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.
Nearly $14.6 million in cash to Boston. About $8.1 million to Cambridge, Massachusetts. $13 million to New Haven, Connecticut.
That’s how much some universities voluntarily paid their home cities last year, even though they are tax-exempt. But in Pittsburgh, the major universities don’t have similar agreements in place – and the city and county’s fiscal watchdogs are hoping that will change.
In a report published last month, the Pittsburgh and Allegheny County controllers called on the city and county to negotiate long-term payment-in-lieu of taxes (PILOT) agreements with its major nonprofits, including the University of Pittsburgh, Carnegie Mellon University and Duquesne University.
More than 90% of the universities’ property is tax-exempt, amounting to a loss of about $52.3 million each year in county, municipal and school district taxes, according to the report. While Pitt and Carnegie Mellon joined UPMC and Highmark last year in pledging to contribute a total of $115 million over five years toward a variety of civic goals through the OnePGH initiative, the controllers argue those contributions don’t go far enough.
Under OnePGH, the city and school district do not directly receive payments from nonprofits, “allowing the burden of financing government and education to fall on residents and local businesses alone,” the controllers’ report states.
In other cities, universities’ direct, voluntary payments have helped fund municipal services and, in some cases, have allowed cities to address the fiscal effects of properties coming off their tax rolls through university acquisition. It’s unclear, though, whether the major universities in Pittsburgh are willing to enter such agreements with the city or county.
David Seldin, a spokesperson for Pitt, said in a statement that the university “values its longstanding partnership with the city and county and looks forward to engaging with local officials further on this topic.”
The controllers’ report, he said, is not reflective of Pitt’s contributions to the city and region. The university paid more than $15 million in city and county taxes last year, including employee wage taxes. The university has also invested more than $8 million in the past two years in projects that align with OnePGH’s priorities, including renovations to Pitt’s community engagement centers and the Bigelow Boulevard reconstruction project, he said.
Despite the lack of a legal agreement, Pittsburgh has continued to receive a few legacy payments, including $25,000 from Duquesne in 2020, according to Rachael Heisler, deputy city controller. “The history of why these exist is unclear,” Heisler wrote in an email.
CMU and Duquesne did not respond to requests for comment.
Broad participation in Boston
In their report, the controllers recommend that the city and county pursue a PILOT program modeled after one in Boston. Under the voluntary program, which launched in fiscal year 2012, the city requests that nonprofits with more than $15 million in tax-exempt property make specific, individualized contributions in cash each fiscal year, with deductions of about 50% offered for services that benefit city residents, such as job training programs or academic scholarships.
The 21 participating schools and colleges — which include institutions such as Harvard, Boston and Northeastern universities — met 69% of Boston’s requested PILOT payment in fiscal year 2021, providing about $14.6 million in cash and $30 million in credited community benefits. In all, the city received about $90.5 million that fiscal year from 47 nonprofits, 77% of the amount it had requested.
Though the city would like to see nonprofits meet the requests in full and would prefer greater cash contributions over community benefits credits, “the program has been really successful,” with strong participation from nonprofits, said Nick Ariniello, commissioner of assessing for Boston. The city is more focused on maintaining relationships and participation than increasing the already high level of engagement, he said.
“We’ve kind of reached this equilibrium where the major players contribute or they’ve made determinations not to,” he said. “It’s not that we don’t keep asking them, but they’re unlikely to change their minds or change their levels of contribution at this point.”
Boston makes its requests to each nonprofit public, whether they pay it or not, and the roster of those who pay is something that the city points to when having conversations with other nonprofits.
Community organizing in New Haven
Yale University previously contributed $13 million annually to New Haven, almost matching what the 21 education institutions paid in cash to Boston in fiscal year 2021. But in November, the university pledged to increase its payments by $52 million over six years, for a total contribution of about $135 million during that period.
The university upped its payment following activism and pressure from community organizers, said Adam Marchand, a member of New Haven’s Board of Alders and chair of its finance committee. While Yale’s previous contribution was valuable, there was still a “huge gulf” between that and the amount the university would pay if its educational properties were fully taxable, he said.
That same organizing also led to changes at the state level, he said, as Connecticut has more than doubled the amount it provides New Haven annually through the state’s PILOT reimbursement program. Now, New Haven will take in about $90 million from the state each year.
“It has really pulled us out of a fiscal crisis. It doesn’t mean that we’re wealthy as a city because we still have all the usual structural costs,” Marchand said of the increases. “But our fiscal house is in much better order.”
Individual and collective contributions in Providence
Further to the northeast, in Providence, Rhode Island, agreements with nonprofit hospitals and universities generated about $8.1 million in revenue for the city in fiscal year 2021. The city’s largest nonprofits own about 28% of city property and would contribute more than $130 million extra each year if they were taxable, according to a January 2022 report.
Brown University, the Rhode Island School of Design [RISD], Providence College and Johnson and Wales University entered a nonbinding agreement with the city in 2003, agreeing to pay at least $48.5 million through June 2023. This fiscal year’s payment is set to bring in about $2.3 million to Providence.
“The institutions were able to guarantee for the city that kind of revenue stream,” said Dan Egan, president of the Association of Independent Colleges and Universities of Rhode Island. “Beyond the predictability, the generosity just was a signal of the relationship between the institution and its host community.”
Nine years later, the four universities entered individual agreements with the city, at that time signing on to pay $44.2 million more collectively over about a decade. In exchange, the city allowed Brown and RISD to use 320 public parking spaces near their campuses and conveyed the titles to about 146,000 square feet in city-owned streets to Brown and Providence College.
Pitt did not directly respond to a question from PublicSource regarding why the university has not negotiated a similar voluntary payment agreement with the city or county.
Apples and oranges?
City Controller Michael Lamb said in a statement that there are “many” valuable models for PILOT agreements, and Pittsburgh’s relationships with its nonprofits will vary by institution.
“Pittsburgh needs to do what works best for our residents, who are currently bearing the burden, with the goal of making sure that everyone pays their fair share and the nonprofits are contributing to the operations of city government,” Lamb said.
Municipalities can create more successful PILOT programs when they provide justification for the financial contributions they seek, allow reductions in cash contributions in exchange for new services and ensure that they’ll protect the institutions’ tax-exempt status, said Daphne Kenyon, a local public finance expert at the Lincoln Institute of Land Policy.
Prominent universities may be more inclined to engage in PILOT agreements if they see that other universities have already done so, Kenyon said, but municipalities in poorer financial condition can make a stronger appeal for PILOTs than those that aren’t.
During the pandemic, Pittsburgh has balanced its budget with the help of federal relief funding, but the money must be allocated by the end of 2024 and spent through 2026. In an April interview, Lamb said he doesn’t know if other sources of revenue will increase in the next two years to offset the loss.
Adam Langley, an expert at the Lincoln Institute, told PublicSource in May that the OnePGH initiative could be one of the most lucrative agreements in the country if the $115 million in pledges are realized. The initiative provides more control to nonprofits than typical PILOTs, and that control could have resulted in greater contributions, he said.
Acting Allegheny County Controller Tracy Royston said in a statement that Penn State Behrend’s PILOT – through which the university pays 50% of the tax rate for developed land and the full amount for undeveloped land to Erie County, Harborcreek Township and the local school district – is notable as a nearby example of an agreement. She added that its limits on what parts of campus are subject to payments are not ideal. Instead, Yale’s agreement with New Haven may be a better model, she said.
“It would be worth looking more closely at how they came to that agreement,” she said.
For Sarah Gallop, co-director of the Office of Government and Community Relations at the Massachusetts Institute of Technology, agreements should be viewed individually, taking into account the broader context of a city and its relationship with a university. They’re “all apples to oranges,” she said.
“They can’t be looked at in a silo and without the context of other contributions, the complexities of the city or the town that the university is in,” Gallop said. “Ultimately, it’s the municipality and the university that need to decide what is it that’s best for the university, for the town.”
‘Sensible’ features and state support
Some municipalities receive additional aid and have voluntary payment agreements with features that could be valuable for others.
As part of MIT’s agreement, the university must make additional payments if it removes property from the city’s tax rolls. The payments, which are based on what the property would contribute in taxes the year it became exempt, increase by 3% each year. For some properties, MIT can make gradually decreasing payments over four years.
The university receives credit for adding properties back onto the rolls and for giving notice to the city when it will convert property from taxable to tax-exempt, too, according to the agreement.
“It’s flexible, so it’s good for MIT. But it’s also predictable,” Gallop said. “The city can plan for that revenue loss, and then also, the city can plan for revenue increases as we purchase property or turn property into taxable uses. And it works really, really well for both parties.”
MIT is set to contribute at least $101.4 million to Cambridge over 40 years through the decadeslong agreement the university entered with the city in 2004. The city received about $8.1 million in PILOT revenue in fiscal year 2021, about $2.2 million of which came from MIT.
In Providence, the universities also agreed in 2003 to make annual, decreasing payments to the city for 15 years if they purchase taxable property that becomes exempt under their ownership. Yale announced in November that it will make steadily decreasing payments over 12 years on property that becomes tax-exempt in the next six years.
“That tapering off of that payment seems completely sensible,” Kenyon said. “I just think it would make for a happier town-gown relationship because universities need to expand from time to time. Do you want the city or town fighting them?”
PILOTs that provide additional payments when land becomes tax-exempt under nonprofit ownership could help ensure that local governments can continue to provide the same level of services, Royston said.
Providence, like Connecticut, receives aid from the state, which runs a program that reimburses up to 27% of nonprofits’ property tax liability. The program generated about $34 million for the city in fiscal year 2021.
A state program like those in Rhode Island and Connecticut would enable municipalities to automatically receive reimbursements from the state instead of negotiating individual agreements with nonprofits, but the funding could be unreliable due to state budget problems, Royston said.
“In assessing the value of a state PILOT program, we would consider how it’s paid for, the reliability of the funding and whether it would also provide payments to the county and school districts,” she said.
Connecticut’s program has helped New Haven improve its fiscal standing, Marchand said, but he noted that the funding is still coming from taxpayers, not Yale or other universities.
“It’s there, it’s running, the fact that it’s generating more money for the city is a good thing,” he said. “The people in the community, as glad as they were for that, they also kept their eyes on Yale.”
Both government and university representatives agreed that fostering positive relationships and working together were key to developing PILOT agreements. Municipalities should be transparent, thoughtful and willing to collaborate, and they shouldn’t rush the process, Gallop said.
“It’s very important for MIT that Cambridge is healthy. It’s also very important to Cambridge that MIT is healthy,” she said. “You have to establish the mutual objectives. You need a healthy university, you need a healthy city. So, how are we going to get there?”
Gallop views MIT’s 40-year agreement with Cambridge as one of the “least important” ways the university contributes to the city, instead finding its work in the community more beneficial .
On the other hand, Boston’s Ariniello said PILOT contributions help the city provide services and be more responsive to residents’ needs — which the major nonprofits benefit from, too, he said.
“Whether it’s the patients at the hospitals or students at the universities, they all take advantage of those services and take advantage of the benefits that a city can have,” Ariniello said. “Everything that you can do to kind of add that stability and security to your local municipality is really allowing them to provide benefits back to you.”
Lamb said in April that he’d like the city to have new PILOT agreements with its nonprofits in place by 2024. To his knowledge, the city’s major nonprofits remain open to discussion, he said in a statement.
“On behalf of taxpayers, I am grateful that everyone is willing to come to the table,” he said.
Emma Folts covers higher education at PublicSource, in partnership with Open Campus. She can be reached at firstname.lastname@example.org.
This story was fact-checked by Punya Bhasin.
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