Pittsburgh Mayor Ed Gainey signed an executive order Tuesday morning directing the city’s law and finance department to begin a review of parcels owned by organizations claiming tax exemption based on their charitable status, a process that could take some time to work through county government, depending on appeals.
The review is to ensure that the business being conducted on the property is in compliance with the Pennsylvania public charity test, he said.
Making sure that nonprofits operate as purely public charities under the law while contributing their fair share to the operation of the city is an issue that has animated Pittsburgh politicians for 20 years.
“If you fail to meet our constitutional standard, then we will make sure that you will pay your fair share to our city,” Mr. Gainey said.
Mr. Gainey said it’s estimated that $36 million is owed in property taxes by charitable organizations in the city if they fail the Pennsylvania public charity test. Places of worship and religious institutions will not be part of the review.
In the order, Mr. Gainey pointed out that 34% of parcels in the city were exempt from property taxes, which city solicitor Krysia Kubiak said was a large number in comparison to other cities.
“The fact that one-third of city properties, which is really drastic amount, are tax exempt is a real concern,” she said. “I don’t know of another city with this many tax exempt properties.”
The review will start with the biggest tax exempt property owners in the city and challenges will be referred to the seven-member Allegheny County Board of Property Assessment Appeals and Review for a final determination. Property owners can appeal board decisions involving tax exempt status.
“No one’s getting a bill next week,” Ms. Kubiak said.
No such comprehensive review of tax exempt properties has ever been conducted in the city before, according to Ms. Kubiak.
“This review should be done because it really is what a good government does in order to make sure that we're getting the revenue we expect,” she said.
In terms of negotiating payments with groups in lieu of taxes, Mr. Gainey said conversations have begun, but he did not expand further.
“We've had conversations, but we feel that this is the direction we need to go right now,” he said.
Hospital and health insurance giant UPMC, which is among the five biggest owners of tax exempt property in the city, said the city could count on its cooperation in the review.
“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,” spokesman Paul Wood said in a prepared statement.
State Senator Jay Costa expressed support for Mr. Gainey’s plan to assess Pittsburgh’s tax-exempt organizations in a Tuesday news release. In the statement, he emphasized the city’s reliance on revenue from property taxes, including road maintenance and other “crucial public services” across the city — especially public schools.
“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,” Mr. Costa said. “I look forward to reviewing the results of this assessment and will be in close contact with the Mayor’s team as we move forward.”
Over the past few administrations, Pittsburgh leaders have struggled with ways to increase financial contributions from some of the massive institutions such as universities and health systems that are major employers and economic drivers, but are exempt from things like property taxes that help fund city services.
The state constitution doesn’t define “purely public charity.” Courts have relied on a 1985 Pennsylvania Supreme Court decision containing five criteria that nonprofits have to meet to be considered an institution of purely public charity.
Among the requirements are advancement of a charitable purpose, donation of a substantial part of its services and operating entirely free from private profit motive.
The review of nonprofit properties began in 2003 with former Mayor Tom Murphy and a $60 million budget hole in the city budget.
Mr. Murphy proposed that the University of Pittsburgh, Carnegie Mellon University and other charitable organizations pay into a fund that would help offset the cost of providing municipal services such as fire protection and EMS.
In later years, the idea evolved into voluntary payment in lieu of taxes programs, none of which lasted.
“The current financial relationship between the region’s local governments and large nonprofits is untenable,” according to a 2022 report by the city and Allegheny County controllers. The report urged the creation of a durable “payment in lieu of taxes” program to generate new revenue for city expenses, something that other cities have done successfully.
In past years, reviews of tax-exempt properties have been prompted by questions about UPMC’s nonprofit status in light of its torrid growth. A lawsuit against the Downtown-based health system filed by former Mayor Luke Ravenstahl in 2013 alleged that UPMC didn’t meet the test for a purely public charity.
UPMC defended its nonprofit status on Tuesday, saying that it had funded the Pittsburgh Promise in 2007 at a cost of $100 million, committed $40 million to the $115 million OnePGH plan former Mayor Bill Peduto announced in 2021 and supported the creation of 286 affordable rental homes in the city through a $15 million contribution. Mr. Peduto lost an reelection bid to Mr. Gainey and the OnePGH plan has since undergone review by the Gainey administration.
The University of Pittsburgh led the city in tax-exempt property with a value of $1.4 billion, according to the 2022 report by the city and Allegheny County controllers, followed by Carnegie Mellon University, at $441 million, and Duquesne University, $405 million.
Mr. Ravenstahl’s lawsuit against UPMC was dismissed in 2014 for “failure to state a cause of action” and his successor, Bill Peduto, did not refile it.
Instead, Mr. Peduto created OnePGH, an independent $115 million fund that he envisioned would be supported by nonprofits, corporations and foundations to pay for affordable housing, workforce development and other projects.
As a mayoral candidate, Mr. Gainey criticized the idea in 2021 as an “unaccountable slush fund controlled by the mayor.”
Kris B. Mamula: kmamula@post-gazette.com
First Published: January 24, 2023, 11:05 a.m.
Updated: January 25, 2023, 2:11 p.m.
