A (no so) taxing relationship: Part I

Each day University employees dump an average of 10 tons of trash at city facilities -- for free. And when a student drinks water from a fountain in Williams Hall, it costs the University less than when a private citizen has a drink of water at home. And when the University pays property taxes, it is able to disregard much of the property it owns and save millions of dollars. The University enjoys exemption from various taxes and fees because of long-standing legal agreements with the city and state. These agreements are also extended to churches and other non-profit organizations. But as Philadelphia feels the squeeze to provide services to its citizens, some city politicians have begun to look wistfully across the Schuylkill to the University, in the midst of its $1 billion fundraising drive, for answers. · Many City Council members and mayoral candidates have said recently they will consider asking the University to make an annual payment to the city in lieu of taxes to cover the services it receives. These payments are often known as user fees. Others have suggested that non-profit universities and hospitals join together to work on initiatives which would help the city deal with social and economic problems plaguing Philadelphia. And when these politicians examine the history of similar institutions in urban areas, they will find what they are considering is not unprecedented. In the last year, both Yale University and Harvard University have agreed to pay their home cities millions of dollars in compensation for services and as taxes on previously-exempt land. Under the Yale-New Haven agreement, Yale will pay $1.2 million per year for fire services, $300,000 per year for property taxes on the school's golf course and a one-time payment of $1.1 million for the right to close streets on the campus. And last fall Harvard offered to pay the city of Cambridge $11 million over the next 10 years. The school has been making various voluntary payments in lieu of taxes for almost 70 years. Cambridge City Manager Robert Healy predicted at the time of the agreement that the move would "place Cambridge and Harvard in the vanguard of university-city relations in the country." · Although any decision by the city to start charging the University such fees is still far away, the issue is already cropping up in the mayoral campaign. Much of the decision would rest on how the University responds to such a call, because although the University uses many city services, the city uses University resources also. Determining who comes out ahead in the University-Philadelphia relationship is a complicated proposition which requires consideration of both the direct and indirect impact of each institution on the other and other factors which are virtually impossible to calculate. These factors include the rich historical and cultural resources Philadelphia provides the University, innumerable volunteer hours members of the University community provide the city, and additional benefits the city receives by having a world-class university in the city. The issue is made even more difficult because the city and the University both present the numbers in a light which favors their side of the issue. For example, a City Council resolution passed last spring said tax exempt institutions cost the city and the school district $40 million in unrealized revenue, but did not discuss the benefits of having such institutions in the city. And President Sheldon Hackney said earlier this semester that the Hospital of the University of Pennsylvania loses $35 million each year in unpaid medical bills for services provided to community members, but did not explain all of the exemptions the University receives. The truth lies somewhere in between. · The University owns over 260 acres of land in the city of Philadelphia -- most of it concentrated in a 123-building parcel just west of the Schuylkill River. The majority of the University's land has never been assessed by the city for tax purposes and exact figures are unavailable, but Senior Vice President Marna Whittington said yesterday that an appraisal of the University's buildings and equipment put the replacement cost at approximately $3 billion. Because this figure includes capital holdings and does not include the value of the actual pieces of land, it is impossible to get a completely accurate picture of what the University saves in property taxes it is not charged. Real estate agents and appraisers estimated this week that these unrealized tax dollars would amount to "millions of dollars." But the University and other non-profit educational institutions in Pennsylvania do not have to pay property taxes because of a state statute. The law exempts buildings which are part of the "educational mission" of the universities, University officials said. Properties which house both commercial and educational endeavors are taxed at a lower rate. University-owned commercial buildings are taxed at the normal rate. The University paid almost $900,000 in property taxes on mixed and commercial properties in the 1990 fiscal year. Taxable properties include commercial property owned by the University and its wholly-owned subsidiary University City Associates, and "mixed" properties such as Stouffer Commons, the Penn Tower Hotel and Houston Hall, which house both commercial and educational activities. According to a list of taxed properties provided by the University's real estate office, 36 University-owned properties in the city are taxed at the normal rate and seven buildings are mixed properties which are taxed at a lower rate, but are not completely exempt. Currently the only property which the city and the University dispute is 3401 Walnut Street, University Associate Treasurer Chris Mason said earlier this month. He said the University claims that because 3401 houses offices for Dining Services and other administrators, it is legitimately part of the educational mission and should be exempt from taxes under state law. But Mason added the city says the building's primary purpose is commercial, and therefore wants the University to pay a normal tax rate for the property. Buildings which qualify as non-profit provide other financial breaks for the University, too. The city charges 25 percent less for water supplied to non-profit buildings. This discount saves the University approximately $395,000 each year, according to a utility rate analyst for the city's water department. In addition, universities and other non-profit organizations are allowed to dump their trash at city facilities free of charge. Even though half of the University's trash is removed by Quick-Way Inc., a private service, the University dumped 3871 tons of trash free of charge at city facilities last year. According to a city administrative analyst, at the standard disposal rate of $75 per ton, this means the city lost out on $290,339 in tipping fees from the University last year alone. Police service can be counted as both a cost and a benefit for both sides. While the 18th Police District still must patrol the streets in and around the University, all parties concede that it is of mutual benefit to have the added protection of the University Police. Although the University foots the bill for training the officers and maintaining the department, suspects are booked and detained at the district's station -- at the city's expense. In serving University affiliates who live on the streets surrounding the campus, University Police are also protecting private residents who pay city taxes. Last year, the University responded to 1,497 calls on campus and 998 calls off campus -- 40 percent of the department's total. And the city's fire department responded to 522 fire calls from the University last year. Of all the fire department's responses last year, the University represents slightly less than 1 percent of calls. · But despite using these city services, the University, in a soon-to-be released economic impact report, argues that it makes significant contributions to the economy of the city, state and region. The preliminary numbers from the report, which is being compiled by Coopers and Lybrand's Higher Education Consulting Service, claim that the University and its affiliates generate $2 billion in direct and indirect income for Pennsylvania. The report says that the University directly benefits the Commonwealth by providing uncompensated dental and health care as well as aid to citizens of Philadelphia through various University affiliated volunteer initiatives. The Dental School provides approximately $250,000 in uncompensated care to people, 5200 of whom cannot even pay the reduced rates offered by the school. The Hospital of the University of Pennsylvania also provides $9 million in uncompensated medical care each year, according to the report. And HUP provides another $26 million in undercompensated care -- services for which HUP is only partially compensated. And although a spokesperson for the hospital said yesterday that ultimately the University's budget and HUP's budget are intertwined, Whittington said that "the bottom lines are not mixed." This means that although the two are considered to be a single financial entity, losses are absorbed by both the hospital and the University separately. But the report claims as benefits other items which are in fact part of the University's day-to-day operation -- and not direct payments or aid provided for the city or its citizens. These include the $23.5 million in wage taxes paid by University employees to the city. But counting the wage tax as a direct contribution may be stretching the truth.

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