Philadelphia considering taxing city nonprofits

Cash-hungry cities nationwide, many of them in the Northeast, are increasingly turning to the expanding nonprofit sector to help pay for city services.

If city council members Blondell Reynolds Brown and Bill Green get their way, Philadelphia could join them.

The push comes as Mayor Nutter's property tax reform upends the city's $1.2 billion real estate tax structure, forcing huge increases in up-and-coming neighborhoods and threatening politicians with a firestorm of voter outrage.

Reynolds Brown has called for hearings this spring on property tax exemptions for nonprofits as a first step in possibly tapping them for money.

That sector holds about $13 billion in exempted city real estate, or nearly 10 percent of the total market value, according to an Inquirer analysis of values proposed under the Actual Value Initiative.

Green has also set his sights on the city's massive nonprofit sector with two bills that could pressure nonprofits to pay more, by requiring them to prove they deserve their exemptions and zeroing in on nonprofits' operations that should pay business taxes.

"This basically is forcing the charities' hands and maybe have them come to us rather than have us going to them," Green said.

"The goal is to bring in tens of millions of dollars. I don't think that's an unrealistic goal."

Nutter's office declined to discuss the legislation.

"We don't comment on just-introduced legislation as a matter of policy," Mark McDonald, Nutter's spokesman, said. "We undertake a detailed analysis of the bill. And when and if the bill is part of a council committee hearing, the administration will provide testimony."

Nevertheless, hospital officials are troubled by the rumblings.

"The nonprofit hospital community is very concerned about the discussion in council of taxing nonprofit organizations such as hospitals," said Curt Schroder, regional executive for the Delaware Valley Healthcare Council. "We certainly hope that Council will not go down that road."

Philadelphia hospitals provided $67.9 million in charity care in fiscal 2011, according to an Inquirer analysis of IRS Form 990 returns. That charity care amounts to three-fifths of the roughly $112 million in taxes that would be due on health care and higher-ed properties if they were not exempt, based on the new values.

Tapping Philadelphia's nonprofits might be a tantalizing prospect to some, but it is unlikely to solve the city's annual budget woes.

How much help?

Nationwide, the value of PILOTs -- payments in lieu of taxes -- increased to $52 million last year from $20 million in 2011, according to the Lincoln Institute of Land Policy in Cambridge, Mass., but the amounts are small relative to individual municipal budgets.

Boston, the nation's biggest recipient of PILOTs, collected $19.4 million last year, the institute reported. That amounted 0.58 percent of the city's general fund revenue.

"PILOTs are small pretty much everywhere," but compared to individual line items they seem more significant, said Adam Langley, a research analyst at the institute.

In Philadelphia, for example, $19.4 million would be enough to pay for a line item such as the Revenue Department's yearly operating costs. The city's budget is $3.6 billion this year.

"At a time when the city is looking in every dark corner it can for money, it's not a crazy thing to be talking about," said Zack Stalberg, president and chief executive of the Committee of Seventy, a government watchdog group.

"To some degree, it's emotionally a potent issue because people notice that most of the cranes around town are working on buildings at the big hospitals and universities," he said.

The huge importance of Philadelphia's nonprofits, which account for nine of the 15 largest private employers in the city, also shows up in the Office of Property Assessment's proposed market values. Philadelphia had 66 nonprofits with at least $50 million in revenue in fiscal 2011, according to data from the Urban Institute.