Tax-Exempt Institutions & PILOET

The University of Pennsylvania, Temple University, Drexel University, Jefferson Health / Thomas Jefferson University, the University of Pennsylvania Health System (UPHS / Penn Medicine), and Temple University Health System hold property tax exemptions constitutionally authorized by PA Article VIII §2(a)(v) and implemented through [Act 55 of 1997](/paul/campaign/empower/glossary/#act-55) (the Institutions of Purely Public Charity Act). University exemption claims for core educational activities are legally robust. Hospital exemption claims are legally more contestable under [Act 55](/paul/campaign/empower/glossary/#act-55)'s "substantial portion gratuitously" standard, given charity care percentages typically reported in the 1-5% range. The structural estimate of foregone property tax from covered institutions is $100-200 million annually; combined PILOET (Payment In Lieu Of Eligibility for Tax) payments total approximately $20-30 million. The School District of Philadelphia bears approximately 56% of the foregone tax. PILOET is voluntary — Philadelphia cannot compel payment.

Legal Architecture

Constitutional foundation

PA Constitution, Article VIII §2(a)(v) — Charitable Exemption authorization. Constitutionally authorizes the exemption of "institutions of purely public charity" from property taxation. This is the analytically critical feature: it removes institutional exemption from Philadelphia's unilateral control. The only pathways are political/reputational, state legislative (Act 55 amendment), or judicial challenge to specific exemption claims.

Article VIII §1 — Uniformity Clause interplay. §1 establishes the uniformity requirement; §2(a)(v) authorizes the exception. The two provisions operate together to create a legally durable exemption framework — uniformity does not prohibit treating charitable institutions differently because the constitution itself authorizes that treatment.

First Amendment. Not applicable to Penn, Temple, Drexel, or the major hospital systems. Their secular institutional exemption rests on the "purely public charity" standard (Act 55), not on religious purpose. There is no constitutional barrier to scrutinizing whether these secular institutions meet Act 55's standards.

Federal layer

IRC § 501(c)(3). Federal predicate for exemption claims. No private inurement. Form 990 disclosure. Schedule H for hospital community benefit reporting. Statutory stability: high. Administrative vulnerability: high for IRS oversight of large exempt organizations — enforcement intensity is administrative discretion.

IRC §§ 511-514 (UBIT — Unrelated Business Income Tax). The boundary between exempt-purpose income and taxable commercial activities. Administratively interpretable without statutory change; more permissive interpretation reduces UBIT exposure for large institutions. Administrative vulnerability: high — IRS enforcement discretion.

State statutory layer — Act 55 of 1997

Act 55, 10 P.S. § 375 — "Institutions of Purely Public Charity." Five-part test (the HUP test, named for the foundational case):

Charitable purpose. Advance a charitable purpose.
Substantial gratuitous portion. Donate or render gratuitously a substantial portion of services.
Primary beneficiaries. Benefit a substantial and indefinite class of persons who are legitimate subjects of charity.
Government service relief. Relieve the government of some of its burden.
Free from profit motive. Operate entirely free from private profit motive.

Act 55 university / hospital distinction. Universities generally satisfy Part 2 through their educational mission — students as beneficiaries (with scholarships); research as a public good. Hospitals face a harder Part 2 test because "substantial portion gratuitously" in the hospital context specifically requires documentation of uncompensated care. Academic medical centers typically report charity care at 1-5% of patient revenues, raising genuine legal questions about whether this constitutes "substantial."

HUP v. Commonwealth, 487 Pa. 210 (1979). Foundational case. Act 55 was the legislative response to the HUP standard.

Statutory stability: high — state legislative action required; structural reform pathway is Act 55 amendment by the General Assembly. Administrative vulnerability: low for the statute itself; moderate for PA Department of Health community benefit reporting enforcement (28 Pa. Code § 401.1).

Local layer — PILOET framework

PILOET is not codified in Philadelphia Code. It is:

Voluntary — the city cannot compel payment
Without legal enforcement mechanism
Reported in the City Controller's CAFR
Subject to City Council oversight hearings
Negotiated institution by institution

This is a critical structural feature: PILOET is not a tax, not an ordinance, and not legally enforceable.

Covered institutions — the major PA-3 anchor institutions:

University of Pennsylvania
Temple University
Drexel University
Jefferson Health / Thomas Jefferson University
University of Pennsylvania Health System (UPHS / Penn Medicine)
Temple University Health System

Key quantitative context (verifiable from publicly available sources):

Penn owns approximately $2.5 billion in tax-exempt property (Philadelphia Inquirer / advocacy research, 2019-2021).
Total Philadelphia tax-exempt property (2019): approximately $29.6 billion, ~17% of total assessed value.
Estimated annual foregone property tax citywide (2019 figure; verify at current rates): approximately $414 million.
Penn PILOET commitment (pledged 2020): $100 million over 10 years — approximately $10 million annually, directed to the School District of Philadelphia.
Advocates (Penn for PILOTs; Jobs With Justice) have argued Penn should pay approximately $40 million annually — 40% of estimated foregone property tax (a 2016-2017 Penn budget analysis suggested $91 million in property taxes would have been owed absent the exemption).
School District of Philadelphia bears approximately 56% of foregone city + school property tax as of FY 2025 allocation.

Administrative agencies

City Controller. The CAFR is the primary public record of PILOET payments received.

City Council. The political accountability mechanism. No legislative mandate authority over tax-exempt institutions.

School District of Philadelphia. Primary fiscal beneficiary of PILOET payments directed to educational investment. Most directly affected by the fiscal gap.

Constituent (no formal participation pathway)

The constituent-level analysis is structurally different from all other sub-domains. PA-3 residents have no formal role in property tax exemption determination or PILOET negotiation. Available indirect mechanisms:

City Council oversight hearing testimony (requires organized advocacy capacity).
Public records access (Controller CAFR; Council materials).

The formal absence of participation is itself a representation finding.

Constituent profiles

Constituent 1: 7th-grade student — West Philadelphia public middle school in Mantua

Age 13, public middle school student. The school is in Mantua, immediately adjacent to Penn's University City campus. The school lacks functioning science labs due to deferred capital maintenance traceable to School District fiscal constraint.

Formal provision: The School District receives property tax revenue and PILOET educational investment; her school is funded by School District per-pupil allocation.

Actual experience: The school lacks functioning science labs. Per-pupil expenditure is constrained by a School District whose revenue base is reduced by the documented institutional exemptions and whose PILOET receipts are substantially below the foregone tax amount. The specific causal chain from PILOET fiscal gap to her school's budget is not directly traceable without school-level budget data, but the School District's documented fiscal constraint — and the specific exemption geography of PA-3 — are real context.

Gap at the person level: The decisions about how much of the institutional exemption's fiscal cost is offset by voluntary PILOET payments — decisions made in negotiations in which her family has no formal standing — shape the resources available at her school. She is a downstream recipient of fiscal outcomes determined upstream by parties who have no legal obligation to consider her.

Constituent 2: North Philadelphia homeowner — Cecil B. Moore (adjacent to Temple)

Age 55, homeowner. Learns about PILOET through a newspaper article. Attends a City Council oversight hearing to advocate for higher Temple contributions.

Formal provision: City Council oversight hearings are the formal participation mechanism; the Controller CAFR contains PILOET payment history; these are public records.

Actual experience: The Controller CAFR requires navigating multi-hundred-page financial documents. Hearing schedules require advance notice and travel. Testimony produces political pressure but no legal obligation for Temple to respond. Information exists in public records but is not proactively communicated to adjacent neighborhoods.

Gap at the person level: The one formal participation mechanism available — City Council oversight — requires organized advocacy capacity. Her neighborhood is literally surrounded by an institution whose tax-exempt status creates direct fiscal consequences for her city and schools. Her formal pathway is a public testimony slot at a hearing with no binding consequence.

Constituent 3: Fiscal relationship made visible

Using the structural-estimate methodology disclosed in the data provenance below, the fiscal relationship between the covered anchor institutions and PA-3 households can be made visible at the per-student level.

Estimated combined foregone property tax from the six covered anchor institutions: $100-200 million annually (structural estimate; Penn alone holds $2.5B+ in exempt property; at 2025 combined millage of 1.3998%, Penn's exempt property alone implies approximately $35 million in foregone tax; citywide tax-exempt property generating approximately $414 million in foregone tax provides an upper structural bound).
School District share: approximately 56% of foregone city + school property tax = approximately $56-112 million annually from the six institutions.
Combined annual PILOET from all covered institutions: approximately $20-30 million (published media / advocacy estimates; verify at Controller CAFR before any public-facing use).
Net fiscal gap attributable to the School District: approximately $26-92 million annually.
Per-enrolled-student gap (School District enrollment approximately 118,000 in 2024-25): approximately $220-780 per student annually in foregone revenue not replaced by PILOET.

All figures are structural estimates from disclosed methodology. The range is wide because input estimates are imprecise; precision requires OPA parcel-level calculation and current Controller CAFR data.

Conversational note

Penn, Temple, Drexel, Jefferson Health, UPHS, and Temple Health combined own hundreds of acres of some of Philadelphia's most valuable real estate — assessed at well over $2.5 billion for Penn alone — and pay zero property tax on it. This is entirely legal. The Pennsylvania Constitution, through Article VIII §2(a)(v), authorizes it. Pennsylvania's Act 55 of 1997 defines which institutions qualify; universities generally meet the standard comfortably; hospitals face a harder test because "substantial portion gratuitously" specifically looks at uncompensated care, and most major academic medical centers report charity care in the range of 1-5% of patient revenues.

The question is not whether the exemption is legal. It is legal. The question is whether what PA-3 receives in return — through voluntary PILOET payments — is an adequate community accounting for the benefit the institutions receive. Penn pledged $100 million over ten years in 2020. Advocates who have studied Penn's real estate holdings argue the foregone property tax at Penn alone is approximately $91 million a year — nine times what Penn pledged. The School District of Philadelphia bears the largest share of the fiscal gap, because property tax funds the schools. The students most directly affected are in the neighborhoods immediately adjacent to the campuses: Mantua next to Penn, Cecil B. Moore next to Temple, parts of West Powelton next to Drexel.

Those students and their families have no formal seat at any negotiating table. Philadelphia cannot compel a PILOET payment; the framework is voluntary. The covered institutions can, legally, pay nothing and retain their exemption. That they pay anything reflects decades of community advocacy, not legal obligation. A City Council hearing is available as a venue for public testimony, but hearings produce political pressure, not binding commitments. The fiscal relationship between Pennsylvania's largest private landowners and the school system serving the district's most concentrated-poverty neighborhoods is governed by a handshake, not a contract.

There are two accountability pathways that exist in law and have not been pursued. First, Pennsylvania has not amended Act 55 to strengthen the "substantial portion gratuitously" requirement or to require specific PILOET contributions. Second, Philadelphia has not pursued a judicial challenge to any major hospital system's exempt status under Act 55's existing Part 2 standard — the legal analysis is strongest against hospital institutions with minimal charity care relative to revenues, and the case has not been brought. Both pathways are available; both require political will that has not materialized.

One analytical caution. Penn's economic impact figure (reported in various analyses at $14-15 billion) is frequently cited as evidence of accountability. That figure measures Penn's aggregate economic presence in Philadelphia — total employee spending, vendor payments, student expenditures. It does not measure what Penn specifically directs to adjacent communities as a consequence of its tax-exempt status and PILOET obligation. The relevant comparison for accountability is not "how big is Penn's footprint?" but "what has Penn committed to do specifically because of the accountability relationship, and what has it actually delivered?"

Geography & representation

Data provenance. Constitutional and statutory architecture directly documented from the PA Constitution, Act 55, and PA case law (HUP). Penn property holdings scale documented from Penn for PILOTs research (drawing on Penn's 2016-2017 budget and Philadelphia Inquirer 2019 reporting). Citywide tax-exempt property ($29.6B, 17% of total; $414M foregone tax) documented from Philadelphia Inquirer 2019 analysis. Penn PILOET commitment ($100M over 10 years) from Penn announcements and advocacy organization verification. Hospital charity care percentages are not verified to current Form 990 Schedule H data — flagged for verification before any public-facing use. The structural estimate of per-student PILOET fiscal gap uses disclosed methodology combining verified input estimates; the range is wide because input estimates are imprecise.

PA-3 statistical profile. Tax-exempt property share of citywide assessed value (2019): approximately 17%. Estimated foregone property tax citywide (2019): approximately $414M annually. Penn's tax-exempt real estate holdings: $2.5B+. Penn PILOET (2020 commitment): $10M annually for 10 years. Combined annual PILOET from covered institutions (multi-year estimate): approximately $20-30M. Structural estimate of combined annual foregone property tax from covered institutions: $100-200M. Structural estimate of net School District fiscal gap: $26-92M annually. Penn endowment (recent figure): exceeds $20B.

Geographic variation. Anchor institution geography:

West Philadelphia Core: Penn campus in University City; Drexel campus; UPHS main campus; Mantua neighborhood directly adjacent; schools in Mantua most directly affected by downstream fiscal mechanics.
North/Northwest Core: Temple University main campus; Temple Health system; Cecil B. Moore neighborhood; schools in Cecil B. Moore and surrounding North Philadelphia most directly affected.
Center City / Old City (edge of South/Southwest): Jefferson Health / Thomas Jefferson University; less direct residential-adjacency pattern but documented tax-exempt footprint.

Pathway tracing. Four PILOET accountability pathways available to PA-3 constituents:

City Council oversight hearing testimony → requires advance notice, travel, organized advocacy capacity → produces political pressure but no binding obligation.
Public records access → Controller CAFR (complex financial document); Council materials → requires institutional literacy.
Judicial challenge to hospital exemption under Act 55 Part 2 → requires advocacy organization or Attorney General action; has not been brought.
State legislative advocacy → Act 55 amendment or new PILOET mandate legislation → requires coalition capacity and multi-year campaign.

Representation question. The constitutional architecture (Art. VIII §2(a)(v)) creates a legally durable exemption framework for institutions that meet Act 55's standards. The anchor institutions in PA-3 hold property worth many billions of dollars and pay no property tax. The School District, which serves the neighborhoods most adjacent to these institutions, is fiscally constrained in ways partially traceable to the exempt property footprint. PA-3 constituents in those neighborhoods have no formal participation mechanism in PILOET negotiations. The only accountability pathways are indirect: political pressure through City Council testimony, state legislative advocacy, or judicial challenge — each requires institutional capacity that adjacent neighborhoods typically lack. The formal absence of a constituent seat at the PILOET negotiating table is not an oversight; it is a structural consequence of the framework's voluntary character.

Gap analysis

Gap 1 — Foregone property tax materially exceeds PILOET receipts. Structural estimate of foregone tax from covered institutions is $100-200M annually; combined PILOET is approximately $20-30M; the gap is approximately $70-170M annually, with the School District bearing the larger share.

Gap 2 — University / hospital accountability asymmetry; the legally stronger claim has not been pursued. The Act 55 Part 2 "substantial portion gratuitously" standard is more contestable against hospital institutions than universities, given charity care percentages typically in the 1-5% range. Philadelphia and the Pennsylvania General Assembly have not pursued a judicial challenge to any major hospital system's exempt status. The accountability pressure supported by the legal analysis is strongest against hospital institutions; that pressure has not been pursued through available legal mechanisms.

Gap 3 — Penn / Temple / Drexel community-benefit documentation is uneven. Penn's community benefit documentation is thorough and accompanied by economic-impact claims of $14-15B annually; the methodology critique (input-output multiplier counting aggregate economic presence rather than specifically accountability-driven investment) applies. Temple's documented community benefit (CHOICE program; Ambler Campus work; local hiring) is less comprehensively published. Drexel's Dornsife Center for Neighborhood Partnerships and Schuylkill Yards community benefit agreement represent the most specifically community-directed accountability mechanisms but are less extensively documented publicly. For accountability comparison to fully support an evidence-based gap finding, Step 3 evidence must be comparable across institutions — currently it is not, which is itself a structural finding (institutions control the documentation of their community benefit).

Gap 4 — PILOET voluntariness is the constraint, not a negotiation position. Philadelphia cannot compel PILOET payment. The institutions retain the full legal right to pay nothing. That they pay something reflects accumulated advocacy, not legal obligation. Reform pathways — Act 55 amendment, state PILOET mandate, judicial challenge — all require external action; Philadelphia cannot unilaterally resolve the voluntariness problem within the current legal framework.