As more and more activists call for Philadelphia universities like Penn — which, as nonprofit organizations, are mostly exempt from taxes — to make direct payments to the city, Penn defended its commitment to the economic vitality of the city of Philadelphia in a report released last week.
Penn and 11 other Philadelphia institutions of higher education commissioned the report, which touts the universities’ $850 million contribution in other taxes and in-kind donations to city organizations. It responds to the recent calls for payments in lieu of taxes, or PILOTs. Instead, it boasts the “Philadelphia Model,” where universities form relationships with schools and community organizations and invest in services such as construction and public safety.
“[Institutions of higher education] are some of the largest economic engines in Philadelphia,” the report reads. “As a sector, they are some of the city’s largest employers, attract students and visitors from around the world, and lead major capital projects.”
The report highlights “in-kind” contributions to the city, such as Penn’s direct funding of the Penn Alexander School, which serves part of the West Philadelphia neighborhood surrounding campus. City universities also create jobs and goods and services spending, with a total annual economic impact of $10.9 billion, says the report.
It also emphasizes that Philadelphia’s tax structure is different than some cities that have recently implemented PILOT programs, such as Boston.
Over 90 percent of Boston’s revenues come from property taxes, from which nonprofit colleges are exempt. In Philadelphia, property taxes make up just 29 percent of revenue, with other large portions coming from wage and sales taxes and a business income tax.
“What that means in a nutshell is that if you’re not paying property taxes in Boston, you’re not paying any taxes,” David Glancey, director of special projects for Penn’s Office of Government and Community Affairs — which worked with the other universities in the consortium and Econsult Solutions to commission and produce the report — said. “We are perceived as being what would be known as a free rider. That’s not true, and not accurate, because we pay taxes.”
This section of the report has not come without criticism, as it directly refutes calls for PILOTs from local schools, warning that in other cities that have made demands for direct financial support, “controversy, confrontation and litigation often follow.”
“I don’t think there’s any question that the presence of these universities provides huge and enormous benefits to the city,” said 1993 College graduate Helen Gym, a Philadelphia public school parent and co-founder of Parents United for Public Education. “But I do think that the issue of PILOTs is separate from whether the universities provide a benefit.”
Though Penn employees do pay a wage tax to the city, Gym criticized the comparison to Boston’s property tax system. Though the wage tax represents a significant portion of total city revenue, it does not fund the Philadelphia School District as property taxes do, she said. As a result, she called on universities to consider direct payments like PILOTs.
“It’s an important thing for universities to embrace,” Gym said. “It’s seen as an important civic duty, especially in light of the different crises that the school district has gone through … What’s antagonistic is having a school district that has been completely de-funded to the point of being dysfunctional.”
Glancey stressed that the magnitude of the economic impact of Philadelphia’s schools more than make up for lost tax revenue. Penn’s investments in local schools, including Penn Alexander, he said, hascontributed to rising property values and higher property tax revenues, even though those revenues are not paid directly by the University.
“I think there’s more activity in Philadelphia with its colleges and universities than was taking place, and maybe continues to take place in other jurisdictions,” he said. “Community engagement and the Philadelphia model kind of go hand-in-hand.”
These programs, he said, could be in jeopardy if the city moved to a model where institutions of higher education make direct payments to the city government.
“Sometimes what happens is that when you have to give cash, that’s all you’ll do,” Glancey said. “It’s not just the fact that it becomes zero sum, but what it really does is put a chilling effect on doing other things once you’ve said, ‘Hey, I’ve already written a check.’”
Officials from various institutions in the partnership that commissioned the report made similar comments.
“We think it makes far more sense to grow this partnership than to choose a model characterized by demands for payments and the resulting tensions that inevitably arise from this transactional approach,” said Sister Francesca Onley, president of Holy Family University, in Econsult’s press release.
Glancey, who chaired the real estate tax board that collected PILOT payments from city universities under Pennsylvania Governor Ed Rendell’s administration from 1995-2000, cautioned that such payments would not be channeled directly to school districts. Like property taxes, only a portion of revenue is automatically earmarked for education, he said.
Some were critical of the tone of the report, which warned against “a reduction in community services and employment within the city as offsetting cuts are made in response to the required payments,” as the report characterized the response to PILOTs in Boston.
“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,” wrote Tom Ferrick of AxisPhilly in a commentary piece on the news organization’s website. “Yet, in many of those cities, the institutions contribute directly to the local government treasury with PILOTs.”
Gym also encouraged the colleges and universities to consider their contributions to a school district struggling with a budget crisis.
“Universities play an important and vital role in the promotion of education in our city, and when you have a situation where education is in such chaos, you want to have a system of universities that think about education in a broad context.”
She also argued that the antagonistic response to PILOTs may be overstated and a bit of editorializing in the report. Other cities, she said, have successfully implemented PILOT programs.
“We are behind other cities,” Gym said. “We’re not doing this in a vacuum. We’re doing this because the practice is embraced by other cities across the country that have a rich university life and a rich promotion of schools and education.”
Nevertheless, Glancey hopes that the “Philadelphia model” can bring both university and city government leaders together to solve crucial issues, such as teacher training or mentoring, without the need for what he termed a “give me the check model.”
“I think the important part about what we can do is finding out what is the need — more than just money,” Glancey said. “We’re opening the door and saying ‘let’s discuss all of this stuff, let’s make it a win-win.’”
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