Q: What is the “Good Neighbors Policy,” and why is it important?
It’s no secret that our city is in crisis. For the past few years, our schools and public services like libraries and street maintenance have suffered enormously as a result of underfunding, resulting in 23 school closings and the reduction of services as basic as firefighting and snowplowing streets.
The Good Neighbors Policy calls on the Nutter Administration to require mega-nonprofits to pay their fair share towards the schools and services our city so desperately needs.
The policy would require mega-nonprofits to demonstrate annually that their nonprofit properties qualify as charitable under the HUP test in order to qualify for property tax exemptions. Properties that would not pass the HUP test would include properties that fail to serve primarily Philadelphians, properties left vacant, properties used to generate profit, and properties used for other non-charitable functions. The Good Neighbors Policy would also require that those new funds be allocated towards schools and essential services like firefighting or emergency assistance for working and middle class Philadelphians threatened with home loss under AVI.
The Good Neighbors Policy is common sense, and would generate tens of millions in revenue for the city. Nonprofit tax exemptions are government subsidies used to encourage nonprofit organizations to serve Philadelphians in need. If mega-nonprofits want to use their properties as investments or to generate revenue, that’s fine—we’re just saying that for those properties, they should pay the same taxes as any other investor or real estate owner.
Q: What is a mega-nonprofit?
The Good Neighbors Campaign defines mega-nonprofits as nonprofit organizations with budgets of $10 million a year or more.
Q: How is this different from what the Nutter administration is doing now?
The Good Neighbors Policy would create a fair, streamlined process for nonprofit tax exemptions, rewarding nonprofits when they use their land in ways that genuinely benefit Philadelphians. While some nonprofits do occasionally pay at least some property taxes on a few obvious commercial ventures, there is currently no system in place that either regularly reviews the validity of nonprofit property tax exemptions or requires nonprofits to self-report on commercial property uses or speculative land purchases.
Q: What is the HUP Test?
In 1985 the state Supreme Court created the 5-pronged HUP (Hospital Utilization Project) test via the Court Decision. In order to pass the HUP test, an organization must:
- Advance a charitable purpose
- Donate or render gratuitously a substantial portion of its services
- Benefit a substantial and indefinite class of persons who are legitimate subjects of charity
- Relieve the government of some of its burden
- Operate entirely free from private profit motive
In the April 2012 Pike County decision, the Pennsylvania Supreme Court ruled that counties and municipalities may require property-owning nonprofits to demonstrate that they qualify as charitable under the 5-prong HUP test in order to qualify for property tax exemption, reversing a previous court decision.
Q: Why are mega-nonprofits a focus in the revenue fight?
AVI has placed an enormous burden on many working and middle class homeowners in gentrifying areas, while generating no new money to funds schools or services. Mega-nonprofits, meanwhile, have been spared—despite owning huge, expensive amounts of property and driving massive increases in AVI assessments for surrounding homeowners and businesses.
According to a recent PhillyPlan/Inquirer study, nonprofits own 10.8% of property in Philadelphia by value--more than in any other major city. Many pay nothing in property taxes due to now-obsolete tax exemptions. Every year, the city grants $528 million in subsidies to these nonprofits in the form of nonprofit property tax exemptions.
We believe that the rich mega-nonprofits should be required to pay their fair share towards the city services they use and the schools that they depend on to educate their future workers, and that the city should not be subsidizing non-charitable property use for these organizations.
Q: How will this affect nonprofits that do genuinely good work for Philadelphians?
Many nonprofits in Philadelphia hold no land and would not be affected. Many properties owned by large, landholding nonprofits will still qualify as entirely charitable, and will simply need to take a few moments to demonstrate that the city under Good Neighbors. Houses of worship and properties used for important services like health clinics, emergency rooms, and most educational facilities would still qualify for tax exemption.
Good Neighbors will mostly affect mega-nonprofits that lease their property to for-profit corporations, let vacant land lie fallow, or use land to run business enterprises like parking garages and hotels.
Q: What was the 2012 Pike County PA Supreme Court Case?
In April 2012, a 4-3 decision by the Pennsylvania Supreme Court, Eitz Chaim of Bobov, Inc., v. Pike County Board of Assessment, clarified that for an organization to qualify as a purely public charity, it must satisfy the HUP test. (Ballard Spahr 2012). The case referred to the Mesivtah Eitz Chaim summer camp in Pike County. The court ruled that Pike County had a legal right to require the camp to pay taxes, because the camp primarily provided services to children from out of state, and therefore did not pass the HUP test.
Q: Is the Good Neighbors Policy the same thing as PILOTs (Payments in Lieu of Taxes)?
It's confusing, we know-- the Good Neighbors campaign also pushes for the implementation of PILOTs, but our other proposal-- the Good Neighbors Policy--is a little different. PILOTs require landholding nonprofits paying to the city a small percentage of all the property taxes they've been exempted from, regardless of use. The Good Neighbors Policy would only require nonprofits to pay property taxes on land used for noncharitable properties.
Q: What is the cost of delaying implementation of the Good Neighbors Policy?
The Nutter administration has refused to publicly state any specifics about implementation of the Supreme Court decision, and does not appear to have made any effort to identify and tax nonprofit properties that fail the HUP test. Every year that the City fails to bill mega-nonprofits, it forfeits many millions in dollars that could otherwise be used to fund schools and public services in the communities that need them most.
Daily News Editorial Board. http://www.philly.com/philly/blogs/our-money/IOM-editorial-Nonprofits-owe-the-city.html