the city’s public schools could hardly be starker.
That’s not to say these mega-institutions do not add value to the city. Collectively, they are Philadelphia’s largest employer and the “Eds and Meds” sector is vital to the city’s economy. They have outreach programs that help the local community. They provide medical care for indigent Philadelphians.
In fact, they do a lot of things that are great and beautiful — except pay taxes.
Rendell instituted PILOTS when he was mayor, but it didn’t yield much — about $9 million a year. Now, it amounts to a few hundred thousand annually.
And that’s the problem with PILOTS. They are strictly voluntary. Though you can squeeze non-profit institutions to contribute, you cannot force them to give because their tax exempt status is protected by law.
And, since PILOTS are voluntary and may vary year to year, it is hard for a local government or school district to count on them as a stable funding source.
I have a better idea.
It costs the school district about $12 million a year to provide textbooks, classroom equipment and supplies for its students. These are fundamentals of education. While it appears there is enough set aside in the budget for books, clearly money is lacking for supplies. Teachers usually dig into their own pockets for these items and there are reports of scarcity this year.
Why don’t Philadelphia’s universities and other non-profits pledge to provide the $12 or $13 million a year it takes to provide adequate books, classroom equipment and supplies for the public schools?
These targeted PILOTS could go directly to the district or be funneled through a fund recently established by Mayor Nutter to raise money for the schools. The city is partnering with the United Way in this endeavor.
The mayor’s fund is intended just for supplies, but I think the school district would be happy to have it cover textbooks as well.
The amount donated could vary depending on the size and relative wealth of the institution. I would pencil Penn in for at least $6 million, which is still less than what Harvard, Yale and Brown each give in PILOTS to their local communities.
Each year, the district would set a goal for what it needed for this Textbooks & Supplies Fund and the institutions would donate money until the goal is reached. Individuals would be able to contribute, too.
Let’s be clear. These institutions could decide not to give a dime. They are well within their rights to do so because laws protect their exemption from taxes.
But, as the Latin poet Horace wrote: “Leges sine moribus vanae.”
Laws without morals are useless.
By the way, that is the motto of the University of Pennsylvania.