The Pittsburgh Public School District and a Mount Oliver resident are jointly suing the city of Pittsburgh and the Pennsylvania Department of Education over a tax diversion program implemented in 2004.
The suit, filed last week in Commonwealth Court by PPS and Mount Oliver resident Marie Weber, claims the diversion program is unconstitutional.
City officials did not immediately respond to inquiries regarding the lawsuit. A PDE spokesperson declined to comment on pending litigation.
The diversion program was first implemented in the early 2000s while the city was under state financial oversight. At the time, lawmakers — seeing the school district had a healthy fund balance, while the city’s finances were in dire shape — amended the taxing statute so that one-quarter of 1% of the district’s earned income tax would go to the city.
Over the lifetime of the tax diversion program, about $1.5 million has been transferred from the school district to the city from Mount Oliver residents, the lawsuit claims. The total amount the district has diverted since 2007 has exceeded $286 million, Pittsburgh Public Schools Solicitor Ira Weiss said.
The problem, the suit claims, comes in with Mount Oliver residents. While the borough is located within PPS boundaries, it is not a part of the city of Pittsburgh. The city provides no services to the borough except those that are contracted and paid for by the borough, the lawsuit said.
According to Mr. Weiss, because Mount Oliver is its own municipality, residents pay a 1% earned income tax to the borough. They also pay a 2% earned income tax to the district.
But one-quarter of 1% of the district’s tax is then given to the city.
“In effect, residents of Mount Oliver are paying more earned income tax than others, and secondly, they're paying it to a city in which they neither live nor vote,” Mr. Weiss said.
That includes Ms. Weber. According to the lawsuit, Ms. Weber has paid taxes to the borough and the school district. Because of the diversion program, she has also been paying part of her earned income tax to the city of Pittsburgh, despite not being a resident.
“It is clearly illegal and unreasonable,” for the school district or the city to require people who do not live within city limits to “pay earned income taxes to the municipality in which they do not reside and from whom they receive no services,” the lawsuit said.
According to Thomas King, who is representing Ms. Weber, the program violates the state’s uniformity clause in the constitution, which states all taxpayers must be subject to the same tax rates.
“In other words,” Mr. King said, “people who live in Pittsburgh pay Pittsburgh wage taxes. People who live in Mount Oliver pay Mount Oliver wage taxes. People who live in the school district of Pittsburgh pay wage taxes. But you can't live in Mount Oliver, pay Mount Oliver wage taxes, Pittsburgh wage taxes, and Pittsburgh school district taxes.”
He pointed to the fight regarding Pittsburgh’s “jock tax,” or a fee imposed by the city on professional athletes and artists performing at publicly funded venues. The state Supreme Court in July said it would hear arguments on how the uniformity clause should be interpreted.
The suit, which calls the tax diversion a “scheme,” comes after district officials in December said they wanted to reclaim the portion of the earned income tax sent to the city.
At the time district leaders pointed to changed financial situations.
The city, now out of state financial oversight, is facing lean years ahead as federal pandemic relief dollars expire and debt service payments increase.
But the school district in December passed the 2025 budget, which included a $28.1 million deficit. With problems expected to persist, the district is considering closing 14 schools and reconfiguring the class structure at 12 others.
For Mr. Weiss, the lawsuit is an opportunity to review the diversion program while giving the court a chance to weigh in on if the arrangement is unconstitutional.
“Whatever purpose this served in 2004 when it was approved, those conditions have changed,” Mr. Weiss said. “So there's going to be a lot for the court to deal with.”
First Published: February 18, 2025, 4:44 p.m.
Updated: February 19, 2025, 2:55 a.m.
