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The University will pay the city an annual $1.93 million "voluntary contribution" for five years under the terms of an agreement signed in July. The agreement is the culmination of more than a year's worth of negotiation and resolves a long-standing debate over whether the University should be forced to make a payment in lieu of taxes (PILOT) to the city. Last summer Philadelphia Mayor Ed Rendell began asking nonprofit organizations to pay a portion of the taxes due to the city if the organization were for profit. The move follows a national trend of financially strapped cities across the country that have asked universities and other non-profit organizations such as hospitals and churches to make payments in lieu of taxes. The city estimated the payments would amount to $33 million in new revenue, including $8.4 million from colleges and universities. Of this $8.4 million, $3.78 million would go to the city for municipal services such as fire, police and street cleaning while the remainder would be allocated to the Philadelphia school district. The city originally asked the University -- which is Philadelphia's largest private employer -- to pay about 30 percent of the real estate taxes it would owe if it were a for profit institution, as part of a PILOT program. When the University and other nonprofits balked at paying such a large sum and complained about the erosion of their tax exempt status, the city threatened to take the nonprofits to court. Faced with the possibility of a protracted lawsuit, the University and other nonprofits began negotiating "voluntary contributions" to the city. Based on no recorded formula, such voluntary payments do not bind the University to continue to make payments forever or violate the University's tax exempt status. "The University believes this is a good deal not only for the University but for the city," said Stephen Golding, the University's vice president for finance. "And it reflects that we are an integral part of the community and we must pay our fair share of the responsibility for maintaining city services." Carol Scheman, vice president for government and community affairs, stressed that the payment was a voluntary contribution and not a tax. Deputy Mayor for Policy and Planning Greg Rost said he is "extremely pleased that we were able to enter into an agreement with the University of Pennsylvania." Recent legislation passed by the Pennsylvania Senate, Senate Bill 355, the Purely Public Charities Act, included an amendment that charities in Philadelphia that pay their chief executives more than $100,000 would lose their tax-exempt status.

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