Benchmarks: A Call: Let’s Learn More About Public Finance in Philly

August 18, 2020
vol 67 issue 6
News
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Eugenie Birch, Lawrence C. Nussdorf Professor of Urban Research and Education
Chair of the Graduate Group in City and Regional Planning, Co-Director, Penn Institute for Urban Resarch

This piece is in response to the Speaking Out letter supporting the Penn for PILOTS Petition by Peter Conn, Vartan Gregorian Professor of English Emeritus; Professor of Education, published in Almanac’s July 28, 2020 issue.

I have followed with great interest the discussion on PILOTs circulating at Penn. The issue is extremely complex … and fraught. As an urban researcher, I have done some work, but admittedly not enough, on the topic in line with my interest in anchor institutions and their roles in cities. So I call on our community to pause for a moment to undertake what we are trained for: research, discussion, and shared knowledge as applied to this subject.

As a start, we could take a look at the many dimensions of public finance in general, and in particular for Philly, reviewing the respective roles of anchor institutions in urban economies, in society at large, and in Philly, and clarifying the legal/governance issues related to nonprofit (a state-regulated status) and tax exempt (a federal designation) and how that works in theory and in practice. Also, such an analysis would place PILOTs in context—to see whether PILOTs are the solution to what everyone agrees is the need to have adequate funding for public education in the city, or if other structural reforms and finance mechanisms could raise the needed revenues. These are not simple questions, and we need evidence-based research to undergird our mutual understanding of these matters as we think about the PILOT question.

For example, in the public finance realm, scholars have recorded that PILOTs contribute minimally to local budgets, that establishing PILOTs is fraught with politics, and balancing the community functions that nonprofits perform with the city services whose costs they absorb is not clear cut. As I understand it, in the case of Philly, the tax picture is different from other cities—first, it depends more on wage taxes than on property taxes, and second, the separately held education budget is divided approximately 50-50 with the state; the city’s portion is again divided between the property tax and wage tax – so property taxes are supporting only 25% of the school budget and wage taxes and fees the rest. We really need a public finance expert to help us understand the ups and downs of Philly’s tax system. However, one thing is clear: Philly’s fiscal situation is really complicated—on one hand the wage tax gets non-resident city workers to support city services (and that means any of us who do not live in Philly proper) but on the other hand, the wage tax has served as a disincentive to private sector business investments. When you look at the 15 largest private employers (Fortune 500) in the Philly region, only two (Comcast and Aramark) are in the city; the rest are in the suburbs. But since Penn and other anchor institutions are rooted in the city for a variety of reasons, the wage tax which we all pay is certainly keeping the city tax base afloat, albeit with the negative effects mentioned above. Our discussion of PILOTs needs to occur within a deeper contextual understanding of the city’s overall financial situation, its taxing formulae (especially an understanding of the role of the wage tax) and the impact these have on the overall economic health of the city.

On anchor institutions, in many instances, eds and meds have replaced the 19th-century factory when measuring a city’s economic base, and as such, they bring in external monies—in Penn’s case, our nearly billion dollars of research funding is a big shot in the arm, as are the other revenue generators—tuition, hospital billing—and these activities add to the agglomeration of other synergistic private sector activities e.g., small and medium enterprise services like hospital supply businesses, student-frequented restaurants (and bars!).

In their educational and research functions, anchor institutions are not simply property owners or profit centers but are entities that have public service missions as recognized by the government regulations that set them apart from commercial enterprises. While the enormous number of community services that the various Penn schools and centers offer in health, education, social work, business, law, libraries, museum, and so forth are part of students’ training and support, I suspect that their work goes well beyond the minimum that would be needed to offer a reputable professional education. We should examine this. And as these services cost $$$, we need more information about how these efforts work and whether PILOT payments would rob Peter to pay Paul, as Penn, though rich by many standards, does not have a limitless budget. And coming from a school that is among the less well resourced, I can see how every penny counts. In terms of other contributions to the city’s economic base, Penn has businesses that it manages separately from the educational and research functions, paying taxes just as a private-sector entity would.

All in all, Penn’s $11.3 billion operating budget (university and health system) is in league with Aramark (but not Comcast), so it’s a huge, complicated operation. It would be great to have some ongoing seminars on anchor institution operating budgets—and the colossal task that Penn’s EVP and the deans do in managing all of this. Again, these are areas for research and discussion.

Lastly, I call on the legal historians among us to help us understand the complicated sagas of university-community relations—Penn’s current position evolved ever since it moved to West Philadelphia as well as the various experiments in voluntary payments in various cities. I understand that Penn did participate in such a program between 1995 and 1999, but passage of a state law in 1997 muddied the waters so the city and Penn decided to discontinue the program. What more can we learn about this? And what do we know about Penn’s contributions to the Philly school system post-1999? How do these compare those to the extent of the earlier commitment?

So these are a few questions we could pursue. Below is a short bibliography of some of the work on anchor institutions, including some of my writings, that may help in this discussion. There is also an Anchor Institution Task Force (https://www.margainc.com/aitf/) actually started by Ira Harkavy, a pioneer in this area about 10 years ago, that has lots of information. It would be great to have some of our scholars of public finance contribute to the list so that we all could come up to speed on this compelling topic.

My final word: As citizens of Penn (not simply employees) we really should equip ourselves better to think about these matters.

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