Why nonprofits are hurting our schools

The School District of Philadelphia, the eighth largest school district in the country, is facing a dire financial situation. Many Philadelphia schools have had to cut their budget, so there are no extracurricular activities, 35-40 students in each class, and no security personnel or nursing staff available to keep the students safe. These dreadful conditions make it very difficult for students to learn. These problems are the result of their inability to stay afloat. I will explore the reasons why they cannot sustain themselves financially.

According to the Fiscal Year 2015 Budget, the School District of Philadelphia is 400 million dollars short of the necessary funds to meet its educational goals. What was keeping the school district from obtaining the funds necessary to succeed?

I found that a number of very large “not-for-profit” organizations are in part responsible for this problem, because they deprive the District of property taxes. According to a 2013 Philadelphia Controller assessment, a tremendous 24 per cent of all assessed property value in Philadelphia is tax exempt “not-for-profit” real estate. The University of Pennsylvania, Drexel University, Temple University, La Salle University, the Children’s Hospital of Philadelphia, Jefferson University, the Barnes Foundation, and the Philadelphia Art Museum are a few of the “not-for-profit” institutions that own huge and expensive tracts of land in the city. However, these organizations do not pay a single cent to the District—not one penny.

The University of Pennsylvania, with its 302-acre campus in West Philadelphia and network of hospitals scattered across the city, is perhaps the biggest culprit. According to UPenn’s website, the University has a rapidly growing 9.6 billion dollar endowment fund and a 7.25 billion dollar annual budget. As their endowment and budget grow, so do their property tax exempt facilities; they recently bought a 42-acre tract of prime real estate in the city. UPenn, like most “not-for-profit” institutions in the city, has a positive revenue stream and could easily afford to pay property taxes. But the position the University has taken appears to be that it is more prudent to spend money on other things, like UPenn President Amy Gutmann’s 2.8 million dollar salary. In the past, critics have been assuaged with voluntary PILOTs (Payments In Lieu of Taxes) financed by universities. But a few years ago, UPenn and nine other area universities abruptly stopped the program.

UPenn is the prime example, but are others too. Philadelphia has an unusually high number of profit generating businesses that qualify as “not-for-profits.” “Not-for-profits,” like the ones mentioned above, are not little charities with a clear, benevolent mission helping people “at risk.” Rather, they are large, moneymaking institutions, which function more like “for-profit” entities than “not-for-profit” institutions.

The School District of Philadelphia has an opportunity to decrease its 400 million dollar annual deficit by a whopping 276 million dollars. All the city has to do is tax the non-profit’s aggregate 37.4 billion assessment property value at the standard tax rate and send 55 per cent (standard allocation rate) of that revenue to the School District. In this proposed scenario, it is important to realize that the not-for-profits that really do assist those at risk would be minimally affected if at all, because they do not own a large portion of the exempt real estate.

The citizens of Philadelphia are essentially being robbed by huge organizations that characterize their lucrative businesses as “not-for-profits.” The “not-for-profits” use public resources like streets, highways, sewage, and water infrastructure financed by taxpayers but do not provide any relief by paying their fair share for the public utilities themselves.

You probably are wondering if this exists in Lower Merion Township too? The answer is yes but not with the same severity as in Philadelphia. LM is home to “not-for-profits” such as Bryn Mawr College, Haverford College, the Haverford School, the Baldwin School, the Shipley School, and a multitude of religious organizations with expansive tracts of real estate. However, according to data from the Fiscal Year 2015 LM budget and the Philadelphia 2013 controller assessment, the total assessed value of the exempt property in LM is close to 1.1 billion dollars compared to Philly’s 37.4 billion dollars.

“Not-for-profits” such as universities, private schools, churches, museums, and hospitals are taking advantage of an antiquated taxation system. To fix this system, we need a new definition for “not-for-profit” organizations. True not-for-profits should be defined as the small, truly charitable homeless shelters and food banks with limited resources whose mission is to help society’s underprivileged. We cannot have a ridiculous loophole giving relief to these “not-for-profit” cash-generating institutions run by executives, CEOs, and presidents who are paid millions.

I acknowledge that there are terrific organizations out there like food banks and homeless shelters, which should be exempt. But this rule has been taken advantage of by profit-generating enterprises and inefficient organizations that could survive without a tax break. Unfortunately, this moral and good-intentioned law has done more harm than good. If the government is going to regulate organizations through taxes they should do it fairly on a level playing field or else the School District of Philadelphia’s situation will continue its unjust, unwarranted, and painful deterioration towards bankruptcy.

#opinion