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Activists question whether wealthy universities should be exempt from property taxes

When the University of Pennsylvania said it would pay $10 million a year for 10 years to address environmental hazards in Philadelphia’s public schools, Gerald Campano’s reaction was complicated.

“Of course it’s important that Penn at least recognizes the profound challenges that the School District of Philadelphia faces with things like lead poisoning and asbestos,” Campano, a professor at Penn’s Graduate School of Education, said. “But charity is not the same as social and racial justice.”

For years, students, faculty members, teachers and activists have been urging the University of Pennsylvania, in Philadelphia, to pay PILOTS, or payments in lieu of taxes, in support of the city’s schools, as many other universities do. And last month, the university announced that it would make such a payment, contributing $100 million to environmental remediation in the schools over the next decade.

“I wanted to do something that was citywide,” Amy Gutmann, the university’s president, told The Philadelphia Inquirer. “I wanted to do something that would have an immediate impact in these tough times.”

As a nonprofit, Penn is exempt from property taxes, which public school systems rely on to pay teachers, nurses and counselors, as well as to finance building maintenance and buy learning equipment. In Philadelphia, public schools are experiencing even greater need now that city and state budgets have been hit hard by the coronavirus pandemic. According to Penn’s announcement, the Philadelphia school district has $4.5 billion in unmet capital needs.

Activists say Penn’s commitment is a step in the right direction but falls short of their goal to have the university pay PILOTs commensurate with the amount of property it owns.

“This victory is a testament to the strength of the movement by public school teachers, parents and students for equitable funding for their schools. It is also not the end of this fight.”

Devan Spear, executive director, Philadelphia Jobs With Justice

Philadelphia Jobs With Justice, a pro-labor nonprofit, has been campaigning for this for years, and the movement gained added momentum in June, when Penn for PILOTs, the first campaign led by staff and faculty members, joined the effort.

“This victory is a testament to the strength of the movement by public school teachers, parents and students for equitable funding for their schools,” said Devan Spear, the executive director of Philadelphia Jobs With Justice, in a press release. “It is also not the end of this fight. The immense wealth inequality and chronic public-school underfunding in our city requires a fundamental transformation in the way that wealthy institutions relate [to] surrounding communities.”

payments in lieu of taxes
A student slides on the ice after school at Nebinger Elementary School in South Philadelphia. About 56% of the School District of Philadelphia’s local revenue is funded by property taxes. Credit: Mark Makela/Corbis via Getty Images

The Penn for PILOTs group echoed this sentiment. Its statement said that the underlying problem “requires a system of public finance that ensures that the city’s wealthiest institutions pay their fair share every year in perpetuity.”

Both groups said they would continue to demand that Penn pay the 40 percent figure they deem appropriate as a payment in lieu of taxes. They estimate that if Penn paid property taxes on its holdings, it would owe more than $90 million annually, but that it should pay about $36.4 million each year. They suggest paying it into an education equity fund managed by the city council.

In Philadelphia, the effects of underfunding public schools are especially evident.

The School District of Philadelphia serves 203,000 students and has an annual budget of $3.38 billion. The Philadelphia Inquirer reported last year that it would cost $170 million to remove asbestos and lead paint and exterminate bug and rodent infestations in the school district’s buildings. Students and parents have also raised concerns about inadequate numbers of nurses and counselors.

The coronavirus pandemic has added more costs, said Hannah Barrick, assistant executive director of the Pennsylvania Association of School Business Officials. These include additional teachers to enable smaller, distanced classes; more bus drivers to allow students to spread out; air filtration systems; plexiglass; hand sanitizer; and hotspots and laptops for students. The Philadelphia district is using a hybrid learning model.

Harvard University paid about $10 million to the city of Boston in 2019 in a payment in lieu of taxes, or PILOT, although this amount fell short of what the city asked for. Credit: Tara Garcia Mathewson/The Hechinger Report

With the state of Pennsylvania projecting a deficit this year, federal aid uncertain and residents wary of higher taxes, the options for funding are slim. “When you have school districts where there are large amounts of tax-exempt properties, it narrows the universe of opportunities for local revenue,” Barrick said.

All 50 states exempt nonprofit institutions from property taxes. Some universities, such as Harvard, Yale, Brown and Boston University, make payments in lieu of taxes to their cities to help offset the cost of the public services they receive, like fire protection and sanitation, as well as to support public schools.

Harvard gave about $10 million to Boston in 2019, about $3 million less than what the city requested. Brown gave over $6.2 million in 2020 to Providence, Rhode Island, and recently created a $10 million endowment for public schools. Yale gives around $12 million annually to New Haven, Connecticut, and Boston University gave $6.3 million to Boston in 2019.

Nonprofit property tax exemptions originate from the idea that the government ought to subsidize socially desirable, charitable actions or services that the government would otherwise perform.

But since the 1970s, nonprofit universities have grown and municipal budgets have declined.

Also, some large universities with hefty endowments and real estate holdings have begun to operate more like commercial entities by partnering with for-profit companies, conducting business outside their educational mission and paying executives lavish salaries. This has led city residents and activists to show stronger support for PILOTs, calling them a way for universities to pay their fair share.

payments in lieu of taxes
The University of Southern California does not make PILOT payments to Los Angeles, its home city, and holds more than $4 billion in property. Credit: Mel Melcon / Los Angeles Times via Getty Images

And as cities face tighter budget constraints and the universities within them continue to expand, tensions have surfaced.

About 70 colleges and universities made PILOT-style payments in 2011, according to the most recent data from the Lincoln Institute of Land Policy, a think tank that researches the use and taxation of land. But several institutions with billion-dollar endowments, such as the University of Southern California, Georgetown University, George Washington University, New York University and Rice University in Texas, do not make PILOTs and hold property worth billions of dollars.

When pressured to make PILOTs, universities have argued they already benefit the community through wage taxes, student spending in nearby businesses and community engagement initiatives. Activists say this is not enough.

Penn points out that its Graduate School of Education is involved in professional teacher development and student-teacher apprenticeships in more than 200 Philadelphia schools. And the university hosted about 50 summer programs in 2020 for Philadelphia students, their costs ranging from free to $8,495 per month.

“The benefits of the university extend globally [through] their research, educating students from around the world, but the cost of property tax exemption is borne entirely by city taxpayers.”

Adam Langley, associate director, Lincoln Institute of Land Policy,

PILOT advocates also argue that, while the government subsidizes universities with tax breaks because of their social benefit, it’s difficult to identify exactly whom universities benefit and by how much.

“The benefits of the university extend globally [through] their research, educating students from around the world,” said Adam Langley, an associate director at the Lincoln Institute of Land Policy, “but the cost of property tax exemption is borne entirely by city taxpayers.”

But in most cases, there is no system in place to provide a framework for what an appropriate payment in lieu of taxes should be; the terms and conditions of PILOTs are often not made public, and some nonprofits may feel forced to make PILOTs out of fear of retaliation from the city. The National Council of Nonprofits, on its website, states opposition to PILOTs, citing nonprofits’ charitable mission as a reason for preserving tax-exempt status.

Campano, of Penn’s Graduate School of Education, leads a community-based education research initiative in South Philadelphia and sees the inequities in the city’s public school system daily. In addition to needing facility maintenance and having inadequate numbers of nurses and counselors, schools lack appropriate services for families whose first language is not English, hindering communication with parents about their children’s education, he said. Enough students qualify for a free or reduced-price lunch program that the entire district offers free lunch to all students.

Campano said he hopes Penn’s new $100 million commitment “will be a catalyst into a larger national movement and a larger conversation about how to more equitably fund our public school children, especially during this pandemic, but really all the time.”

Spear, of Philadelphia Jobs With Justice, said: “We’re going to keep up the public pressure, building community support, making sure that the city council and the mayor hear us on this. … It’s always a no until it’s a yes.”

This story about payments in lieu of taxes to school districts was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for the Hechinger newsletter.

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