Pittsburgh’s budget is set to tighten and its rainy day fund will dwindle in the next several years while the city collects less than half a million dollars per year in voluntary payments from major nonprofits. 

Meanwhile Providence, Rhode Island this fall came to a 20-year agreement with local colleges that brings the city an average of more than $11 million per year, safeguarding the city’s finances and preserving good relations between municipal government and major institutions. 

The agreement for payments in lieu of taxes, known as a PILOT, could serve as a model for Pittsburgh to pursue as it seeks greater contributions from nonprofit giants like UPMC, the University of Pittsburgh and others. But doing so would require a change of course: Pittsburgh Mayor Ed Gainey has taken a far more confrontational and fragmented approach than his Rhode Island counterparts.

Providence’s approach, centered around a group negotiation with all the involved colleges and a give and take of benefits, netted the city $59 per resident annually, on average.  Pittsburgh’s proposed 2024 budget, by contrast, includes $1.44 per resident revenue from nonprofits’ voluntary payments.

Pittsburgh’s meager results are not for a lack of desire: Mayors have tried to raise revenue from nonprofits for decades. Gainey made the issue a centerpiece of his 2021 run for office, covering the campaign trail with promises to make UPMC “pay their fair share” to the city. But two years into his term, he has little to show for it.

How did Providence achieve what Pittsburgh seemingly can’t? Interviews with leaders in both cities show drastically different approaches, with collaboration and transparency winning the day in Rhode Island.

Pittsburgh battles, Providence sought consensus

Gainey has met infrequently with nonprofit leaders and has spoken in combative terms about legal challenges he is bringing to certain nonprofit-owned properties’ tax exempt status. 

Gainey’s move is the latest in decades of tries by Pittsburgh mayors to reap more money from nonprofits. Former Mayor Tom Murphy created a fund which saw the city’s PILOT contributions temporarily increase to $17 per capita. Former Mayor Luke Ravenstahl sued UPMC to try to revoke its nonprofit status. Former Mayor Bill Peduto nixed that lawsuit and created his own PILOT-like initiative, called OnePGH, which was scrapped when Gainey took office.

Providence’s mayor took a collaborative-but-determined approach to working with four colleges to get a deal. 

“You get more with honey than with vinegar,” said Dan Egan, president of the Association of Independent Colleges and Universities of Rhode Island, who negotiated with the City of Providence. “I think it’s appropriate to ask for money, but it’s appropriate to ask for it in partnership, not in the sense that it’s owed, per se.”

Egan and Providence College administrator John Sweeney both said that Providence Mayor Brett Smiley took a fair, even-handed approach to the negotiations. 

“Mayor Smiley was very committed to working with the colleges rather than working against them,” Sweeney said. “It was not adversarial, although he was quite clear that this is something he was committed to. He said the city has an interest in the colleges and universities succeeding. That set a good environment.”

Gainey ran for office in 2021 with an aggressive tone toward UPMC; one of the priorities on his campaign website reads “Demanding that UPMC pay their fair share.” It’s unclear if Gainey has pursued a broad, cooperative agreement like the Providence deal. His office declined to comment for this story and he has declined in the past to comment on any closed-door meetings with leaders of UPMC and Highmark.

Gainey’s most significant move to date was announcing legal challenges to the tax-exempt status of 26 properties owned by Pittsburgh nonprofits, including some owned by UPMC. He told PublicSource in an October interview that he plans to ramp that effort up considerably in 2024. 

Some officials in Pittsburgh are doubting Gainey’s combative approach to the problem. City Councilor Anthony Coghill, who will find himself among the most tenured council members come January, said Gainey’s legal fight has dashed any hope of a substantive voluntary agreement with universities or hospitals.

“What I disagree with is our posturing, trying to force their hand,” Coghill said. “In my opinion it’s going to go nowhere …

“Sit them down and say ‘forget about this lawsuit nonsense, let’s talk about a PILOT. People are rushed to your facilities in our ambulances and using our roadways, and we need financial help.’”

City Controller-elect Rachael Heisler, who takes office in January and served as deputy controller since 2021, said she, too, disagrees with Gainey’s tactics.

“If you start that conversation with litigation, I don’t know that you’ll have any willing participants,” Heisler said. “The approach of suing hasn’t worked.”

A ‘fair’ process, with no singling out

Both college leaders and city leaders in Providence said it was key to negotiate with the four major nonprofits as a group, not individually. Smiley got negotiators from Brown University, Providence College, Johnson & Wales University and Rhode Island School of Design at the same table from the start.

“In some ways they had to negotiate amongst themselves, and the city wasn’t a party to that,” said Courtney Hawkins, the chief operating officer under Smiley. “I think it would have taken much longer” to make agreements with institutions individually.

Egan said the collective approach can reassure individual institutions that they are not going to end up paying disproportionately more than others. 

“If nonprofits should pay, it should be fair among nonprofits,” Egan said. “What’s fair about two institutions or two sectors paying? Where’s the fairness of that?”

While Gainey’s recent legal efforts don’t officially focus on UPMC, the healthcare conglomerate was the target of most of the mayor’s campaign rhetoric. He said during an October interview partly about UPMC that the city’s legal efforts to tax nonprofit property will ramp up in 2024. 

Asked if UPMC would be open to a broad agreement like the one in Providence, UPMC spokesperson Paul Wood wrote in an email to PublicSource that the city “can count on [UPMC’s] full participation in programs that are fair and equitable and include the region’s other major nonprofits.”

Heisler, drawing on a report her office produced in 2022, suggested the city start with the “big five” nonprofits — UPMC, AHN/Highmark, the University of Pittsburgh, Carnegie Mellon University and Duquesne University. Of the five, only UPMC responded to PublicSource’s requests for comment.

The five together own city property with a taxable value of $4.3 billion, which, without the exemptions, would bring the city around $34 million in annual taxes.

Hawkins, the Providence COO, said the city was careful to avoid language and proposals that would make the nonprofit institutions uncomfortable. The phrase “fair share” was not tossed around, and the institutions’ tax exempt status was never called into question. Smiley also made sure to give the universities credit for their economic impact on the city.

“It certainly helped that they knew he would give them credit where it was due, and it wasn’t a one-sided conversation,” Hawkins said.

Pittsburgh short on cash

If Pittsburgh were to receive $59 per capita annually in new PILOT agreements — the average amount Providence will receive over the next 20 years — that would work out to $17.6 million per year on average. 

That’s a significant sum for a city facing lean budget years, a shrinking rainy day fund and the end of federal COVID-19 relief money. Pittsburgh projects an operating margin of just $3.5 million in 2025 — its lowest in years — while its rainy day fund is set to decrease to the legal minimum by 2028. 

“I think [PILOT] revenue is essential to city government,” Heisler said, nodding to the gloomy budget forecast for the next five years. “If [the mayor’s office] is not having these conversations, they need to be. They owe it to the people who live here. Because there is going to be no budget flexibility at all in the next few years. You need to have some wiggle room.”

Charlie Wolfson is PublicSource’s local government reporter and a Report for America corps member. He can be reached at charlie@publicsource.org.

This story was fact-checked by Lucas Dufalla.

The post Pittsburgh leaders have long failed to attract payments from nonprofits. How did a smaller city lock in $220 million? appeared first on PublicSource. PublicSource is a nonprofit news organization serving the Pittsburgh region. Visit www.publicsource.org to read more.

Mayor Ed Gainey will challenge the tax-exempt status of 26 Pittsburgh properties, he said Tuesday, as part of a new legal strategy to address a longtime problem. The list — including a handful of properties owned by UPMC — is the first piece of follow-through on a plan he unveiled in January to root out tax-exempt properties in Pittsburgh that shouldn’t qualify for exemption under Pennsylvania law. 

The plan is at once Gainey’s biggest initiative to bolster the city’s finances and to extract greater support from UPMC. Gainey ran for office promising to make the healthcare giant pay “its fair share,” and city officials have warned that the city’s revenue will need a boost ahead of the end of federal pandemic relief funds next year. 

The 26 challenged properties range from Oakland condominiums with assessed values in the millions to a vacant lot in the North Side assessed at $800.

In all, the 26 properties have an assessed value of about $72 million. If they all were taxable, the city would reap an additional $3.5 million from the owners, the city solicitor said, including back taxes from the past five years — though the owners could appeal the assessments. Going forward, the city would collect more than $580,000 annually if the exemptions are overturned, and the city schools more than $700,000. If the owners defend their exemptions, the process could drag on for years.

Six properties of the 26 are owned by Presbyterian University Health System, a former name for part of UPMC. County records list UPMC’s Downtown headquarters as the mailing address for those properties. All six are listed at the same Forbes Avenue address in Oakland and altogether the owner would owe the city more than $400,000 in annual property taxes if their exemptions were revoked and current assessments stood.

“We are here to protect the taxpayers and make sure that everybody is paying their fair share,” the mayor said at a morning press conference.

The city is challenging the exemptions on six properties affiliated with UPMC, two owned by Carnegie Mellon University, one by the University of Pittsburgh, one by Allegheny General Hospital and a handful of others held by smaller nonprofit entities or private citizens.

A UPMC spokesperson wrote in response to questions that the properties “support UPMC’s charitable mission of serving our patients, members and communities. The City of Pittsburgh is aware of UPMC’s ongoing support and the multitude of our investments in the city, and that it can count on our full participation in fair and equitable programs that include the region’s other major nonprofits.”

PublicSource reached out to other nonprofits but did not receive immediate comment.

Gainey said the list is the result of his staff examining 10% of the city’s tax-exempt property not owned by government or churches. There are around 17,600 tax-exempt parcels within the city.

Gainey’s challenges will be reviewed by the Allegheny County Board of Property Assessment Appeals and Review [BPAAR]. The board’s review process could take from six to nine months, according to its solicitor, David Montgomery. Either the city or the property owner can appeal the board’s decision to the Court of Common Pleas, a process Montgomery said could take a year itself, and the loser there could appeal to the Commonwealth Court. 

A Pennsylvania Supreme Court ruling set a five-pronged test for qualification as a tax-exempt charity, including that an organization must:

• Advance a charitable purpose
• Donate a substantial portion of its services
• Benefit a class of people that are legitimate subjects of charity
• Relieve the government of some of its burden
• Operate without seeking private profit.

Gainey said at a January news conference that property owners that meet the five prongs have “earned” their exemption, and “if you fail to meet our constitutional standards, then we will make sure that you are paying your fair share to our city.”

Today’s announcement was Gainey’s first substantial move toward boosting the city’s revenue from nonprofits, and comes more than a year after he was sworn in. Gainey said last year that he held private meetings with UPMC and Highmark officials, but did not disclose the results of those meetings. 

The stakes are high: Almost 20% of Pittsburgh property is privately owned and tax-exempt, according to a report from the city and county controllers, a tax loss of about $50 million annually for the city. The city’s 2023 budget includes $49 million the city received from the federal American Rescue Plan Act — revenue that will end after 2024. The city’s current revenue levels don’t cover its expenses without that infusion, and it’s yet unclear how the city will balance its budget after ARPA.

Adding to the city’s headache: Litigation over how the county calculated property tax bills could result in revenue dropping and even refunds for some homeowners, putting further strain on the city’s budget. 

“We need this money to properly run the city,” Solicitor Krysia Kubiak said in January about the plan to challenge tax exemptions.

The list of properties also includes a University of Pittsburgh parking garage, two properties owned by Carnegie Mellon University and the North Side building that houses a Propel charter school.

A Pitt spokesperson wrote in response to questions that the university is in “active and ongoing” conversations with the mayor, and that “we are confident that the University of Pittsburgh meets the requirements spelled out for tax exempt properties.”

Gainey’s team said seven of the properties are owned by “private citizens,” including one vacant lot assessed at just $800 and another at $1,200.

At the Tuesday press conference, Kubiak said the city can seek back taxes for five years for properties whose exemptions are overturned. She said that if the city was successful getting five years of back taxes from each of the challenged properties, it would net $3.5 million.

A court this month shifted the legal landscape of health system tax exemptions. A Commonwealth Court judge revoked the exemption held by a hospital in Montgomery County, and upheld rulings stripping the exemptions from three Chester County hospitals, after determining that Tower Health received exorbitant management fees from those facilities and paid executives based on financial success.

One candidate for Allegheny County executive, Sara Innamorato, said she would take Gainey’s strategy beyond city borders if she is elected this year. 

“I’m running for county executive because we need a leader who works for the people, not for powerful institutions like UPMC,” Innamorato said in a written statement. “That means elevating Mayor Gainey’s review of all tax-exempt properties to the county level.”

PublicSource has examined the relationships between local governments and large nonprofit property owners in its series The Exempt Dilemma.

Editor’s note: This story has been updated to include additional comment.

Charlie Wolfson is PublicSource’s local government reporter and a Report for America corps member. He can be reached at charlie@publicsource.org.

The post Gainey lines up tax-exempt challenges, including bid to tax some UPMC-owned properties appeared first on PublicSource. PublicSource is a nonprofit news organization serving the Pittsburgh region. Visit www.publicsource.org to read more.

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HARRISBURG — A Commonwealth Court judge recently revoked a Southeastern Pennsylvania hospital’s property tax exemption and denied appeals regarding three others, decisions that one expert said should serve as a “warning shot” for nonprofit facilities statewide.

In response to a case brought by the Pottstown School District, Judge Christine Fizzano Cannon found that the nonprofit Tower Health system was operating a Montgomery County hospital with the motive of profit. She also upheld rulings that three Chester County hospitals owned by Tower Health aren’t eligible for property tax exemptions.

In Pennsylvania, a nonprofit organization must prove it is a “purely public charity” to qualify for a property tax exemption. The state Supreme Court in a 1985 ruling created five standards. An organization must show it:

• Advances a charitable purpose.
• Donates or renders gratuitously a substantial portion of its services.
• Benefits a substantial and indefinite class of persons who are legitimate subjects of charity.
• Relieves the government of some of its burden.
• Operates entirely free from private profit motive.

Cannon said that Tower Health charged the hospitals exorbitant management fees and rewarded executives for the financial success of the hospitals, meaning it did not meet the fifth standard.

Tower Health did not respond to a request for comment about whether it plans to appeal. Court records show the three Chester County hospitals have filed motions for reconsideration.

Pennsylvania schools are primarily funded by property taxes, and tax exemptions can add up to millions of dollars every year.

Stephen Rodriguez, superintendent of the Pottstown School District — which brought the case against Pottstown Hospital and Tower Health —said the tax exemption made the district lose out on roughly $900,000 annually.

“A million dollars is, you know, 10, 12 teachers,” he said.

Of the state’s 148 general, medical, and surgical hospitals, 131 were nonprofits in 2021, according to the Pennsylvania Department of Health.

Cannon’s decisions are a “warning shot” to those facilities, said David Hyman, a professor of health law and policy at Georgetown University who studies nonprofit hospitals’ tax exemptions. But the repercussions for other hospitals, he said, will depend, in part, on whether local taxing authorities are willing to bring lawsuits.

The last time there was a significant push by taxing authorities to challenge the tax-exempt status of hospitals in Pennsylvania was three decades ago, Modern Healthcare reported.

In 1990, an Erie County judge ruled the parent corporation of Hamot Medical Center used the hospital to generate money for real estate investments. The facility lost its exemption.

Three years later, the hospital regained tax-exempt status and agreed to pay 50% of the taxes it would otherwise owe to the city, the county, and the school district. The hospital, now UPMC Hamot, currently has a similar agreement.

Since then, several other hospitals in Pennsylvania have also agreed to make payments in lieu of taxes, or PILOTs, in order to avoid the risk of litigation.

But a decade-long push in Pittsburgh against UPMC, a large nonprofit health care system headquartered there, shows just how difficult it can be to force providers into voluntary agreements that recoup a meaningful amount of money.

UPMC owns $2.1 billion worth of tax-exempt property in Allegheny County, according to a joint report from the county’s and city’s controllers. In 2021, UPMC’s “exemptions reduced its tax liability by $9.8 million to the county, $13.9 million to Pittsburgh, and $58.3 million to all local governments and school districts,” according to the report.

Between 1973 and 2006, Pittsburgh recouped only 8% of the taxes lost to UPMC’s tax exemption through PILOTs, according to the controllers.

Pittsburgh Controller Michael Lamb said there hasn’t been a PILOT agreement with any of the city’s larger nonprofits for at least 10 years. “Even when we had a PILOT agreement with other nonprofits, we didn’t have one with UPMC,” he said.

In 2013, Pittsburgh filed a lawsuit to strip UPMC of its tax-exempt status, but a judge dismissed the case, saying the city should have sued subsidiary organizations. Then-Mayor Bill Peduto decided in 2014 to focus on PILOT negotiations rather than pursue further legal action.

Seven years later, Peduto announced the formation of OnePGH, a new nonprofit that would liaise between the city and its largest nonprofits. He said UPMC and other large nonprofits would collectively contribute $115 million over five years to programs to address inequities in Pittsburgh.

Peduto’s successor, Ed Gainey, criticized the program as “too little … too late” during his campaign, and later pulled out of it.

While running for office, Gainey also promised to resume legal action against UPMC. But at the moment, there are no plans to challenge the tax-exempt status of UPMC or other nonprofits in court, said city spokesperson Maria Montaño.

Instead, Gainey earlier this year launched a citywide review of tax-exempt property.

“This is one avenue,” Montaño said. “It’s our first step in making sure everybody pays their fair share.”

Pittsburgh’s new review will examine whether each nonprofit that has received a property tax exemption is meeting the standards set by the state Supreme Court in the ‘80s.

If nonprofit hospitals are not providing enough community benefit, they don’t deserve an exemption, Hyman said. “And if the consequence of that is they shut down, we shouldn’t subsidize things,” he said.

Much of Hyman’s research compares the charity care provided by nonprofit and for-profit hospitals. Hyman said many nonprofit hospitals nationwide are not providing enough charity care to warrant receiving tax exemptions, especially because for-profit hospitals also provide charity care.

A 2022 report from the Lown Institute, a nonpartisan think tank, found the tax exemptions granted to UPMC far exceed the value of charity care and community investment that the system provides. UPMC disputed the findings.

Ashad Hajela is the rural affairs reporter for Spotlight PA.

Learn more about Spotlight PA.

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Mayor Ed Gainey made a long-awaited initial public move to tap major nonprofits on Tuesday, announcing a citywide review of tax-exempt property to determine where that status should be challenged.

The initiative appears to be Gainey’s first step toward fulfilling one of the key promises of his 2021 campaign — making healthcare giant UPMC and potentially others “pay their fair share” of public costs. He will be the third consecutive Pittsburgh mayor to wrestle with a Pittsburgh dilemma: Renowned hospitals and universities bring jobs and prosperity, but they pay relatively little into the city’s operating funds. 

UPMC wrote to PublicSource following Gainey’s announcement that UPMC has “long been committed to being a great neighbor” to Pittsburgh. “The City of Pittsburgh and Mayor Ed Gainey, with whom we have met, are aware of UPMC’s ongoing support and can count on our full participation in programs that are fair and equitable and include the region’s other major nonprofits,” said UPMC’s chief communications officer, Paul Wood.

Monday’s executive order impacted all nonprofits generally, but UPMC has the most property — and money — at stake. 

Almost 20% of property in Pittsburgh is privately owned and tax-exempt. If those properties were taxable, the city would collect an additional $50 million annually. With the city budget tightening and federal relief funds running out in 2024, tapping into that pool of money could go a long way to stabilizing the city’s finances.

“We need this money to properly run the city,” Solicitor Krysia Kubiak said.

Gainey will not seek to wholly revoke the nonprofit status of any organization; he is instead directing city lawyers to examine each piece of tax-exempt property to determine if the owner is using it specifically for a qualifying charitable purpose.

A Pennsylvania Supreme Court ruling set out a five-pronged test for qualification as a charity, including that organizations must:

• Advance a charitable purpose
• Donate a substantial portion of its services
• Benefit a class of people that are legitimate subjects of charity
• Relieve the government of some of its burden
• Operate without seeking private profit.

“If you pass the test, then the city is truly benefiting from your presence and your exemption has been earned,” Gainey said at a press conference. “However, if you fail to meet our constitutional standards, then we will make sure that you are paying your fair share to our city.”

City lawyers could pick and choose which parcels to challenge on the grounds they don’t meet these five requirements, chipping away at that $50 million in exempt taxes. Kubiak said that the review could take more than a year to complete, and that the city will start with the largest properties. She said the city will take action on properties that fail the test on a rolling basis as they are discovered.

State Senate Democratic Leader Jay Costa, of Forest Hills, said in a statement that he supports Gainey’s plan. 

“It’s crucial that every public charity demonstrate that it’s holding up its end of the bargain and meeting its charitable obligations to our friends and neighbors,” Costa said.

UPMC isn’t specifically named in Monday’s executive order, but the healthcare giant was in Gainey’s crosshairs during his 2021 campaign. It owns a quarter of the city’s privately owned tax-exempt property, worth a total of $1.7 billion. If that portfolio was taxable, city property taxes would net almost $14 million a year. An additional $35 million would be owed to the city schools and $9 million would go to the county.

Challenging tax-exempt status will be difficult, and Gainey is not the first mayor to try. Former Mayor Luke Ravenstahl filed a lawsuit challenging UPMC’s charitable status in 2013. His successor, Bill Peduto, dropped the lawsuit, saying it would not yield results for the city. Instead he launched the OnePGH program, seeking voluntary contributions from nonprofits. The program did not approach its initial targets, Peduto was voted out and Gainey ended OnePGH in 2022. 

UPMC is the city’s largest tax-exempt landowner, but there are big implications for other organizations, too. The University of Pittsburgh owns $1.4 billion worth of tax-exempt property in the city, and Highmark/AHN, Carnegie Mellon University and Duquesne University each own hundreds of millions worth.

A Pitt spokesperson said to PublicSource in an email Tuesday that the university is a “steadfast economic engine for the city” and that it looks forward to continuing to work with the mayor.

A report produced by the city and county controllers last year floated the idea of creating Payment-in-Lieu-of-Tax (PILOT) agreements between the city and major nonprofits in which the nonprofits would voluntarily pay a fraction of what they save from their tax exemptions. Gainey held private talks with UPMC and Highmark leaders, but reported no result.

“We had conversations with a couple nonprofits, and we continue to have those conversations,” Gainey said. “But we feel like this is the direction we need to go right now.”

Clarification: The state Supreme Court ruling that purely public charities do not seek private profit does rule out their receipt of revenue beyond their expenses.

Editor’s note: Comments received after initial publication have been added to this story.

Charlie Wolfson is PublicSource’s local government reporter and a Report for America corps member. He can be reached at charlie@publicsource.org and on Twitter @chwolfson.

The post Gainey orders review of tax-exempt property appeared first on PublicSource. PublicSource is a nonprofit news organization serving the Pittsburgh region. Visit www.publicsource.org to read more.

Pittsburgh’s ‘eds and meds’ are economic drivers. But their tax status largely passes the bill for government to the rest of us. Explore the series.

Pittsburgh’s “eds and meds” are economic drivers, but how does their tax-exempt status impact the city’s bottom line?

PublicSource has spent the summer seeking to answer that question, one rooted in years of debate that city and county officials have once again renewed. Here’s what we’ve learned.

The major nonprofits have billions of dollars worth of tax-exempt property.

Property taxes are Pittsburgh’s largest revenue source, but only 61% of the city’s property is taxable. Overall, the city’s five largest “eds and meds” – the University of Pittsburgh, UPMC, Carnegie Mellon University, Highmark/AHN and Duquesne University – paid taxes on about 7% of the assessed value of their property in the city, and 11% countywide, in 2021. If their remaining $4.3 billion in exempt city property was taxable, Pittsburgh would have collected an extra $34.5 million last year.

City Controller Michael Lamb and former Acting County Controller Tracy Royston have argued that greater financial contributions from the major nonprofits would lessen the burden that residential taxpayers bear for funding city services, such as police, fire and EMS. Property taxes are critical for funding these services, which the major nonprofits rely on just like residents do.

The major nonprofits have made investments in Pittsburgh. Four of the institutions have collectively committed $115 million over five years to fund city priorities through the OnePGH Fund, an independent nonprofit created in spring 2021 under former Mayor Bill Peduto. The organizations are also some of the region’s largest employers and provide charitable community benefits to Pittsburgh. 

But the OnePGH contributions don’t flow directly to the city’s budget, and the pledged amount for five years nearly equals one year of what the nonprofits’ exempt property would otherwise provide the county, its municipalities and its school districts. As the city reckons with a future without the federal pandemic relief funding that has kept its budget balanced, the city and county controllers want to see these institutions make direct – and larger – payments. 

“Huge non-profits that bring in millions or even billions in revenue and occupy some of the most valuable real estate in our region must pay their fair share,” County Controller Corey O’Connor said in a statement in response to questions from PublicSource. 

As officials’ calls for greater contributions continue, some of the major nonprofits have expressed that they’re open to discussion while noting that they provide services and benefits to the community already. 

Pitt has stated that it “values its longstanding partnership with the city and county and looks forward to engaging with local officials further on this topic.” A spokesperson for UPMC has said that the hospital system has met with Mayor Ed Gainey “many times … and [he] can count on our full participation in programs that include the region’s other major non-profits and are fair and equitable.”

When asked about Highmark/AHN’s contributions under OnePGH, a spokesperson said the health care giant is committed “to being a good corporate citizen to the Pittsburgh community.”

This is a longstanding issue in Pittsburgh, but taxing bodies lack leverage.

One way the city could receive greater contributions is through negotiating agreements for payments-in-lieu-of-taxes [PILOTs]. “Our local governments must make a priority of securing meaningful PILOT agreements,” said O’Connor. 

But state law on tax exemption has made it challenging for taxing bodies to convince nonprofits to come to the table, local officials argue. 

Organizations in Pennsylvania can obtain tax exemptions if they pass a test that proves, in part, that they advance a charitable purpose. In 1997, the state legislature passed the Institutions of Purely Public Charities Act, or Act 55, to more clearly define what that means.

But under Act 55, qualifying for and receiving exemptions became easier for organizations, and challenging that designation became harder for municipalities, according to a joint report Lamb and Royston released in May. While the law explicitly encourages financially stable nonprofits to enter PILOTs, the report asserts that Act 55 stripped away the incentive for them to do so.

The report states that a 2012 state Supreme Court case allows municipalities to more aggressively challenge nonprofits’ tax exemptions, but in the last decade, the exempt property of the major nonprofits has only grown.

Major nonprofits nationwide and in Pennsylvania make voluntary payments.

Pittsburgh’s desire for more revenue from its major nonprofits is not outlandish or unusual, but accomplishing this task has not been so elusive for other cities. 

Other municipalities, like New Haven, Connecticut, and Providence, Rhode Island, receive voluntary payment from their major nonprofits. And in Pennsylvania, hospitals owned by UPMC and Highmark/AHN make payments to the city of Erie through agreements secured when they were independent.

One notable example of a city with a broad PILOT program is Boston. The city requests that large nonprofits make individualized contributions each fiscal year while allowing community programming and services to cover up to 50% of the request. 

The program brought the city about $90.5 million in payments and services in fiscal year 2021, with the 47 participating nonprofits meeting 77% of the city’s request. A similar model with the five major nonprofits, as Lamb and Royston have recommended, could generate an extra $8.6 million and $5.9 million a year for the city and county, respectively. 

Sarah Gallop, co-director of the Office of Government and Community Relations at the Massachusetts Institute of Technology, said cities like Pittsburgh should pursue agreements that meet their needs – in whatever shape that may take.

“Ultimately, it’s the municipality and the university that need to decide what is it that’s best for the university, for the town,” Gallop said. 

Pittsburgh mayors have disagreed on methods, but experts say collaboration is better than conflict.

Given the constraints of state law, Pittsburgh mayors have tried to secure greater nonprofit contributions with carrots and sticks. Each effort has been criticized by successive administrations as insufficient or unwise. 

Former Mayor Luke Ravenstahl sued UPMC in 2013 to challenge its tax-exempt status, but Peduto dropped the lawsuit in 2014 and sought contributions through OnePGH. When Gainey was on the campaign trail, he said the $115 million in commitments the nonprofits made under OnePGH was “too little, too late.” His administration severed the city’s ties with the fund in July. 

In an early August interview with WESA, Gainey did not rule out the possibility of a lawsuit. 

But Daphne Kenyon, a local public finance expert who previously worked for the Lincoln Institute of Land Policy, told PublicSource in May that municipalities can more successfully approach and obtain PILOT agreements when they refrain from threatening a nonprofit’s tax-exempt status. 

Municipalities should also provide justifications for the financial contributions they seek, communicate with the nonprofits respectfully and provide reductions in contributions in exchange for new services, Kenyon said.

The cards are stacked against the city, and it's unclear what the mayor’s next move is. 

The most significant update in the city’s efforts came when the Gainey administration cut ties with OnePGH. Throughout the summer, Gainey and his press secretary have said that his administration has been in talks with UPMC and AHN, but the details of those discussions, and what will come of them, remain unclear.

At the community level, Pittsburgh UNITED and other local organizers have launched the “UPMC: It’s Time to Pay What You Owe” campaign to demand that the healthcare giant enter a PILOT with the city, Pittsburgh City Paper reported. City Councilmember Deb Gross, state Rep. Summer Lee and Chris Smalls, leader of the national Amazon Labor Union, attended the campaign’s Aug. 19 kickoff Downtown.

In April, Lamb told PublicSource that he felt more confident in the city’s ability to secure greater contributions than he had in the past decade, partly due to the mayor’s focus on the issue and new leadership at UPMC. After the campaign’s kickoff, he released a statement calling the lack of sufficient PILOT agreements with the major nonprofits “unacceptable.”

“The best time to negotiate fair PILOT agreements was eight years ago,” Lamb said. “The second-best time is now.” 

Read The Exempt Dilemma here.

Emma Folts covers higher education at PublicSource, in partnership with Open Campus. She can be reached at emma@publicsource.org.

The post Pittsburgh’s quest to get a ‘fair share’ from big nonprofits has lasted for decades. Here’s the 4-minute version. appeared first on PublicSource. PublicSource is a nonprofit news organization serving the Pittsburgh region. Visit www.publicsource.org to read more.

This story was produced and co-published in collaboration with The Pitt News.

Pittsburgh’s ‘eds and meds’ are economic drivers. But their tax status largely passes the bill for government to the rest of us. Explore the series.

When she lived in the University of Pittsburgh’s Litchfield Towers, student resident Emily James witnessed city EMS workers tend to a student who was found by a resident assistant slurring her words and vomiting. 

Former resident Manoj Kuppusamy saw EMS workers carry an unconscious student out of the dorm last fall and city police detain a person in the building’s lobby in the spring.

Gabe Wilson, who has lived in the three-dorm complex often referred to as “Towers” for two years, said city police and paramedics are a familiar presence there, for what often seem like fairly minor reasons.

The City of Pittsburgh, which supplies the services, gets a lot less in return than it would if the same incidents occurred in a typical apartment building.

Pitt and other major nonprofits use city services, but unlike residents, they largely do not pay the property taxes that are crucial to funding them. And 911 calls to the towers, the largest cluster of dorms on Pitt’s main campus, exemplify this dynamic. 

Between May 2021 and the end of April 2022, there were 146 calls to the Allegheny County 911 Center regarding incidents at 3990 Fifth Ave., the location of the towers, according to public records obtained by PublicSource and The Pitt News. The incidents – sometimes more than five a day – were mostly medical issues including those characterized as overdoses, abnormal breathing and unconsciousness, but included fire alarms, welfare checks and elevator rescues.

The towers, which house more than 1,800 students across three buildings, are tax-exempt. The property is currently assessed at about $45 million and would bring about $363,000 to the city each year if the address was taxable.

The city has a responsibility to provide municipal services regardless of a property owner’s tax status. But it has also faced a growing, largely tax-exempt nonprofit presence and has relied on federal pandemic relief to balance its budget. Now, some public safety bureaus – and taxpayers, as local officials would argue – are feeling the effects of the financial constraints.   

"Quite simply, the cost of city government falls too heavily on our residents,” City Controller Lamb said in an Aug. 19 statement calling for greater contributions from the major nonprofits. “While ‘eds & meds’ undoubtedly provide a benefit to the region, they rely heavily on city resources: public safety, infrastructure, and sanitation, among other essential services.”

Jonathan Atkinson, a Pittsburgh paramedic and the leader of the paramedics’ union, said the heavy volume of calls involving university residence halls can stretch EMS thin and impact the entire city’s coverage. He said during some shifts for units covering Oakland and nearby areas, the majority of calls are alcohol-related.

“This has a ripple effect throughout the city because if a unit is taking a drunk kid to the hospital when they get another call, another unit from another district has to come in to take that call,” Atkinson said. “And they’re coming in from farther away, so it’s a longer response time. And then another unit may have to cover for that unit, so there’s a snowball effect.”

The Pitt Police and campus security respond to all 911 calls where authorities notify the university, and though city police, EMS and fire may assist, not all calls result in city services being used, a spokesperson for Pitt wrote in an email. Campus police, residence life staff and security guards monitor and respond to incidents on campus, including at Towers.

“The University works with the city, Oakland residents, and local partners to support a safe environment, and is committed to the safety of the campus community,” the spokesperson said. 

Equipment needs and budget constraints

The fire and EMS bureaus in particular have grappled with equipment needs as the city tries to wrangle funds from its tax-exempt giants. 

Both bureaus have aging emergency vehicle fleets, and as of February, the EMS bureau needed nine new ambulances for 2023, according to a report on city government commissioned by The Pittsburgh Foundation and The Heinz Endowments*. The bureau typically receives three new ambulances a year, but none were ordered in 2021 or 2022 due to budget constraints. 

“By not receiving any new [Advanced Life Support] units for two years and no adjunct vehicles, it increases the need and cost into the next year,” EMS Chief Ronald Romano wrote in an email to the report’s consultants. “Frontline fleet continues to age and increase in mileage, and the spare trucks age also, causing breakdowns and prolonged out-of-service time while switching.” 

Fire Chief Darryl Jones said in late 2021 that five of the bureau’s frontline fleet of fire trucks are more than 11 years old, while the bureau prefers to have frontline trucks be 10 years old or newer. Pittsburgh’s 2022 budget set aside funding from the federal American Rescue Plan Act to pay for two new pumper trucks for the fire bureau.

The city’s fire chief, EMS chief and public safety director all declined to be interviewed for this story. PublicSource asked the Department of Public Safety to allow firefighters at Station 14, near Pitt’s campus, to talk about the types of incidents they respond to at the towers and the needs of their station, but instead the department provided a statement regarding how the fire and EMS bureaus respond to incidents at nonprofits.

"Pittsburgh Bureau of Fire and Pittsburgh EMS respond to all nonprofits such as the University of Pittsburgh, as well as churches and other [tax-exempt] entities in the city in the same manner they respond to all emergencies — without hesitation — when called,” Public Safety Director Lee Schmidt wrote in the emailed statement. 

Legit calls or unneeded ‘snowball effect?’

James, a Pitt student who previously lived in the towers, said the city’s EMS team arrived quickly after the RA found the student vomiting and slurring her words last fall. They were on the scene for about 15 to 20 minutes, she said, and they asked the student questions and determined whether she needed to go to the hospital. In the end, the medical team decided the student did not need further medical attention and did not take her to the hospital. 

While she believes the university needs to rely on emergency services to ensure the health and safety of its students, she thinks it’s only fair for Pitt to pay taxes for the emergency services that it uses from the city. 

“They’re definitely aware that they're going to need to use those resources, so I think they should be paying the taxes that contribute to keeping those resources available for them if they're going to use them,” James said. “When you have as many students and staff as [Pitt] does, I think it's fair to pay taxes.”

Kuppusamy does not consider it unfair for Pitt to avoid paying property taxes despite its use of city services, especially because the university operates its own police force and insurance companies reimburse EMS for transports. (The city receives about $13 million annually for EMS services, but spends double that amount to operate the bureau). 

“As a Pitt student, I think that it's fine,” Kuppusamy said. “I think that the level that we're using the resources isn't a lot, and we do have Pitt Police.” 

The Pitt Police are the third-largest police force in the county, and officers often support city police off campus and serve as first responders to emergency calls in Oakland, the Pitt spokesperson said.

Students differ on whether their peers have overused city services.

Kuppusamy hasn’t seen students recklessly or needlessly bringing emergency services to the building. 

Wilson, though, said he has seen the fire department and EMS respond to multiple incidents that did not appear to be emergencies. 

He recalled that public safety personnel were called after a student forgot to add water to their microwaveable mac and cheese and said firefighters and the police showed up after he smelled smoke in the building and texted his RA.

“I just remember, I was sitting there and studying and then realized it smelled like smoke so I was opening my window, but it didn't seem to be coming from outside and I was very confused," Wilson said. "Later on, the firefighters, the cops, and I'm not sure about EMS, I remember they showed up and had to search the rooms." 

PILOTS or payments for services?

As students settle back into the towers, Pittsburgh’s fiscal watchdog is calling on Pitt and the city’s other major nonprofits to make greater financial contributions through payment-in-lieu-of-taxes agreements, or PILOTs. If the five largest nonprofits entered a PILOT for 25% of their property tax liability, the city would receive an extra $8.6 million a year. 

“Unfortunately, none of the ‘Big Five’ institutions have adequate PILOT agreements in place.  This is unacceptable,” Lamb said in the statement, calling out UPMC specifically but also referring to Pitt, Carnegie Mellon University, Duquesne University and Highmark/Allegheny Health Network. “City residents should not be expected to bear the financial burden of city operations when the region’s largest employers pay next to nothing.”

In a May report, Lamb and former Acting County Controller Tracy Royston recommended that the city and county negotiate PILOTs based on the value of city services the nonprofits use. 

Lamb  also noted in an interview that PILOT agreements should discount the services and community benefits that nonprofits like Pitt provide. 

“We talked about how many times police respond to a call in Oakland. The fact of the matter is the University of Pittsburgh has a police force, and they're helping us deal with a lot of those kinds of issues. So those kinds of things have to be discounted,” Lamb said of potential PILOT agreements.

Mayor Ed Gainey, who ran in 2021 on the promise of getting major nonprofits to contribute more to the city, said this year he has conducted private talks with leaders of UPMC and AHN. He and his spokesperson have repeatedly declined to comment on the substance of the talks or how long they will continue, and did not respond to a request for comment on this story.

Gainey announced in July that the city will fully remove itself from the OnePGH Fund, which was former Mayor Bill Peduto’s plan to get nonprofits to contribute to city projects through a third-party nonprofit.

In the meantime, a new crop of Pitt students has settled into the towers as the academic year begins, likely bringing with it renewed demand for city services. 

Emma Folts covers higher education at PublicSource, in partnership with Open Campus. She can be reached at emma@publicsource.org. 

Charlie Wolfson is PublicSource’s local government reporter and a Report for America corps member. He can be reached at charlie@publicsource.org and on Twitter @chwolfson.

Alexandra Ross is a student journalist studying at the University of Pittsburgh and a senior staff writer at The Pitt News. She can be reached at anr204@pitt.edu.

Punya Bhasin is a freelance journalist in Pittsburgh and the news editor for The Pitt News. She can be reached at punya13b@gmail.com.

This story was fact-checked by Abigail Nemec-Merwede.

The post Medical emergencies, mac-and-cheese mishaps and elevator rescues: Pitt dorms draw city services, but should the university help fund them?  appeared first on PublicSource. PublicSource is a nonprofit news organization serving the Pittsburgh region. Visit www.publicsource.org to read more.

Pittsburgh’s ‘eds and meds’ are economic drivers. But their tax status largely passes the bill for government to the rest of us. Explore the series.

Faced with a $56 million budget deficit last year, the Pittsburgh Public Schools [PPS] board decided to raise the district’s  property taxes. City residents and district parents are receiving higher bills, but the city’s major nonprofits have remained largely unaffected. Nearly all of their property is tax-exempt.

The city’s university and hospital giants have invested in PPS students, but one of their most significant contributions, the Pittsburgh Promise scholarship, can’t guarantee funding will be there for students now in lower grades. As the mayor calls on major nonprofits to pay their “fair share” to the city, PPS officials – beset by financial problems including the drain from paying charter schools – have refrained from taking sides.

If the nonprofits paid 25% of what their tax-exempt property would otherwise bring to the city, PPS would collect about an extra $11 million a year, according to a PublicSource analysis. That figure would make up a fraction of the $668.3 million general fund budget the district approved in 2022, but it would represent about 40% of the district’s current deficit, which the tax increase helped reduce from $56 million to $27 million. 

It’s more than double the $5.3 million the most recent tax increase is set to bring PPS this year, too.

Wayne Walters, who was named as superintendent on July 21, said an extra $11 million would “certainly help” PPS reduce its deficit and lessen residents’ tax burden. With more funding, PPS could better address students’ social and emotional needs, strengthen its academic offerings and improve its art, health and physical education programs, he said.

“We would look at paying our bills first to make sure that it doesn’t impact, you know, our residential taxpayers, and then really think about, ‘What are the wonderful things that we can do for the children and families that we serve in Pittsburgh Public Schools?’” Walters said.

He stressed, however, that he was speaking hypothetically and was not taking a position on whether the district should receive greater funding from nonprofits. “I’m just simply saying that, if this were the case … this is the way that this would help and support Pittsburgh Public Schools at this moment in time.” 

An extra $11 million a year would be “a dream come true” for the district, said Nina Esposito-Visgitis, president of the Pittsburgh Federation of Teachers. She envisioned the district hiring more peer educators, expanding its athletics offerings and implementing the community school model throughout PPS.

“We are a great district doing a lot of things, but think of what we could do if we had that money,” she said. 

To be sure, PPS’ per-pupil costs are higher than the state average. The district spent about $28,000 per student in 2020-21, while per-pupil spending in Pennsylvania’s 500 drastically varied districts averaged about $19,600, according to the state Department of Education. 

Getting nonprofits to the table

Ira Weiss, the district’s solicitor, said the funding would help considerably but doesn’t believe it’s “at all realistic” to assume meaningful financial participation from the nonprofits. Under state laws, he said, taxing bodies have no real leverage to challenge nonprofits’ tax-exempt statuses and the school district is unable to secure meaningful payment-in-lieu-of-taxes [PILOT] agreements. 

Change may be brewing in Pittsburgh, though. In July, Mayor Ed Gainey’s administration severed ties with the OnePGH Fund, created in 2021 under former Mayor Bill Peduto as a means to help fund city projects with contributions from four of the largest nonprofits — the University of Pittsburgh, Carnegie Mellon University, UPMC and Highmark/Allegheny Health Network [AHN]. 

The mayor, who has made clear that his administration is looking to be a partner to PPS under Walters, told WESA on Aug. 1 that the city cut ties with OnePGH partly because Gainey’s administration is instead focused on creating workforce development opportunities  for students in local schools.

When PublicSource asked if PPS will play a role in Gainey’s efforts to get greater contributions from nonprofits, Walters left it as the mayor’s work. 

“If that is the way that the mayor deems that approach to work, and it benefits the school district, then so be it,” Walters said. 

Weiss wrote in an email that the district believes it has a strong, positive relationship with the city’s nonprofit community that will continue under Walters. CMU spokesperson Peter Kerwin wrote in an email that the university “remains committed to educating the next generation in our region,” and looks forward to partnering with Walters, a CMU graduate, to support city students. 

The mayor told WESA that he remains in talks with major nonprofits but did not state whether his administration has set a deadline for any agreement to be reached. He did not, however, rule out the possibility of a lawsuit. In 2013, former Mayor Luke Ravenstahl sued UPMC to challenge its tax-exempt status. Peduto dropped the lawsuit early in his tenure.

The teacher’s union supported Ravenstahl’s effort, Esposito-Visgitis said. The nonprofits’ tax-exempt statuses have been a grievance of the union for years. 

“They should help. They’re part of the city. They make a heck of a lot of money,” Esposito-Visgitis said. “Our schools and our students need the help. Pay it.”

If the city did negotiate a PILOT with the major nonprofits – as the city and former acting county controllers have called for – it would not be required to distribute funds to the district.

How nonprofits contribute to the district

The city’s major nonprofits have provided programmatic support and student services to the district, Weiss said in an interview. Pitt guarantees admission and provides scholarship funding to PPS valedictorians and salutatorians, and AHN has provided on-site internships and mentoring to district students.

“Some of our longest and most successful partnerships have involved the city, county and Pittsburgh Public Schools,” wrote Chuck Finder, a spokesperson for Pitt, in an emailed statement. “We look forward to continuing these collaborations and contributing in meaningful ways to the strength and success of our local communities and economies.” 

One of the most significant contributions by a tax-exempt entity came in 2007 when UPMC committed $100 million over 10 years to fund the Pittsburgh Promise — a nonprofit independent of PPS that provides scholarships for district students to attend college. UPMC made its final payment in 2017.

“Financially, that has been a huge boost for the students of this city,” Weiss said. “Any discussion of what nonprofits do in this city, there has to be a lot of recognition to UPMC for doing this.”

The Promise has raised $235.4 million so far, providing $162 million in scholarships to nearly 11,000 students. The purchasing power of the scholarship, though, has plummeted in recent years. As college costs go up, the maximum annual award has fallen, from $10,000 in 2015 to $5,000 now.

The Promise has committed to providing scholarships through the Class of 2028 (students who are entering seventh grade this fall). Shelley Scherer, associate executive director of the Promise, wrote in an email that the nonprofit is focusing on raising about $30 million over the next several years to secure that funding. The Promise can’t make commitments to future classes until then, Scherer said. 

Scherer said additional contributions from UPMC to the Promise have not been discussed. The Promise is “profoundly grateful for the extraordinary generosity” of the hospital system, she said.

Paul Wood, UPMC’s vice president and chief communications officer, wrote in an email statement that the hospital system’s commitment to the city’s public school students is “unrivaled” among nonprofits nationwide, and the $100 million donation “has proven to be a successful catalyst for many other donors to step up and contribute significantly.”

UPMC has and will continue to contribute significantly to the city beyond the Promise, Wood wrote, citing the nonprofit’s $40 million commitment to affordable housing under OnePGH. 

Meanwhile, the Promise’s board of directors will begin a planning process this fall “to wrestle thoroughly, strategically, and compassionately” with the nonprofit’s role in providing opportunities to city students and addressing challenges they face after 2028, Scherer said.

Esposito-Visgitis called UPMC’s funding of the Promise “a very nice gesture.” But given that the scholarship is no longer funding students the way it used to, she’d prefer more property taxes from the major nonprofits to continually fund the district. 

“That was a long time ago. We need their support now,” she said. “Our kids and our neighborhoods need their continued support.”

The district’s remaining challenges

Even if the district receives greater funding from nonprofits, it still faces structural financial obstacles. One of the largest is charter school costs. 

In Pennsylvania, districts pay charter schools a per-pupil cost based on what the district spends on its own students, regardless of the charter school’s costs. “In my view, that’s a completely upside-down way of doing it,” Weiss said.

PPS’ preliminary 2022 budget set aside about $119 million, or about 17% of its overall proposed budget, for charter school tuition. That was the largest appropriation in the budget following salaries and benefits. The school district had 4,485 salaried and non-salaried employees during the 2020-21 school year.

Weiss said the state legislature needs to seriously consider revising the funding formula for charter and cyber charter schools, but it “has demonstrated no ability to address the inequities in the system.” Democratic Gov. Tom Wolf attempted to reform charter school funding in the 2022-2023 budget, but the budget passed without any changes. 

Within the district, increased spending under former Superintendent Anthony Hamlet and declining enrollment accounted for the majority of PPS’ then-$56 million deficit as of December. Hamlet resigned in October 2021 following a State Ethics Commission finding that he had violated the Ethics Act by “negligently” receiving travel reimbursement payments and making errors on submitted financial interest forms. 

Even as Walters defers to Gainey on contributions from nonprofits, their respective institutions have disagreed on another potential source of funds for the district. After Pittsburgh entered state oversight due to financial distress, the city began collecting a portion of residents’ earned income taxes that previously went to PPS – a shift that amounts to about $23.4 million this year. The city left behind its financially distressed designation in 2018, but its share of the income tax has not reverted to prior levels.

In fall 2019, former Mayor Peduto criticized PPS’ spending and, at one point, declined to meet with former Superintendent Anthony Hamlet to discuss the district’s budget problems. At that time, the district was calling for the city to stop collection of the income taxes. 

“I’m not going to meet with him to bail out a problem that they’ve created but yet don’t want to take the responsibility to fix,” Peduto told KDKA.

Now, Weiss said the district is hoping to have meaningful discussions with the city about the issue. Gainey told WESA that his administration has spoken about the redirected funding with state Senate Minority Leader Jay Costa, D-Forest Hills, and is “willing to sit down with everybody to find out exactly what happened” when the wage tax funds were shifted.

“The diversion of those funds was enacted when the district had a significant fund balance and the city was a distressed municipality. It is no longer distressed,” Weiss said.

Walters, the new superintendent, has said his approach to addressing the district’s financial situation will focus on ensuring PPS is operating efficiently and providing the same quality of education to all students. The hypothetical $11 million from tax-exempt nonprofits, he said, would support the district’s efficiency goals.

“We know that we have some financial challenges, and we cannot, you know, run in the red,” Walters said. “If we’re able to balance our budget, that would be wonderful, if we had that additional revenue, if that were a thing.”

Clarification (08/10/2022): This story was updated to note how the city could distribute funding under a PILOT agreement.

Emma Folts covers higher education at PublicSource, in partnership with Open Campus. She can be reached at emma@publicsource.org. 

This story was fact-checked by Eric Jankiewicz.

The post Another Pittsburgh promise? Payments from ‘eds and meds’ would bring millions to PPS, allow district to slash deficit and consider ‘wonderful things’ appeared first on PublicSource. PublicSource is a nonprofit news organization serving the Pittsburgh region. Visit www.publicsource.org to read more.

Pittsburgh’s ‘eds and meds’ are economic drivers. But their tax status largely passes the bill for government to the rest of us. Explore the series.

For decades, the University of Pittsburgh’s expanding presence in Oakland has been a source of growth and growing pains. 

There are the loud parties some long-term residents say come with students living next door. Ask the city and county controllers, and they’d fret about Pitt’s $1.5 billion in tax-exempt property. But beyond those concerns, there’s a broader, long-standing dynamic at play in the neighborhood: What should the Oakland of the future look like, and who has the power to shape that vision? 

Oakland, the neighborhood fueling Pittsburgh’s “eds and meds” renaissance, is now at a critical juncture in charting its future. And the city that’s reaping both the benefits and the costs of ballooning nonprofit institutions is deciding the extent to which it should allow an entire neighborhood’s future to conform around that foundation. 

The city is moving forward with a 10-year development plan for Oakland, which aligns with Pitt’s vision under its campus master plan, after about 100 community meetings over more than two years. In its Oakland Crossings project, developer Walnut Capital is looking to reconstruct 13 blocks of South and Central Oakland to create denser housing for non-student residents and provide a full-service grocery store. Pitt-owned property is included in the project.

And last year, the city approved Pitt’s most recent institutional master plan [IMP], outlining 22 sites for development, renovation and redevelopment within at least the next decade. The city requires institutions with large landholdings – including UPMC and Carnegie Mellon University – to submit IMPs every 10 years. 

“It’s one thing to sort of be able to look back and say, ‘OK, over 30 years, these are all of the slow changes that might have changed the character of a neighborhood,’” said Jamie Ducar, executive director of the engaged campus at Pitt. “What folks are experiencing now is like, ‘OK, in the next 10 years, this neighborhood might look very different.’”

Proponents, including university and city officials, view development in Oakland as propelling needed growth that creates jobs, meets the area’s housing needs and fosters a vibrant, diverse neighborhood in Pittsburgh’s second downtown. Both the Oakland Plan’s related zoning proposals and Oakland Crossings have drawn questions and ire from some long-term residents concerned with potential building sizes.

What do community members think of Oakland’s ongoing development and expanding university presence, and how do both impact them? PublicSource spoke with long-term residents and students as well as university, city and business officials who make up the neighborhood.

The young family and the proposed shadow in their backyard

In February, Jessica Collins and her family moved to Coltart Avenue, a sloping street in Central Oakland. The move allowed their sons, who are 7 and 11, to continue attending their K-8 school in Greenfield, and the family likes the neighborhood’s proximity to attractions. In the mornings, Collins walks her sons to the Carnegie Museums, where they attend summer camp. 

While 43% of households in Pittsburgh were made up of families as of October 2020, only 19% in Oakland were. In their short time living here, the Collins family has interacted with the student and long-term residents who make up the street. “One day I just look out, and I’m like, ‘Where are they?’” Collins said of her children. “They’re throwing a football around with students across the street.” 

The family purchased their home knowing that a new development was set to be built behind their backyard, but they figured that was a concern for a later day. That day is near. Walnut Capital plans to build a 12-story, 426-unit apartment building and grocery on the site of a former Quality Inn, owned by Pitt. The developer aims to begin demolition of the inn in early 2023.

Though new developments bring the typical challenges of noisy construction and road closures, Collins questioned whether a building of that height would fit in with the neighborhood.

“Initially, hearing about how many stories they had planned to build this building, it seemed kind of a little out of place,” she said. “And obviously, living right here, it’ll be like, ‘Oh, there’ll be no more sky. It’ll just be a building.’” 

The longtime residents grappling with long-term change

Kathy Boykowycz has lived on Parkview Avenue since 1973. In her first years in the house, she participated in a neighborhood-driven effort to create a master plan for Oakland – one that was in opposition to Pitt’s master plan.

By the late 1970s, the presence of Oakland’s nonprofit colleges and hospitals were contributing to now-familiar challenges to the neighborhood. The number of commuters outpaced the number of residents; chain stores catering to a growing student population replaced neighborhood businesses; and real estate interests converted owner-occupied homes into student apartments. 

The neighborhood plan, published in 1980, struck an optimistic tone of collaboration. But Kathy, now 81, doesn’t share that outlook. She criticized the subsequent university planning processes she attended as lacking in transparency and proactive community input. 

“We were just always reacting to something that came at us, and they had felt no need to involve us in actually preserving the neighborhood at all,” Kathy recalled. “It’s just always been eyewash, and I’m not sure why we even participated.”

Out of the 1980 endeavor sprung the Oakland Planning and Development Corporation [OPDC], now a registered community organization where her daughter, Andrea, serves as assistant director. The group and the university are sometimes at odds, but their relationship isn’t entirely adversarial. Pitt provided OPDC with $133,000 in funding for programs between fiscal years 2015 and 2019, in addition to $362,500 in no-interest loans and support for operating costs. 

Ducar said she’s made it her mission to be present and visible at community meetings, not just to offer the university’s perspective, but to listen to residents. 

“We recognize that there’s inherent tensions that come in with having a large institution in a small landlocked footprint, and we want to, wherever possible, start to build greater opportunity for us to work together,” Ducar said. 

As part of its most recent IMP, the university met with neighborhood groups and held eight public meetings throughout 2019. The plan’s neighborhood enhancement strategy includes supporting “community-led strategies for neighborhood stabilization and housing affordability.” 

Andrea, though, said OPDC must still exert itself against the force of university expansion in its commitment to strengthening Oakland’s residential community. 

“It’s hard for many members of the community to know what the end game is for the university’s expansion,” Andrea said. “Is there a scenario in which the university will not talk about growth in the future? Will that be regarded as a failure, if the university can’t continue to grow?”

The business booster says Oakland isn’t really a town-gown neighborhood

Georgia Petropoulos doesn’t use the phrase “town and gown” to describe Oakland – to her, that feels very ’80s. Today, the neighborhood’s residents and institutions are wholly intertwined and inseparable, she said.

“A resident of Oakland also could be an employee of the university. A resident of Oakland could own a business in Oakland, could own commercial property in Oakland. Or they can actually be in leadership levels of these, quote, ‘institutions,’” Petropoulos said. “In my world, there’s no us-and-them boundary.”

Petropoulos heads the Oakland Business Improvement District [OBID]. Oakland has always been a job center – including for her parents, who immigrated from Greece – and its “eds and meds” are now critical to the vitality of Pittsburgh and the region, she said. Pitt has estimated that its annual economic impact to the state stands at $4.2 billion.

OBID wants Oakland’s universities to remain some of the neighborhood’s leading employers, so the organization supports their need for growth and density. She thinks that the universities have made a significant effort to engage the community in their development plans.

“There’s always opportunity for access to the university, always opportunity for providing input,” but they don’t have to agree, she said. 

Students like the neighbors, not the landlord 

On a stifling July evening, four current and former Pitt students stood on the sidewalk on Atwood Street, complaining about their landlord. The four friends have lived in the same off-campus house for two years, and in that time, they claim they’ve dealt with a flooded basement and leaking ceiling, among other issues. 

“The landlords take advantage of the fact that we’re college kids needing a place to live,” said Victoria Martin, who graduated from Pitt this year. “They think we don’t know stuff or we’re not going to argue.”

Much of Oakland’s housing market is targeted toward high-turnover student rentals, and the Pittsburgh Post-Gazette described Oakland as “the ultimate symbol of Pittsburgh’s rental housing woes” in a June investigation of the city’s inability to enforce rental quality. “There, entire blocks are rife with code violations, leaving students and parents frustrated and angry,” the Post-Gazette wrote.

Pitt plans to create more on-campus beds under its IMP, highlighting that students have moved off campus in recent years partly because dormitories can’t accommodate them. The university has also committed to fund the hiring of a full-time code enforcement officer for the neighborhood. 

“We can’t continue to sort of let folks jam students in, not invest in their properties, have them sometimes even be somewhat dangerous,” Ducar said. “That means investing very visibly in Oakland.”

The friends wanted to move off campus partly because it offered more freedom than on-campus living. Despite the problems, they’ve enjoyed their time in the house. 

Martin estimated that Atwood Street and nearby Meyran Avenue have the most student parties – “I think it’s pretty fun,” she said – and she gets the sense that the street’s long-term residents understand the loud gatherings come with the territory. Mallika Matharu, a rising senior, said the neighborhood’s older residents are “generally really nice.” 

“They only dislike you if you’re rowdy and disturbing them,” Matharu said. “Which is fair, because they were here first.”

Neighbors look to Pitt for help with the students next door

Having 20-something students as neighbors may come with the following sights and sounds: Trash strewn about. Screams at 2 a.m. Cars parked in the yard. Students urinating over a guardrail.

This occurs even in what Jeff Maurin calls “a quiet enclave.” He and his wife, Kate, graduated from Pitt and have lived in the same house in Oakland Square for 13 years. The couple now have fewer long-term neighbors, and he said living near students has brought quality of life challenges.

“I just think it’s very different when you have people who want to get up and go to work in the morning versus people who don’t have class on Friday, so Thursday night is a great time to bring the stereo outside and have a big party on your porch,” Jeff said.

He’d like the university to further educate its students on what it means to be a good neighbor and provide greater enforcement off campus.

Ducar said that, for months, Pitt’s community affairs team specific to Oakland has consisted of just her. The university is expanding the team and is looking to prioritize addressing litter and concerns with property upkeep, she said.

Over on North Dithridge Street, long-term resident Kathy Gallagher said campus police regularly stop by the area, help get large parties under control and visit students the day after she’s had problems with them.

She said the relationship between Pitt and the Oakland community has improved over the years and is now “excellent.” She referenced Pitt’s “Be a Good Neighbor Block Parties,” held annually to foster relationships between students and long-term residents.

“Each year, we have students that come and say, ‘We didn’t know regular people lived here,’” said Gallagher, who is president of the Bellefield Area Citizens Association. “So I think the university and the community have done a better job of making known to both students and residents that yes, we both live here. And we both have a community.”

The councilor brings city power to the Oakland of the future

Oakland’s housing, parking and traffic needs necessitate more density, but single-family, owner-occupied homes still have a place in the neighborhood, said City Councilor Erika Strassburger, who represents parts of Oakland. Change in the neighborhood should be considerate of long-term residents’ concerns, to an extent, she said.

“My fear, on the flip side, is that the desire to see no change, or very little change, to the current built environment in Oakland will mean that every new development, every new project, is fought so hard that it drives up costs,” she said. “We just won’t be able to get to the bigger, holistic issues because we’ll be fighting all these little fires.”

To foster a more harmonious relationship between Pitt and the Oakland community, she said the city needs to exercise its power better. She’s optimistic that the city will finally be able to implement its long-delayed rental registration program, and that the resurgence of the disruptive properties program will force landlords to contend with the behavior of their student tenants.

University administrators, she said, truly care about being a good neighbor to Oakland, particularly when it comes to development. In shaping the future of the neighborhood, the university should be present, engaged and on equal footing with residents and businesses, she said. 

“Because they’re a part of it, but they’re not all of it.”

The advocate asks: What should affordable housing look like in Oakland?

Generations of Teireik Williams’ family have called South Oakland home, and he’s found his passion for serving the community here. Williams, who works at CMU, is president of the South Oakland Neighborhood Group [SONG], an organization that aims to improve the quality of life in the area.

He envisions a neighborhood where long-term residents feel they have the same opportunities to shape their futures as the students who live here.

“You’re walking down the same street with somebody who’s 22, and the world is in front of them, and they feel like they can do anything in the world,” Williams said. “I want to create those same feelings in my neighbors.”

One of the neighborhood’s biggest challenges is a lack of affordable housing, Williams said. A 2020 report from the city cited students renting by the bedroom as likely contributing to comparatively higher prices in multi-bedroom homes. 

Early this year, Mayor Ed Gainey called for two 30-day pauses on the Oakland Crossings project amid concerns that it could increase the cost of living and push out residents of color, WESA reported. Walnut Capital has since pledged to make 10% of the project’s housing affordable to people earning less than half the region’s median income. The City Planning Commission then approved the plan.

Still, Williams believes the project doesn’t match residents’ vision for the neighborhood, referencing the height of the proposed buildings.

“Development is something that we have to be sensitive to all the time because it is such a hot market,” Williams said. “People will come and develop things that are not in the best interest of the people that make up this neighborhood.”

The environmentalist in favor of dense development

The front yards of homes along Coltart Avenue are modest in size, but Michael Sobkowiak’s is noticeably green and lush. Walking around the perimeter of his home, he pointed out the tomatoes, raspberries and blueberries, plus the trees growing peaches and plums.

How has the neighborhood changed over the years? “I’ve got two trees growing in my front yard,” he said. 

“I don’t think much has really changed.”

Sobkowiak, 56, has lived in Oakland for 25 years and on Coltart for about six. He believes that Oakland’s future will only continue to be geared toward students – who are residents, too, he said – and shaping the neighborhood in that vision makes sense.

“I really think that we could turn this into a far better student community, and then the residents who don’t mind living in that mix, live in it,” he said. “This is not going to be some leafy, green suburban community anymore. Right? It’s a college town. So why not make it the best college town possible?”

Beyond his garden, Oakland is surrounded by proposed development. Sobkowiak studied natural resources management at Cornell University and previously worked for the Green Building Alliance. His background leads him to prefer density over suburban sprawl. Many people want to live and work in Oakland, so the neighborhood should build to meet that need, he said.

Where does that leave Sobkowiak, a long-term resident himself?

“If you came and offered me a good number on the house, OK, I’ll move. But if they build behind me, I’ll stay,” he said. “I enjoy living here. I’ll continue to enjoy living here. But if someone said, ‘Hey, we’re redeveloping this whole six-block-area,’ OK, well, Plan B.”

Emma Folts covers higher education at PublicSource, in partnership with Open Campus. She can be reached at emma@publicsource.org.

This story was fact-checked by Ashanti McLaurin.

The post Surrounded by university and city development, Oakland residents face and embrace change, vie for a seat at the table appeared first on PublicSource. PublicSource is a nonprofit news organization serving the Pittsburgh region. Visit www.publicsource.org to read more.

Pittsburgh’s ‘eds and meds’ are economic drivers. But their tax status largely passes the bill for government to the rest of us. Explore the series.

Update (7/13/22): In a reversal from its previous comments, Mayor Ed Gainey’s administration announced July 13 that it will sever all ties with the OnePGH Fund. Felicity Williams, Gainey’s deputy chief of staff who had taken a seat on OnePGH’s board, said, “It has become clear that our priorities were headed in a different direction,” and announced that she would resign her post on the panel that runs the OnePGH nonprofit.

The city announced in a news release that it would work to see through the contracts already approved by OnePGH, which include contributions to Allegheny Goatscape and the Hazelwood Greenway.

The release did not further detail the administration’s approach to securing contributions from large nonprofit entities.

Reported 5/5/22: A little more than a year ago, then-Mayor Bill Peduto announced what he hoped would be a triumphant milestone in his yearslong quest to get tax-exempt nonprofits to contribute more to the city. The OnePGH Fund would be the financial solution Pittsburgh had been waiting for.

The future of OnePGH was thrown into doubt when Ed Gainey defeated Peduto last May and became mayor this year. But the new administration may not scrap the project entirely: Gainey has appointed two high-profile administration officials, Deputy Chief of Staff Felicity Williams and City Planning Director Karen Abrams, to its board while he simultaneously negotiates with major nonprofits. 

“We’re in a ‘to be determined,’” said Grant Ervin, OnePGH’s board president and a former city planning resilience officer under Peduto. “The tool and the organization is there for [the Gainey administration’s] utilization. It’s incumbent on the mayor and his team to set the course on how to utilize it and what those priorities are.”

Deputy Mayor Jake Pawlak told PublicSource that the administration is looking at ways to use the nonprofit and that it will continue to exist, but they do not intend to use it as a conduit for major funding from the likes of UPMC and other large nonprofits.

“We are figuring out the right way to situate it in the city’s toolbox for seeking outside funding,” Pawlak said. “It’s fair to say we have a more limited view of that than the previous administration.”

Of the board appointments, Pawlak said they reflect the administration’s desire to have a seat at the organization’s table as the city plots its next moves. 

The OnePGH Fund was designed to work in concert with the city, but it is an independent nonprofit with its own board of directors. The Peduto administration envisioned nonprofits funding projects of their choosing, each to satisfy an identified need in the city, with little to no money ever entering the city’s purse. It was a new installment in the decadeslong struggle by city officials to get greater contributions from major nonprofits, which are largely exempt from property taxes and own a significant portion of city property. 

Peduto’s OnePGH model appears to be highly unusual among American cities, according to local public finance experts Adam Langley and Daphne Kenyon of the Lincoln Institute for Public Land. It could have some benefit compared with direct payments by approaching a solution that pleases both the city and the nonprofits, they said.

“It’s nice if you set up a program where both parties are happy,” Kenyon said. “So it could be worth a compromise, if that made the nonprofits more likely to participate and contribute.”

Meeting commitments

In announcing OnePGH with just weeks remaining in his unsuccessful reelection campaign, Peduto touted commitments from UPMC, Highmark, the University of Pittsburgh and Carnegie Mellon University, totaling $115 million over five years. At the time, some critics said that amount was too low considering the amount of tax-exempt property owned by the nonprofits. 

The $115 million pledge represented just under three-quarters of what the four nonprofits stand to save through property tax exemptions over the same time period. But the amount is just under 20% of what they would save on total property taxes to municipalities, school districts and the county.

Asked for a list of OnePGH-related programs underway or completed, Ervin pointed to a guaranteed income program that the Gainey administration has shelved and a green space improvement initiative. Peduto had planned to route federal pandemic relief dollars through OnePGH to fund the income pilot program, but Gainey nixed it, citing legal and funding issues.

Pawlak said monetary commitments announced last year “did not move forward” and other announced projects were already occurring independent of the initiative.

Officials at the four major nonprofits would not provide specific updates this week about their OnePGH commitments, which ranged from social services and public health to STEM education and programming for seniors. 

The biggest commitment was a UPMC Health Plan pledge to invest in affordable housing. Asked if UPMC’s $40 million commitment is proceeding despite the uncertainty around OnePGH, a spokesperson for the hospital group said “UPMC always lives up to its commitments.” 

Shortly after the April 2021 announcement, Peduto’s chief of staff told PublicSource that $15 million of that commitment would be fulfilled through existing pledges by UPMC Health Plan to local affordable housing-focused nonprofits, with the rest coming from unspecified future projects.

A University of Pittsburgh spokesperson said the school “has already invested more than $8 million since 2020 in projects consistent with the priorities articulated in OnePGH.” He did not specify any projects.

A Highmark/AHN spokesman said the group is committed “to being a good corporate citizen to the Pittsburgh community” but did not answer questions about its $25 million pledge announced last spring. A representative for CMU did not respond to requests for comment.

Settlement or ‘charade’?

Peduto’s ambition for OnePGH went far beyond the $115 million announced last year. He wanted the commitments to be for 15 years, not five, and for more money, but reluctance from the major nonprofits led him to settle. 

A far more expansive OnePGH “investment prospectus” released in 2021 contains plans for 38 projects, with proposed budgets totaling more than $4 billion, ranging from universal Pre-K to stormwater improvements, with some of the funding from nonprofits and some from public coffers. Few of the proposals listed sufficient existing funding, and none of the largest ones were included in Peduto’s 2021 announcement, but the list shows the former mayor’s grand vision for what OnePGH may have been.

City Controller Michael Lamb, who has been in office since 2008, referred to OnePGH as a “charade” in a recent interview and called it “a bad deal for Pittsburgh taxpayers.” 

Lamb and acting County Controller Tracy Royston released a joint report this week, outlining the potential for traditional payment in lieu of taxes [PILOT] agreements that would instead see major nonprofits pay the city millions annually, modeled on an existing program in Boston.

The report concluded that the five largest nonprofits in Allegheny County would pay about $127.5 million more each year to local municipalities, the county and their public schools without exemptions and abatements.

Shortly after Peduto’s 2021 announcement about the OnePGH Fund, City Councilor Deb Gross blasted it for a lack of accountability and called it a “shadow government.” Then-candidate Gainey, promising voters he would make UPMC pay its “fair share,” called the $115 million “too little, too late.”

Langley told PublicSource this week that the OnePGH model, which gives the nonprofits far more control than traditional PILOT agreements often do, may have resulted in greater pledges than a traditional PILOT would have. He said the $115 million in pledges could make OnePGH among the nation’s most lucrative PILOT programs if it comes to fruition.

Sticks and PILOTs

Ervin said recently that the Gainey administration may view the fund differently now than it did in early 2021. 

“I think there’s a general understanding of purpose, structure and intent of [OnePGH], and that was something they did not come into this situation with,” Ervin said. “There’s a framing of a fund that got caught up in an election cycle versus a tool that a lot of cities across the country utilize.”

Ervin pointed to New York City’s Mayor’s Fund, which is also an independent nonprofit entity.

Langley said that while he is not sure if OnePGH is the answer as currently constituted, the concept could ultimately foster a more cooperative relationship between the city and the nonprofits, which he said is key to getting greater contributions. 

“The track record seems to suggest that a cooperative approach is better,” Langley said. “There are various sorts of sticks that city governments try to use. And in a narrow sense, they may work in getting PILOT contributions in some cases. But my sense is that the majority of the time they don’t work.”

Pawlak said the administration is more interested in traditional PILOT agreements, with money going directly from nonprofits to the city’s coffers. “This is not uncharted territory,” he said. “We’re not viewing this as something that needs to go through an intermediary.”

Note: This story's headline was changed on 7/13/22 to reflect new developments.

Charlie Wolfson is PublicSource’s local government reporter and a Report for America corps member. He can be reached at charlie@publicsource.org and on Twitter @chwolfson.

This story was fact-checked by Oliver Morrison.

The post Updated: Gainey Administration pulls city out of Peduto-era OnePGH Fund appeared first on PublicSource. PublicSource is a nonprofit news organization serving the Pittsburgh region. Visit www.publicsource.org to read more.

Pittsburgh’s ‘eds and meds’ are economic drivers. But their tax status largely passes the bill for government to the rest of us. Explore the series.

Pittsburgh Mayor Ed Gainey is in the process of conducting private talks with UPMC and Allegheny Health Network leaders in an effort to get the hospital giants to “pay their fair share” to the city. While Pittsburgh officials have wrestled with the issue for decades, they need only look about 100 miles north for an example of what a solution can look like.

The city of Erie has long-standing agreements with hospitals owned by UPMC and AHN for payments in lieu of taxes, or PILOTs. Under the agreements, the nonprofits pay half of what they would owe in property taxes if they were not exempt from them. 

All told, the two major nonprofits are set to pay more than $1 million into Erie’s 2022 budget — a larger revenue source than the city’s deed transfer tax, amusement tax or parking tax. The sum is greater than the budgets of many city departments and is about 1.1% of all revenue. 

Erie is noted as among the top U.S. cities when it comes to collecting PILOT money. Pittsburgh, meanwhile, saw its once-considerable PILOT income dwindle in the new millennium, down to less than half a million today — while booming hospitals, universities and other nonprofits own up to a fifth of Pittsburgh’s property and don’t pay taxes on it. In 2020, Erie collected $13.39 per capita in PILOT contributions. Pittsburgh collected $1.07.

Could Pittsburgh, with Gainey at the helm, obtain PILOT agreements similar to the ones Erie has? Doing so with the five largest nonprofits would net the city $17.3 million annually, according to a report by the city and county controllers. 

There are several reasons Pittsburgh’s situation is different from Erie’s. Not least of which is that Erie’s major PILOT agreements were created when UPMC Hamot and AHN Saint Vincent hospitals were independent. They were later bought by UPMC and AHN in 2011 and 2013, respectively, and the two chains continued honoring the PILOT agreements. 

An AHN spokesperson told PublicSource in an email that the group uses different strategies to support the different cities it inhabits.

“Our significant investments in and contributions to the health and vitality of the greater Erie region (including the PILOT agreement), for example, have been proportionally matched, if not exceeded, by the similar investments” in Pittsburgh, wrote Dan Laurent, AHN’s vice president for corporate communications.

A UPMC spokesperson did not answer whether their Erie PILOT deal could be replicated in Pittsburgh, and pointed out that the Erie deal was in place long before UPMC was involved there. Gainey’s office did not respond to a request for comment.

In chains

Several experts and local officials said the independence of the hospitals in the 1990s contributed to the ease of creating the PILOT agreements.

“It’s possible that for a smaller hometown organization, they are more in tune with what’s needed in the hometown,” said Paul Lichtenwalter, the finance director for Erie since 2004. 

Michael Hicks, a professor and local public finance researcher at Ball State University, said he thinks it’s easier to negotiate with independent hospitals because they have lower profit margins.

“When the stakes are lower for everyone, the negotiations are easier,” Hicks said. “When you’ve got $100 million or $200 million on the table, that makes it very high stakes.”

Large hospital chains have far greater ability to wage legal battles, which may make them less likely to settle on a PILOT agreement rather than risk losing their nonprofit status in court.

“Now it’s far more difficult [than in the ’90s] because the hospitals have huge, huge revenues and they’re aggressively protecting those revenues,” Hicks said. “And they’re fighting a rearguard effort by cities around the country trying to challenge nonprofit status.”

Pittsburgh was part of that effort in the 2010s when then-Mayor Luke Ravenstahl sued to revoke UPMC’s tax-exempt status. The next mayor, Bill Peduto, withdrew the lawsuit, insisting it was not likely to yield results for the city.

Mutually beneficial

Ravenstahl’s lawsuit contributed to a less-than-adoring relationship between the city and the nonprofit. Eight years later, Gainey’s campaign rhetoric about UPMC needing to “pay its fair share” renewed the discussion.

Erie officials say a friendly relationship has been key to maintaining PILOT agreements after all these years despite legal changes that might allow the nonprofits to end them. 

“We have great relationships with both hospitals,” said Erie Mayor Joe Schember. “I know both CEOs, we’re together a lot, they invite me to things, I invite them to things. … I believe what we do together works for what’s best for Erie in the long term.”

Schember, who became mayor decades after the agreements were formed, said municipal leaders would be well advised to focus on building relationships before making firm monetary demands. He said in his five years as mayor, he’s never heard a conversation about ending the agreements.

“We’re hoping they see the value in what the city does for them and we can continue to work together in a mutually beneficial way,” he said.

Nonprofits consume city services without paying property taxes to fund them. Schember cited Erie’s public safety and homelessness issues, saying that budget cuts forced a reduction in the city’s police force decades ago and that PILOT revenue allows the city to avoid further cuts.

“I’m hoping that most nonprofits will want to help keep Erie a safe place to live, work and play,” Schember said.

Another Western Pennsylvania city, Altoona, has a significant PILOT agreement with UPMC. The Blair County city of 43,000 is budgeted to receive more than $225,000 from UPMC’s hospital there this year, about $5.25 per capita and more than the city pays for tax collection, legal services, engineering services, waste management or public transit.

‘A better balance’

While UPMC and AHN don’t provide large sums of cash to Pittsburgh, they do provide community benefits. UPMC lists food assistance, care for low-income and homeless people, substance use treatment and elder care as some of its charitable endeavors in the Pittsburgh region. 

Leaders in Pittsburgh and Erie alike say cash payments are nonetheless needed.

“They are in many ways a good neighbor and excellent for our region,” said acting Allegheny County Controller Tracy Royston, who co-authored a report this year outlining the need for PILOT agreements in the region. “But as much as they do, they also put a demand on our resources and our services. So I think there needs to be a better balance there.”

The report released by Royston and City Controller Michael Lamb referenced nonprofit investments in The Pittsburgh Promise (a scholarship program for city students) and OnePGH (a fund established for voluntary contributions from nonprofits) as considerable benefits. But, they wrote, “It is important to stress that neither relieve residents of the burden of financing local government nor do taxpayers have input or oversight as to how funds are spent.”

The controllers proposed a PILOT model wherein nonprofits would pay 25% of their exempted real estate tax burden. This is half the 50% rate paid by the Erie nonprofits, a decrease that could partially offset the drastically higher amounts of money involved in Pittsburgh.

“We were just thinking that to go from zero to 25% would be significant,” Royston said. 

The controllers’ report advocates for taking a systematic approach to setting up PILOTs in the region — something Erie has succeeded in doing.

“At least the last 30 or 40 years, it’s been the way business is done,” Schember said. “Both sides accept it. Both sides see the value of it.”

The Allegheny County controller’s office recommended a decade ago that the county real estate team evaluate which nonprofits should have their tax-exempt status challenged. Royston said the idea never took off in the county administration and she was told there weren’t enough resources. 

Erie officials say they couldn’t easily do without the payments.

“I think it would create a pretty major problem if all of a sudden we lost that revenue,” Schember said, noting that it would hamper efforts to “rebuild Erie” after decades of population decline — an existential task that Pittsburgh is facing, too.

Charlie Wolfson is PublicSource’s local government reporter and a Report for America corps member. He can be reached at charlie@publicsource.org and on Twitter @chwolfson.

This story was fact-checked by Punya Bhasin.

The Jewish Healthcare Foundation has contributed funding to PublicSource’s healthcare reporting.

The post Gainey wants Pittsburgh healthcare giants to pitch into the city budget. In Erie, they already do. appeared first on PublicSource. PublicSource is a nonprofit news organization serving the Pittsburgh region. Visit www.publicsource.org to read more.