Pittsburgh’s ‘eds and meds’ are economic drivers. But their tax status largely passes the bill for government to the rest of us.
Without property tax exemptions and abatements, the five largest nonprofits in Allegheny County would contribute about $127.5 million more each year to local municipalities, the county and their public schools, according to a new report from the city and county controllers. Now, the two officials are teaming up to recommend a path forward for elected leaders to pursue greater contributions.
In a joint report released Tuesday, the controllers propose that Pittsburgh and the county seek long-term, voluntary payment-in-lieu-of-tax agreements from some nonprofits. Through these payments, known as PILOTs, nonprofits can help fund the public services that they use alongside residents, according to the report.
“When it comes to the city’s financial bottom line, they have to play a role,” City Controller Michael Lamb said in an exclusive interview prior to the public release of the report.
Though property taxes are Pittsburgh’s largest source of revenue used to pay for many municipal services, just 61% of property in the city is taxable. Exempt and abated property that is not government-owned accounts for 20.7% of city property, with an assessed value of about $6.7 billion.
As the city’s number of taxpayers has shrunk over the decades, its nonprofit, mostly tax-exempt hospital and university presence has grown, making it harder for the city to balance its budget.
Pittsburgh’s fire and EMS bureaus are grappling with aging equipment fleets. The city faces a large backlog of needed infrastructure improvements. Pittsburgh Public Schools had a budget deficit this past year and raised its property tax rate. Given that elected leaders want to avoid raising taxes, the controllers are asserting that revenue from major nonprofits will be critical in funding vital services.
“I think that we really need to begin to talk about our region as a whole and how everybody’s contributing and what everyone’s responsibility is,” said acting County Controller Tracy Royston.
In responses to PublicSource questions about their willingness to pay more, large nonprofits indicated that they already contribute to the community, but did not rule out doing more.
The federal American Rescue Plan Act has helped stabilize the city’s finances, but Lamb said he’s unsure if other revenue sources will grow to replace the funding in the next two years. He said the city now has a fresh opportunity to receive greater financial contributions from nonprofits due to changed public perception, a new mayor who is focused on the issue and new leadership atop UPMC.
“I have more confidence about this today than I’ve had in the last 10 years,” said Lamb, who has been city controller since 2008. Lamb said he would hope for new PILOT agreements to be in place by the time the federal money runs out in 2024.
Mayor Ed Gainey has had meetings with leaders of UPMC and Highmark/Allegheny Health Network, his press secretary Maria Montaño confirmed. But she offered no other information about the talks other than that they are ongoing and that Gainey aims to “ensure that everybody pays their fair share.”
The county’s five largest nonprofits — UPMC, Highmark/AHN, The University of Pittsburgh, Carnegie Mellon University and Duquesne University — own some taxable property, but pay 11% of what they would owe in municipal, county and school district property taxes if they did not receive exemptions and abatements, according to the joint report.
The county collects PILOTs from 16 tax-exempt organizations, but only one — a nursing home affiliated with UPMC — is owned by one of the five largest nonprofits. In 2021, the total contributions amounted to $605,352 compared to the $50.3 million in county property taxes that would be collected without exemptions.
Asked if County Executive Rich Fitzgerald has engaged with nonprofit leaders or Gainey on this subject, county spokesperson Amie Downs said, “We don’t discuss private conversations.” Early in his tenure, Fitzgerald’s administration initiated an effort to review tax exemptions, but Downs declined to update PublicSource on their intentions.
Former Mayor Bill Peduto’s OnePGH initiative, created to get nonprofits to help fund city projects, is valuable but not enough, according to the report.
Under OnePGH, launched in 2021, UPMC, Pitt, CMU and Highmark/AHN committed to contributing $115 million over five years. But the money flows to community investments or a separate nonprofit instead of directly to the city, while the county and surrounding municipalities don’t receive funding. The $115 million figure is almost exactly what the four nonprofits’ tax-exempt and abated property would contribute in a single year in county, local and school taxes.
It’s unclear how or if the Gainey administration will utilize OnePGH and how much of that $115 million will come to fruition.
On the campaign trail last year, then-candidate Gainey said the OnePGH initiative was “too little, too late.” Less than a month after that comment, Gainey beat Peduto at the polls to become mayor.
The city’s major nonprofits should make a “strong financial commitment” to its bottom line beyond pursuing existing projects, Lamb said. He said he believes that larger nonprofits, including those involved in OnePGH, recognize they could be doing more to contribute to the city and are willing to help.
“The fact is, this is all going to come down to sitting at various tables at places like the University of Pittsburgh and Highmark and CMU and having these conversations about what that contribution needs to look like,” Lamb said. “And I actually think we’re going to be surprised that there’s more willingness there than we might think.”
A spokesperson for Pitt said in a statement that the university values its “longstanding partnership” with Pittsburgh and the county. “We look forward to continuing this partnership by engaging with officials and through our programs and investments in the city and region.” Spokespeople for CMU and Duquesne did not provide responses to questions sent by PublicSource.
Where PILOTS are ‘wonderful’
The report recommends that the city and county adopt a model for PILOT agreements similar to one implemented in Boston.
There, a task force recommended in 2010 that the city ask some nonprofits to contribute 25% of their exempt property tax liability while offering deductions of up to 50% for community benefits. The 25% contribution rate equaled the portion of the city’s budget set aside for essential services at the time.
Boston launched its PILOT program in fiscal year 2012. In fiscal year 2021, the city received about $90 million from participating nonprofits through cash contributions or community benefits credits.
If all of the owners of tax-exempt properties in Pittsburgh paid that 25%, the city would’ve taken in an extra $13.6 million in 2021, according to the joint report. If only the five largest nonprofits made those contributions, the city would have received $8.6 million.
“That’s a big number for us,” Lamb said.
Though nonprofits can contribute to a municipality’s financial wellness in indirect ways, including by producing employment and providing services, their tax-exempt properties don’t produce revenue for local governments, said Chris McLaughlin, a professor at the University of North Carolina with expertise in property tax collection.
“Whether it’s police or fire or sanitation services, there are services being provided to all residents, to all property owners in those local governments, regardless of whether they’re paying property taxes or not,” McLaughlin said. “So at some level, the nonprofits are benefitting from services that they’re not directly paying for.”
Nonprofits participating in Boston’s PILOT program paid 77% of what the city requested in fiscal year 2021. Pam Kocher, president of the Boston Municipal Research Bureau, said some nonprofits may not pay the full amount because they provide additional services and contributions that aren’t recognized by the program.
PILOT agreements can represent “a wonderful relationship” between local governments and nonprofits, but municipalities don’t have much leverage to force organizations to make these voluntary payments, McLaughlin said.
They can increase buy-in, however, by framing PILOTs as a partnership and seeking agreements with smaller nonprofits, too, he said.
In an emailed statement, UPMC Vice President and Chief Communications Officer Paul Wood said the city “can count on our fullest possible participation in programs that are fair and equitable and include the region’s other major nonprofits.”
Wood also pointed to UPMC’s $40 million commitment to affordable housing investments included in Peduto’s OnePGH rollout in April 2021. The status of OnePGH is uncertain now, though, as the Gainey administration decides how to proceed with the former mayor’s creation.
Highmark/AHN spokesperson Dan Laurent said the hospital group has a “long history of going above and beyond tax obligations to benefit and strengthen the communities we serve.” He did not answer questions about talks with Gainey or about the possibility of PILOT agreements with the city.
The controllers’ joint report states that staff who manage the recommended PILOT program should listen to the concerns of nonprofit leaders and show the organizations that the city and county are trustworthy partners. The Boston model has been successful because of the city “fostering a sense of partnership,” the report reads.
Some Western Pennsylvania cities have already had success in obtaining PILOTs. Eleven nonprofits had PILOT agreements with the city of Erie and its school district as of 2016, and the school district received about $1.3 million each year from these agreements, according to the report.
“I think it would be a surprise to a lot of people that our biggest employer, and probably our biggest property owner, UPMC, who has resisted these conversations, makes payment in lieu of taxes to the city of Erie and to the city of Altoona,” Lamb said. “The idea that they’re just not going to do it, we know that’s not true because they already do it.”
UPMC is making those payments to Erie and Altoona, Lamb noted, because PILOT agreements were already in place when the hospital system took over ownership of certain properties.
The latest chapter
The new report was in the works prior to recent discussions in Pittsburgh City Council on the issue, but it’s the latest move in a decades-long history of city and county officials trying to coax financial contributions from major nonprofits.
In 2013, former Mayor Luke Ravenstahl sued UPMC to revoke its tax-exempt status, but Peduto, his successor, withdrew the lawsuit and pursued OnePGH.
Gainey made getting increased contributions from nonprofits a top issue on the campaign trail but has yet to announce concrete plans to pursue them.
Nearly a decade ago, the county asked the owners of all 2,800 tax-exempt parcels to submit documentation proving that they were eligible for their exemptions. But as of 2019, the subsequent review had taken away the exemptions of about 300 parcels that, together, made up less than 1% of the county’s exempt property value, according to TribLIVE. That year, the county said it was unable to finish evaluating its largest nonprofits due to a lack of resources.
Emma Folts covers higher education at PublicSource, in partnership with Open Campus. She can be reached at email@example.com. Charlie Wolfson is PublicSource’s local government reporter and a Report for America corps member. He can be reached at firstname.lastname@example.org and on Twitter @chwolfson.
This story was fact-checked by Abby Nemec-Marwene.