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.
Faced with a $56 million budget deficit last year, the Pittsburgh Public Schools [PPS] board decided to raise the district’s property taxes. City residents and district parents are receiving higher bills, but the city’s major nonprofits have remained largely unaffected. Nearly all of their property is tax-exempt.
The city’s university and hospital giants have invested in PPS students, but one of their most significant contributions, the Pittsburgh Promise scholarship, can’t guarantee funding will be there for students now in lower grades. As the mayor calls on major nonprofits to pay their “fair share” to the city, PPS officials – beset by financial problems including the drain from paying charter schools – have refrained from taking sides.
If the nonprofits paid 25% of what their tax-exempt property would otherwise bring to the city, PPS would collect about an extra $11 million a year, according to a PublicSource analysis. That figure would make up a fraction of the $668.3 million general fund budget the district approved in 2022, but it would represent about 40% of the district’s current deficit, which the tax increase helped reduce from $56 million to $27 million.
It’s more than double the $5.3 million the most recent tax increase is set to bring PPS this year, too.
Wayne Walters, who was named as superintendent on July 21, said an extra $11 million would “certainly help” PPS reduce its deficit and lessen residents’ tax burden. With more funding, PPS could better address students’ social and emotional needs, strengthen its academic offerings and improve its art, health and physical education programs, he said.
“We would look at paying our bills first to make sure that it doesn’t impact, you know, our residential taxpayers, and then really think about, ‘What are the wonderful things that we can do for the children and families that we serve in Pittsburgh Public Schools?’” Walters said.
He stressed, however, that he was speaking hypothetically and was not taking a position on whether the district should receive greater funding from nonprofits. “I’m just simply saying that, if this were the case … this is the way that this would help and support Pittsburgh Public Schools at this moment in time.”
An extra $11 million a year would be “a dream come true” for the district, said Nina Esposito-Visgitis, president of the Pittsburgh Federation of Teachers. She envisioned the district hiring more peer educators, expanding its athletics offerings and implementing the community school model throughout PPS.
“We are a great district doing a lot of things, but think of what we could do if we had that money,” she said.
To be sure, PPS’ per-pupil costs are higher than the state average. The district spent about $28,000 per student in 2020-21, while per-pupil spending in Pennsylvania’s 500 drastically varied districts averaged about $19,600, according to the state Department of Education.
Getting nonprofits to the table
Ira Weiss, the district’s solicitor, said the funding would help considerably but doesn’t believe it’s “at all realistic” to assume meaningful financial participation from the nonprofits. Under state laws, he said, taxing bodies have no real leverage to challenge nonprofits’ tax-exempt statuses and the school district is unable to secure meaningful payment-in-lieu-of-taxes [PILOT] agreements.
Change may be brewing in Pittsburgh, though. In July, Mayor Ed Gainey’s administration severed ties with the OnePGH Fund, created in 2021 under former Mayor Bill Peduto as a means to help fund city projects with contributions from four of the largest nonprofits — the University of Pittsburgh, Carnegie Mellon University, UPMC and Highmark/Allegheny Health Network [AHN].
The mayor, who has made clear that his administration is looking to be a partner to PPS under Walters, told WESA on Aug. 1 that the city cut ties with OnePGH partly because Gainey’s administration is instead focused on creating workforce development opportunities for students in local schools.
When PublicSource asked if PPS will play a role in Gainey’s efforts to get greater contributions from nonprofits, Walters left it as the mayor’s work.
How we calculated potential payments to PPS:
The city and former acting county controllers have recommended that the city and county enter PILOT agreements with the nonprofits in which they contribute 25% of their property tax liability.
To reach the conclusion that PPS would receive about $11 million a year if the city’s five largest nonprofits paid 25% to the district, we took the market value of their tax-exempt properties in the city (about $4.3 billion as of 2022), multiplied it by the school district’s current millage rate (10.25) and divided by 1,000.
That gave us the total amount the nonprofits would pay the district if their property was 100% taxable, which was about $44 million. One quarter of $44 million is $11 million. If the city did negotiate a PILOT with the major nonprofits, it would not be required to distribute funds to the district.
“If that is the way that the mayor deems that approach to work, and it benefits the school district, then so be it,” Walters said.
Weiss wrote in an email that the district believes it has a strong, positive relationship with the city’s nonprofit community that will continue under Walters. CMU spokesperson Peter Kerwin wrote in an email that the university “remains committed to educating the next generation in our region,” and looks forward to partnering with Walters, a CMU graduate, to support city students.
The mayor told WESA that he remains in talks with major nonprofits but did not state whether his administration has set a deadline for any agreement to be reached. He did not, however, rule out the possibility of a lawsuit. In 2013, former Mayor Luke Ravenstahl sued UPMC to challenge its tax-exempt status. Peduto dropped the lawsuit early in his tenure.
The teacher’s union supported Ravenstahl’s effort, Esposito-Visgitis said. The nonprofits’ tax-exempt statuses have been a grievance of the union for years.
“They should help. They’re part of the city. They make a heck of a lot of money,” Esposito-Visgitis said. “Our schools and our students need the help. Pay it.”
If the city did negotiate a PILOT with the major nonprofits – as the city and former acting county controllers have called for – it would not be required to distribute funds to the district.
How nonprofits contribute to the district
The city’s major nonprofits have provided programmatic support and student services to the district, Weiss said in an interview. Pitt guarantees admission and provides scholarship funding to PPS valedictorians and salutatorians, and AHN has provided on-site internships and mentoring to district students.
“Some of our longest and most successful partnerships have involved the city, county and Pittsburgh Public Schools,” wrote Chuck Finder, a spokesperson for Pitt, in an emailed statement. “We look forward to continuing these collaborations and contributing in meaningful ways to the strength and success of our local communities and economies.”
One of the most significant contributions by a tax-exempt entity came in 2007 when UPMC committed $100 million over 10 years to fund the Pittsburgh Promise — a nonprofit independent of PPS that provides scholarships for district students to attend college. UPMC made its final payment in 2017.
“Financially, that has been a huge boost for the students of this city,” Weiss said. “Any discussion of what nonprofits do in this city, there has to be a lot of recognition to UPMC for doing this.”
The Promise has raised $235.4 million so far, providing $162 million in scholarships to nearly 11,000 students. The purchasing power of the scholarship, though, has plummeted in recent years. As college costs go up, the maximum annual award has fallen, from $10,000 in 2015 to $5,000 now.
The Promise has committed to providing scholarships through the Class of 2028 (students who are entering seventh grade this fall). Shelley Scherer, associate executive director of the Promise, wrote in an email that the nonprofit is focusing on raising about $30 million over the next several years to secure that funding. The Promise can’t make commitments to future classes until then, Scherer said.
Scherer said additional contributions from UPMC to the Promise have not been discussed. The Promise is “profoundly grateful for the extraordinary generosity” of the hospital system, she said.
Paul Wood, UPMC’s vice president and chief communications officer, wrote in an email statement that the hospital system’s commitment to the city’s public school students is “unrivaled” among nonprofits nationwide, and the $100 million donation “has proven to be a successful catalyst for many other donors to step up and contribute significantly.”
UPMC has and will continue to contribute significantly to the city beyond the Promise, Wood wrote, citing the nonprofit’s $40 million commitment to affordable housing under OnePGH.
Meanwhile, the Promise’s board of directors will begin a planning process this fall “to wrestle thoroughly, strategically, and compassionately” with the nonprofit’s role in providing opportunities to city students and addressing challenges they face after 2028, Scherer said.
Esposito-Visgitis called UPMC’s funding of the Promise “a very nice gesture.” But given that the scholarship is no longer funding students the way it used to, she’d prefer more property taxes from the major nonprofits to continually fund the district.
“That was a long time ago. We need their support now,” she said. “Our kids and our neighborhoods need their continued support.”
The district’s remaining challenges
Even if the district receives greater funding from nonprofits, it still faces structural financial obstacles. One of the largest is charter school costs.
In Pennsylvania, districts pay charter schools a per-pupil cost based on what the district spends on its own students, regardless of the charter school’s costs. “In my view, that’s a completely upside-down way of doing it,” Weiss said.
PPS’ preliminary 2022 budget set aside about $119 million, or about 17% of its overall proposed budget, for charter school tuition. That was the largest appropriation in the budget following salaries and benefits. The school district had 4,485 salaried and non-salaried employees during the 2020-21 school year.
Weiss said the state legislature needs to seriously consider revising the funding formula for charter and cyber charter schools, but it “has demonstrated no ability to address the inequities in the system.” Democratic Gov. Tom Wolf attempted to reform charter school funding in the 2022-2023 budget, but the budget passed without any changes.
Within the district, increased spending under former Superintendent Anthony Hamlet and declining enrollment accounted for the majority of PPS’ then-$56 million deficit as of December. Hamlet resigned in October 2021 following a State Ethics Commission finding that he had violated the Ethics Act by “negligently” receiving travel reimbursement payments and making errors on submitted financial interest forms.
Even as Walters defers to Gainey on contributions from nonprofits, their respective institutions have disagreed on another potential source of funds for the district. After Pittsburgh entered state oversight due to financial distress, the city began collecting a portion of residents’ earned income taxes that previously went to PPS – a shift that amounts to about $23.4 million this year. The city left behind its financially distressed designation in 2018, but its share of the income tax has not reverted to prior levels.
In fall 2019, former Mayor Peduto criticized PPS’ spending and, at one point, declined to meet with former Superintendent Anthony Hamlet to discuss the district’s budget problems. At that time, the district was calling for the city to stop collection of the income taxes.
“I’m not going to meet with him to bail out a problem that they’ve created but yet don’t want to take the responsibility to fix,” Peduto told KDKA.
Now, Weiss said the district is hoping to have meaningful discussions with the city about the issue. Gainey told WESA that his administration has spoken about the redirected funding with state Senate Minority Leader Jay Costa, D-Forest Hills, and is “willing to sit down with everybody to find out exactly what happened” when the wage tax funds were shifted.
“The diversion of those funds was enacted when the district had a significant fund balance and the city was a distressed municipality. It is no longer distressed,” Weiss said.
Walters, the new superintendent, has said his approach to addressing the district’s financial situation will focus on ensuring PPS is operating efficiently and providing the same quality of education to all students. The hypothetical $11 million from tax-exempt nonprofits, he said, would support the district’s efficiency goals.
“We know that we have some financial challenges, and we cannot, you know, run in the red,” Walters said. “If we’re able to balance our budget, that would be wonderful, if we had that additional revenue, if that were a thing.”
Clarification (08/10/2022): This story was updated to note how the city could distribute funding under a PILOT agreement.
Emma Folts covers higher education at PublicSource, in partnership with Open Campus. She can be reached at email@example.com.
This story was fact-checked by Eric Jankiewicz.
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