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Taxing College Students to Help Public Students

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students.jpgIf the leaders of this city have the political courage it will take to do it, there is a way to raise millions to help the Philadelphia public schools from an untapped source of wealth.

It will not cover the entire $110 million Mayor Nutter is seeking, but it would help lessen the sting of an increase in property taxes, which is what the mayor favors to help the district, which faces a $629-million deficit this year.

By the way, any talk about higher property taxes automatically excludes some of the city's largest and wealthiest institutions: the so-called "Eds and Meds" sector, the many colleges, universities and medical schools that are located in town.

As non-profit institutions, they are tax exempt. They do not pay any property taxes -- zero, nada -- despite the billion dollar budgets of some of the largest.

One way to extract money from these institutions would be through a device called PILOTS -- it stands for Payment In Lieu of Taxes.  As the New York Times reported recently, a number of cash-strapped cities are looking at PILOTS as a way to raise money for their budgets.

PILOTS are not a realistic answer for Philadelphia.  For one thing, the payments are strictly voluntary -- because these institutions are legally tax exempt you cannot make them give. Experience has shown that while PILOTS can be extracted from these institutions when you squeeze them, payments decline when the pressure is off.

The institutions argue that they are a huge generator of money for the city because of all the people they employ. This is true.  The Eds and Meds job sector employs about 207,000 people -- all of them pay the city wage tax.

But, these institutions have another class of people, many of whom do not pay taxes, yet who draw on the city for police and fire protection, the roads and transit, emergency health service, etc. 

I am referring to students.

There are about 150,000 students enrolled in institutions of higher learning in Philadelphia. Most of them are transients.  They will attend college or post-graduate school here then depart. Forty percent of them are from out of state.  Most of them are not native Philadelphians. (At Temple, for instance, 75 percent of the student body is from outside the city, according to a recent Inquirer story.)

These students generate tremendous wealth for their institutions in the form of tuition payments and fees. In the current school year, the students paid $3.2 billion in tuition alone to 13 of the largest colleges and universities inside the city.

There are two ways to look at these students: First, as a vital part of the city, whose presence feeds the local economy through the apartments rented, beers bought, dinners and food eaten off campus, etc. This is undoubtedly true.

Second, you can see them as transients who drawn on city services and resources without paying their fair share of the cost. This is true, too.

As a resident of the city, I also contribute to the local economy by buying probably 95 percent of my goods and services from businesses with the city. ( Seen in this light, beer drinking is not only fun, it is downright patriotic!)  But, I also pay the wage tax, property taxes on my home and city business taxes.

Cities tend to tax transients heavily -- albeit indirectly -- for the time they spend here. (Our hotel, rental car and amusement taxes are examples.) Why should we treat college students differently?

The tax should not be onerous. I estimate a one percent tax levied on tuition paid by all post-secondary students attending Philadelphia schools will raise close to $40 million a year.  A two percent tax would raise close to $80 million.

Though the tax rate would be flat it would, in effect, be graduated -- asking those who attend expensive schools to pay more and others less.  A fulltime undergraduate at Penn, for instance, would pay $421 a year; a student at Community College of Philadelphia $49 a year.

Schools are likely to argue that such a tax would place an onerous, unfair burden on families already struggling to meet the costs of a college education.  Those factors are real, but that hasn't stopped the schools themselves from raising tuition an average of four to seven percent a year -- every year.

Take Drexel University as an example.  Next year, tuition will rise 4.5 percent to top out at $39,700 for a four-year, fulltime undergrad. With a one-percent tuition tax, that student would be asked to pay $397. 

But, that's peanuts compared to the other fees Drexel extracts in addition to tuition.  They include a $1,580 "general fee" (for what, they do not say); a $375 lab fee, a $250 student activity fee, and a $35 immunization fee. Want to live in the dorm and have a full meal plan? That will cost another $14,790. Books, of course, are extra.

Can adding a $397 tax (or fee, if you prefer) to a bill that currently totals $57,000 a year be considered onerous? I think not. It's practically a rounding error.

This is not a new idea. Two years ago, Pittsburgh Mayor Luke Ravenstahl, faced with a gigunda deficit, proposed levying a one percent tuition tax on local post-secondary schools. The folks at Pitt, Carnegie Mellon, etc. went into cardiac arrest. The mayor backed off when the schools promised to make (unspecified) PILOT payments to the city.

Would such a tax be legal in Philadelphia?  I cannot say for sure.  But I do know that Sterling Act, the 1930's state law that governs Philadelphia's taxation, forbids the city from taxing anything the state also taxes.  The state does not tax tuition.

 

-- Tom Ferrick

 

 

 

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