Taxing Nonprofits Could Help Save Philly Schools

by Christopher Paslay

Philadelphia’s multi-billion dollar nonprofit sector must start paying its fair share. 

According to the Philadelphia Foundation’s Nonprofit Study 2010, there are over 3,500 nonprofits in Philadelphia.  In 2007 alone, they made more than $25 billion in revenue, which was 7.7 percent more than they made in 2000.  These nonprofits—which provide services that focus on the arts, the environment, animal rights, education, health, civil rights, housing, food, recreation, and the like—had nearly $47 billion in total assets in 2007.

Interestingly, these nonprofits pay no real estate tax, despite billions of dollars in assets.  For example, the Kimmel Center as of 2010 had $16,449,000 in liquid assets (cash, grants, contributions, etc.) and 267,645,000 in total assets (endowment funds, land, building and equipment, etc.), yet are exempt from paying $5 million in annual property taxes.

According to a 2007 article in the New York Times:

The Chronicle of Philanthropy surveyed 23 cities to try to determine which nonprofits that seek public support — excluding foundations, government and religious groups — receive property-tax exemptions. Such exemptions accounted for more than $1.5 billion a year, with more than half that amount forgiven in New York City and Boston. . . . In terms of value, the biggest exemptions after New York and Boston were in Los Angeles, Washington, Houston and Philadelphia. . . .

The Chronicle’s survey highlighted several well-known properties beyond hospitals that receive big property-tax breaks. These include the Getty Museum in Los Angeles, exempted from $18.4 million in property tax; the Chrysler Building in New York, owned by the Cooper Union for the Advancement of Science and Art college, an exemption worth $17.5 million; and in Philadelphia, the Kimmel Center for the Performing Arts, exempted from $5 million in annual property tax.

The Philadelphia School District is facing a $300 million budget deficit next school year.  District officials are asking everyone to make sacrifices to help close this hole, and have demanded that the Philadelphia Federation of Teachers make tens of millions of dollars in concessions via wage cuts.  Officials are also asking for an additional $120 million from the state, and $60 million from the city, some of which may come from new property taxes.

Mayor Nutter’s new real estate tax assessment—AVI (Actual Value Initiative)—has ruffled the feathers of some City Council members, however.  According to a February 28th article in the Philadelphia City Paper:

This morning, City Councilwoman Maria Quninones-Sanchez quietly and without speechifying, offered what may be a solution to one of the central problems created by the Actual Value Initiative, the city’s property-tax reform effort. The problem: An estimated $200 million of the tax burden is being shifted from large commercial properties to residential ones, while small businesses are also in many cases expecting to see their taxes skyrocket. Sanchez’s solution: Put some of that burden back onto the large commercial properties by way of the Use & Occupancy (U&O) tax, which is applied to commercial tenants, and let the city keep some of that money to use for tax relief for the rest of us.

What’s curious is that Sanchez didn’t mention the problem with Philadelphia’s 3,500 nonprofits—the fact that they bring in $25 billion in annual revenue and have nearly $47 billion in assets—but pay zilch in property tax, money that could help bail out Philadelphia’s struggling public schools.  Why should our city’s students go without counselors, nurses, sports, art, and music while mega nonprofits like the Kimmel Center are sitting on a quarter of a billion dollars in total assets and get a $5 million break in annual property taxes?

Fight for Philly, “a grassroots coalition of residents, community groups, neighborhood associations, faith organizations and labor groups,” feels mega nonprofits like the Kimmel Center should start pitching in and shouldering some of the load.  Earlier this month, they delivered tax petitions to City Council and Mayor Nutter asking for better school funding, demanding that “mega non-profits pay taxes on their profitable commercial property and contribute fair ‘good neighbor’ payments for city services from which they benefit.”

I agree with Fight for Philly—City nonprofits should no longer sit back and get a free ride.  City Councilwoman Maria Quninones-Sanchez’s new tax reform bill should also include Philadelphia’s 3,500 not-for-profits, which earn $25 billion in annual revenue.  Even a small real estate tax on these organizations could generate millions of badly needed dollars for Philadelphia’s struggling public schools.

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3 Comments

Filed under PFT, School Budget

3 responses to “Taxing Nonprofits Could Help Save Philly Schools

  1. Rich Migliore

    The greatest “legal fiction” in America is the “nonprofit organization.” Just look at the salaries of the officers and those who operate “nonprofits.” Then tell me that they are “not-for-profit.”

    Does your suggestion include the “charter schools” and the “charter school networks” in your real estate taxation proposals? They are supposed to be “nonprofits.”

  2. Phil Goldsmith

    My testimony in City Council that raises this point and others:

    https://www.pccy.org/userfiles/file/Testimony/PCCY-Testimony-ArtsinSchools.pdf

  3. phillystyle71

    Well said, Phil. As always, your suggestions make sense.

    Chris Paslay

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