Study shows Philadelphia colleges and universities contribute more than $850 million annually to the city

Friday, October 25, 2013

Citing the advantages of an effective existing partnership with City government that benefits higher education and the citizens of Philadelphia, a group of 12 major colleges and universities today released an economic report showing that the “Higher Eds” contribute more than $850 million a year in local taxes and in-kind contributions to the City.

The report lauds this “strong working partnership” between the City and its higher education sector as one “that allows non-profits to flourish in achieving their missions while providing important benefits for Philadelphia’s citizens.” It draws a stark contrast between this “Philadelphia Model” and those cities where “controversy, confrontation, and litigation follow in the wake of municipal demands for increasing financial support from the non-profit sector (known as payments in lieu of taxes, or PILOTs).”

The report, by Econsult Solutions, Inc., also shows that the PILOTs approach, frequently characterized as the “Boston Model,” has been adopted in most cases by cities that rely on the property tax as the most significant, if not only source of local tax revenue. In Boston, for example, the real estate tax represents 91 percent of all local tax revenues collected by the city. By contrast, property taxes represent just 29 percent of local tax revenues for Philadelphia, which relies far more heavily on wage and business taxes (combined total of 51 percent of all local tax revenue).

“By any standard of measure, the Higher Eds pay their fair share to the City of Philadelphia,” said Lee Huang, a partner at Econsult Solutions and the principal author of the report. “In cities like Boston, if you don’t pay property taxes, you effectively pay no local taxes at all.

“Philadelphia’s tax structure is fundamentally different,” Huang said. “We choose to tax jobs, principally through wage and business taxes, and the Higher Eds collectively are among the largest employers in the city, representing 84,000 direct and related jobs in Philadelphia. That means the Higher Eds create and provide the jobs that are directly responsible for more than $211 million a year in annual wage tax payments alone.”

As the report makes clear, the Philadelphia Model also generates at least $641million annually in in-kind contributions – including $119 million in scholarships to city residents, and more than $422 million in public safety and other services (including financial and resource supports for Philadelphia schools) that otherwise would be borne by the City and its taxpayers.

The report highlights 87 of the hundreds of different initiatives offered by these institutions, which impact every neighborhood in Philadelphia. They range from economic development planning grants from the University of the Sciences to the Diversity Incentive Fund at Community College of Philadelphia; or LaSalle’s “Project Team Work” mentoring program in public schools; or funding from Moore College to make art classes more accessible for city children; or the renovation of the Gompers Elementary School playground, sponsored by St. Joseph’s University; or Jefferson University’s Jeff HOPE initiative to provide free health care at city homeless shelters; or Drexel’s participation in the Freedom Rings Partnership to bring internet access and training in underserved communities; or Penn’s financial and resource supports at the Penn Alexander and Henry Lea public elementary schools.

“The Philadelphia Model produces far greater results for citizens, and it encourages the Higher Eds and all non-profits to grow in the service of their respective missions,” said Sister Francesca Onley, President of Holy Family University. “The evidence makes it clear that the far better course is to strengthen this effective working partnership and find ways to expand the Philadelphia Model.”

“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.”

The Econsult report notes that “requiring such payments can result in a reduction in community services and employment within the city as offsetting cuts are made in response to the required payments.”

In this regard, the report quotes the “Final Report” of the Boston PILOT Task Force in December 2010: “The City must be aware that increasing an institution’s PILOT commitment may have unintended consequences – an institution may have to scale back community commitments and/or reduce staff to meet the expected PILOT level.”

The report also provides conclusive evidence to rebut recent public assertions that non-profits in Philadelphia represent $30 billion worth of property value that goes untaxed each year. The analysis found that of the $30 billion in exempt property, more than half (worth $15.3 billion) is owned by federal, state, or local government (including public authorities like SEPTA and the School District) and cannot be taxed by law. In comparison, the report states that “the Higher Eds, which are part of the broader ‘Education’ category, represent far less: about one-fifth” of all exempt property in the city.

“People look at colleges and universities and conclude that they can easily afford to make financial payments to the City,” said Edward Turzanski, Assistant Vice President for Government and Community Relations at LaSalle University. “But this argument ignores the fundamental difference between for-profit entities and non-profit institutions. Non-profits don’t have shareholders, and they are not in business to increase the bottom line for company executives or shareholders.

“The key distinction is that non-profits reinvest all of their excess revenues back into the institution so that they can expand their mission,” said Turzanski. “When they advance their mission, they serve more people AND the City benefits through greater investments in facilities, increased tax revenues, and increased support for in-kind contributions that improve the quality of life in Philadelphia.”

“The Philadelphia Model works,” said Lynette Brown-Sow, Vice President for Communications and Government Relations at Community College of Philadelphia. “We think the best news in the report is that it demonstrates the benefits of the partnership between the City and its Higher Eds, and indeed all of its non-profit organizations. We are committed to continue working cooperatively with the City.”

To access the report online, please go to: www.pgrophilly.org.