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.
