Recently, I was interviewed by a reporter from the Philadelphia Inquirer doing a story about the possibility of bringing PILOTs – voluntary “payments in lieu of taxes” made by nonprofits to their local government – back to Philadelphia. PILOTs in general (and resurrecting them after having let a program lapse, in particular), are not unique to Philadelphia. In fact, I’ve noted in several posts the correlation between the length of our current economic recession and the popularity of PILOTs: the longer the recession has gone on the more popular PILOTs have become with local governments.
Philadelphia is no exception. In 1995, under then Mayor Rendell, 46 nonprofits voluntarily paid $9.4 million. In 2011, only nine institutions paid PILOTs for a total of less than $400,000. For the record, there are tens of thousands of nonprofits in Philadelphia—that was true in 1995, true in 2011 and still true in 2013. But jurisdictions never intend PILOTs to be for everyone–just the deep pocketed nonprofits. Here we are in 2013, and two members of Philadelphia’s City Council are pushing to re-invigorate the PILOTs program. No surprise that nonprofits aren’t pleased.
When I spoke to the reporter, I forewarned him, before he even got to ask me a question, that I was sure I would not be reflecting the standard nonprofit stance, while I simultaneously stole myself to be ready for some flack once the story hit the stands. He shared a quote with me from a major nonprofit in the city in which the spokesperson said the nonprofit would take the payment of PILOTs under consideration but that it liked to target any “investment in the community” that it makes to align with its organizational mission.
Wow! Hold up! PILOTs are not charitable dollars that we can direct to selected causes. There have been periods when people have tried to say to the IRS, “Wait! Do not use any of my tax dollars to fund the X Department because it does not align with my philosophical beliefs.” With few exceptions, this doesn’t work.
PILOTs are the cost of doing business as a charitable organization and not the payment of philanthropic dollars to the charity of our choice. Nonprofit A and its for-profit neighbor B use the same roads, are protected by the same police and fire departments, benefit from the same sewer lines, enjoy the same city-maintained parks. Why should nonprofits get the free ride while for-profits pay? It doesn’t seem fair, right, just, equitable—the thesaurus goes on and on.
The first email I got in response to the article that had my succinct quote reflecting the sentiments above, felt rather aggressive. The subject was “Taxes” and the body of the text was, “Are you in favor of taxing nonprofits or against?” The second email read: “Please tell me that [reporter] either misquoted you or took you out of context. The last thing our beloved sector needs is to signal that PILOT’s are okey-dokey AND just ducky.” Both emails were from friends. So, I began explaining.
Unfortunately for you, the reader, the explanation isn’t a smooth cohesive one. It has many different components. In no particular order:
- First and foremost, I am tired of people always thinking that nonprofits are “trying to get away” with things. I’ve never figured out exactly what it is the scores of accusers think we have gotten away with, but they think we do. Certainly, here is a situation where they could point to something specific and say, “See, nonprofits are always trying to get away with things, like paying their taxes” and that I would understand.
- The quid pro quo of “Nonprofit, you do this work so we, the government, don’t have to, and in exchange we won’t make you pay taxes,” was nice 50 years ago, maybe even 10. But it doesn’t work so well anymore. With competition for that work we do coming not just from other nonprofits but increasingly from B Corps, other for-profits and the growing number of L3Cs, there are more and more organizations out there that can do what we do and pay taxes. If we want to stay competitive, should we continue to expect – or even want – the government to waive our tax payments when we know that very same government could turn to our tax paying competition and get the service and the tax revenue.
- We cannot have it both ways, as it seems so many nonprofits want to do. We cannot hide behind the cloak of “We are a nonprofit and thus we are entitled to …” (or worse, the whine of “Oh, we are just a poor nonprofit”) when it suits us and then be annoyed when nonprofits get treated as the lesser, insignificant relation of the for-profits. Either we are businesses, have solid products and services and should be taken seriously or we aren’t. If the former, then we should pay for the services we use just like those others to whom we claim to be the equal.
Payment of PILOTs – or, I’ll go ahead and say it, taxes – to nonprofits is, to a certain extent, like buying your first home. With that transaction, you’ve moved to a different stage in your life: you have a mortgage, you are responsible, you are—okay, I’ll go ahead and say it – an adult. For nonprofits, paying taxes is the same: it says, we are responsible, we have an important job to do and, yes, we are equal to those for-profits so venerated in American society.
Read about the new push for PILOTS in the Philadelphia Inquirer >