Penn’s history of refusing to pay PILOTs, explained

Penn has a widely known history of failing to pay Payments in Lieu of Taxes, financial contributions that property tax-exempt organizations voluntarily make to local governments. 

Student groups and other local organizations have called on the University to pay PILOTs for many years, but recent protests in response to the police killings of George Floyd and other Black people have only caused those demands to intensify as the national spotlight falls on addressing systemic racism and inequality in the United States.

Nearly 700 Penn faculty and staff members have signed a petition calling on the University to pay PILOTs in order to support the Philadelphia public school system, which is projecting significant budget cuts and job losses due to the impact of the COVID-19 pandemic. 

But what exactly are PILOTs, why doesn’t Penn pay them, and where does that money go instead? 

The Daily Pennsylvanian has answers to all of those questions and more — here is everything you need to know about the relationship between Penn and PILOTs.

What are PILOTs?

PILOTs originate from the tax-exempt status given by the Internal Revenue Service to non-profit entities, such as universities. Universities typically own a large amount of land, but due to their tax-exempt status, they do not have to pay property taxes to their respective city or local governments, forcing local municipalities to make up for the lost tax revenue.

Wharton Finance professor Robert Inman, who has advised both the Philadelphia and Pennsylvania governments, said Philadelphia is unique in that many non-profit organizations own a large share of property that would normally contribute to the economy, unlike tourist-driven cities such as New York City, leading to lost property tax. 

Another difference between Philadelphia and other cities, Inman explained, is Philadelphia’s reliance on wage taxes.

“When the national economy does really well, Philadelphia does really well because wages go up. But when the national economy has a recession, like right now, wages go down, and of course revenues go down.” 

Why does Penn not pay PILOTs, and where does the money go instead?

Penn was previously involved in a PILOT program from 1995 to 2000, and contributed $1.93 million annually. The University did not renew the agreement of the program after 2000, and Penn has stood firm on not paying ever since. Penn has been able to do this in part because of the passage of Act 55, the Purely Public Charity Act, passed by the Pennsylvania state legislature in 1997. The act clarified how charities would qualify for the tax-exempt status, and made it easier for non-profits to gain charity status. 

Since then, University administration has consistently cited other financial and non-monetary contributions to the city of Philadelphia in defense of not…

Read MorePenn’s history of refusing to pay PILOTs, explained

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