Mayor Ed Gainey made a long-awaited initial public move to tap major nonprofits on Tuesday, announcing a citywide review of tax-exempt property to determine where that status should be challenged.
The initiative appears to be Gainey’s first step toward fulfilling one of the key promises of his 2021 campaign — making healthcare giant UPMC and potentially others “pay their fair share” of public costs. He will be the third consecutive Pittsburgh mayor to wrestle with a Pittsburgh dilemma: Renowned hospitals and universities bring jobs and prosperity, but they pay relatively little into the city’s operating funds.
UPMC wrote to PublicSource following Gainey’s announcement that UPMC has “long been committed to being a great neighbor” to Pittsburgh. “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,” said UPMC’s chief communications officer, Paul Wood.
Monday’s executive order impacted all nonprofits generally, but UPMC has the most property — and money — at stake.
Almost 20% of property in Pittsburgh is privately owned and tax-exempt. If those properties were taxable, the city would collect an additional $50 million annually. With the city budget tightening and federal relief funds running out in 2024, tapping into that pool of money could go a long way to stabilizing the city’s finances.
“We need this money to properly run the city,” Solicitor Krysia Kubiak said.
Gainey will not seek to wholly revoke the nonprofit status of any organization; he is instead directing city lawyers to examine each piece of tax-exempt property to determine if the owner is using it specifically for a qualifying charitable purpose.
A Pennsylvania Supreme Court ruling set out a five-pronged test for qualification as a charity, including that organizations must:
- Advance a charitable purpose
- Donate a substantial portion of its services
- Benefit a class of people that are legitimate subjects of charity
- Relieve the government of some of its burden
- Operate without seeking private profit.
“If you pass the test, then the city is truly benefiting from your presence and your exemption has been earned,” Gainey said at a press conference. “However, if you fail to meet our constitutional standards, then we will make sure that you are paying your fair share to our city.”
City lawyers could pick and choose which parcels to challenge on the grounds they don’t meet these five requirements, chipping away at that $50 million in exempt taxes. Kubiak said that the review could take more than a year to complete, and that the city will start with the largest properties. She said the city will take action on properties that fail the test on a rolling basis as they are discovered.
State Senate Democratic Leader Jay Costa, of Forest Hills, said in a statement that he supports Gainey’s plan.
“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,” Costa said.
UPMC isn’t specifically named in Monday’s executive order, but the healthcare giant was in Gainey’s crosshairs during his 2021 campaign. It owns a quarter of the city’s privately owned tax-exempt property, worth a total of $1.7 billion. If that portfolio was taxable, city property taxes would net almost $14 million a year. An additional $35 million would be owed to the city schools and $9 million would go to the county.
Challenging tax-exempt status will be difficult, and Gainey is not the first mayor to try. Former Mayor Luke Ravenstahl filed a lawsuit challenging UPMC’s charitable status in 2013. His successor, Bill Peduto, dropped the lawsuit, saying it would not yield results for the city. Instead he launched the OnePGH program, seeking voluntary contributions from nonprofits. The program did not approach its initial targets, Peduto was voted out and Gainey ended OnePGH in 2022.
UPMC is the city’s largest tax-exempt landowner, but there are big implications for other organizations, too. The University of Pittsburgh owns $1.4 billion worth of tax-exempt property in the city, and Highmark/AHN, Carnegie Mellon University and Duquesne University each own hundreds of millions worth.
A Pitt spokesperson said to PublicSource in an email Tuesday that the university is a “steadfast economic engine for the city” and that it looks forward to continuing to work with the mayor.
A report produced by the city and county controllers last year floated the idea of creating Payment-in-Lieu-of-Tax (PILOT) agreements between the city and major nonprofits in which the nonprofits would voluntarily pay a fraction of what they save from their tax exemptions. Gainey held private talks with UPMC and Highmark leaders, but reported no result.
“We had conversations with a couple nonprofits, and we continue to have those conversations,” Gainey said. “But we feel like this is the direction we need to go right now.”
Clarification: The state Supreme Court ruling that purely public charities do not seek private profit does rule out their receipt of revenue beyond their expenses.
Editor’s note: Comments received after initial publication have been added to this story.
Charlie Wolfson is PublicSource’s local government reporter and a Report for America corps member. He can be reached at email@example.com and on Twitter @chwolfson.
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