Philadelphia's 40 not-for-profit hospitals have agreed to pay the city millions of dollars annually to avoid losing their historic property-tax exemptions.
The settlement, expected to be announced within weeks by Philadelphia Mayor Edward Rendell, will end the simmering property-tax dispute between area hospitals and local tax assessors.
The key issue in the settlement, according to a source, was how the payments are to be described publicly and in official documents by the city.
Apparently, more important to the hospitals than the money was how the settlement is perceived by others who may question what benefits the hospitals are providing to their communities in exchange for their tax exemptions.
The source, who requested anonymity, said the city provided the hospitals with "air cover" by altering the language of the settlement.
Under the settlement, for example, hospital payments to the city are described as "charitable contributions" rather than payments in lieu of taxes.
Other than the addition of terminology putting a positive spin on the arrangement, the terms of the settlement are virtually identical to the terms offered to hospitals and other Philadelphia not-for-profit organizations in the city's original "PILOTs/SILOTs" program.
Under the program, unveiled in June by Mr. Rendell, all of Philadelphia's estimated 2,000 not-for-profit organizations would be required to make payments in lieu of taxes, or PILOTs, to the city equivalent to as much as 40% of their annual property-tax liability.
That amount could be reduced to 33% if an organization signed up for the program by Dec. 1.
Payments also could be reduced by as much as one-third through the provision of specified services in lieu of taxes, or SILOTs, to the city. A special city advisory board would determine the value of the services provided.
According to a report from the mayor's office, the program could generate as much as $40.3 million in annual revenues, assuming that all 2,000 organizations located within Philadelphia's city limits paid 40% of their estimated annual property-tax bills.
Of that, about $14 million, or nearly 35%, would come from not-for-profit hospitals, nursing homes and other healthcare facilities, the report said.
By comparison, Philadelphia hospitals earned a combined $169.7 million profit on total revenues of $4 billion in 1992, according to the latest available figures from the American Hospital Association. The figures are based on data from 36 hospitals.
Prior to the Dec. 1 deadline, the Delaware Valley Hospital Council and the Hospital Association of Pennsylvania countered with an alternative plan that would separate the issues of payments to the city and hospitals' property-tax exemptions.
Under the alternative plan, hospitals would make voluntary contributions to a new foundation that, in turn, would finance community health programs.
After weeks of negotiations, the hospitals and the city agreed on a compromise plan that will apply to all of the city's not-for-profit organizations.
Under the plan, to be announced shortly by the mayor, participating organizations-which were originally referred to as taxpayers-would make "charitable contributions" to the city directly rather than through a special foundation. Like the PILOTs/SILOTs program, contributions will be equivalent to as much as 40% of an organization's annual property-tax liability and can be reduced by the provision of specified services.
The hospitals have a "tacit" agreement with the city that facilities making contributions won't have their property-tax exemptions challenged because they'll be recognized as tax-exempt public charities, said Leonard Karp, vice president for public information and government relations for the Delaware Valley Hospital Council.
Contributions from hospitals will be earmarked for community health programs, Mr. Karp said. Under the original plan, the city could use the money any way it wanted, he said.
Mr. Karp said the recognition of hospitals as public charities whose contributions are being used for community health programs will "enhance" hospitals' status as not-for-profit organizations and help insulate them from attacks on their tax exemptions.
Mr. Karp commended the city for its willingness to work out a compromise. Repaying the compliment, Gregory Rost, Philadelphia deputy mayor for policy and planning, commended hospitals for taking a leadership role in working out the tax dispute and acting as "good corporate citizens" in recognizing their responsibility to the city.
However, Mr. Rost acknowledged that the revenues to be generated under the compromise plan will be the same as the revenues that would have been generated through the original PILOTs/SILOTs program.
And, he said the city legally can spend the money any way it wants. "We'll make every effort to conform to the wishes of hospitals as to how their money is spent," Mr. Rost said. "But their wishes aren't binding on us."
Mr. Rost said all 40 not-for-profit hospitals in Philadelphia notified the mayor's office by the Dec. 1 deadline that they'd be willing to make payments.
The Philadelphia deal likely will give authorities in other parts of the state a precedent to help them extract money from not-for-profits, sources said.