(Pittsburgh) May 3, 2022 City of Pittsburgh Controller Michael Lamb and Allegheny County Acting Controller Tracy Royston today released a joint report detailing the prevalence of tax-exempt property in the city and county—particularly that belonging to the largest “purely public charity” institutions in the region—the impact of these exemptions on city and county revenue, and opportunities to garner financial support from exempt institutions moving forward.
“Now is the time for a substantive conversation aimed toward establishing meaningful and predictable contributions from these entities to our local governments. We hope that the information presented in this report can be a basis for that conversation,” the controllers said.
The report shows that as of 2021, almost 10 percent of all non-government property in Allegheny County was exempt, while about 20 percent was exempt in Pittsburgh. This is heavily concentrated among the five largest exempt institutions—the University of Pittsburgh Medical Center (UPMC), Highmark/Allegheny Health Network (AHN), the University of Pittsburgh, Carnegie Mellon University, and Duquesne University. Cumulatively, these account for 48 percent of non-government exempt property in the county and 65 percent in Pittsburgh.
“The Pittsburgh region has been justifiably lauded for its transition from a primarily industrial economy to one in which ‘eds and meds’ comprise a significant and growing share of employment and economic activity. However, these institutions’ continued emergence as property owners, developers, and economic drivers has presented challenges to our local governments,” Acting Controller Royston said.
“The burden of the City of Pittsburgh’s government falls too heavily on city residents. Hospitals and learning institutions undoubtedly provide great services and buoyed our economy in the wake of big steel’s departure, but they rely heavily on our public safety, infrastructure, sanitation, and other essential services,” Controller Lamb said. “They must come to the table and contribute to the operation of local governments where they operate, starting with the City of Pittsburgh.”
If not exempt, the five largest nonprofits would contribute $127.5 million annually in taxes to local municipalities, school districts, and the county. Allegheny County would receive $23.5 million of this amount and Pittsburgh would receive $34.5 million, the report found.
The report concludes that meaningful, predictable, and legally-binding agreements for Payments in Lieu of Taxes (PILOTs) must be put in place to ensure equity between large and growing nonprofit institutions and taxpaying home and business owners.
Current PILOT arrangements fall far short of adequate levels for both local governments, the report says. In 2020, Pittsburgh raised only $325,309 from PILOTs and Allegheny County $569,499. In neither case do any of the “Big Five” institutions have adequate PILOT agreements in place.
The most recent attempt to recoup lost revenue is the non-profit OnePGH, which sourced support from non-profit and for-profit entities. OnePGH is a separate, non-city entity that was only established after seven years of negotiations. During that window, these institutions made no substantive payments, and their support of OnePGH is not contractually enforceable. These pledges, too, do not yield support for city operations, do not have oversight from city government, nor do city residents have influence over how the money is spent, as they do currently with the city budget process.
If Allegheny County and the City of Pittsburgh secured PILOTs with just the five largest nonprofits that recouped 25 percent of their tax loss, it would generate $5.9 million and $8.6 million in revenues for those governments each year, respectively, the report estimates. This is the contribution level put in place in Boston for its program to attract voluntary contributions to local government from nonprofits.
This level of support should be considered a reasonable baseline rather than a ceiling on contributions achievable, the controllers said. Closer to home, Erie, Pa.’s local governments have agreements in place for payments of 50 percent of exempt property value with 11 institutions, including UPMC and AHN.
Both UPMC and AHN reported net income of over $1 billion in 2020, while Pitt and CMU ended fiscal year 2019 with well over $200 million in net income in addition to combined endowment assets of over $7 billion. Outside analyses have detailed in particular UPMC’s “fair share deficit” and advised that greater scrutiny of the organization’s tax-exempt status may be warranted based on its business practices.
“State law and court rulings have established definitions for what qualifies a landowner as a ‘purely public charity’ exempt from taxation. Some of our region’s largest institutions may not meet the definition of a charity required for exemptions at all, but they have never had this status challenged or scrutinized by the courts,” Acting Controller Royston said. “Regardless of the mechanism used, institutions with millions or even billions in annual revenue must begin paying their fair share.”
“The depletion of unprecedented emergency federal funding in coming years puts our residents at risk for reductions in services. Necessary and innovative programming put in place during the pandemic that addresses some of our region’s longstanding challenges like affordable housing, racial disparities in health and education, and cleaner air and water need to be continued without increasing the burden on the average taxpayer,” Controller Lamb said.