We recently testified at a special state Senate committee hearing on pending legislation, Senate Bill 1175, that would impose a tax on nonprofit organizations based on how much land they own. Like last year's proposed tuition tax, this bill is intended to create a new revenue stream to help the city of Pittsburgh balance its budget. We acknowledge that our government leaders need to find a way to stabilize city finances, but taxing colleges and universities is not a good way to do it.
It's not only a bad idea; it's contrary to Pennsylvania law.
The tax-exempt status of nonprofit organizations goes back at least to the commonwealth constitution adopted in 1874. More recently, the state Legislature reaffirmed our tax-exempt status in 1997 when it passed Act 55.
In doing so, it laid out five criteria that organizations must satisfy in order to be exempt from taxes. Knowing the five criteria is useful, as they provide the rationale for tax exemption. Organizations must:
• Further charitable purposes (as colleges and universities do through education and basic research);
• Operate entirely free from a profit motive;
• Donate or give away a substantial portion of their services (as we do through financial aid for our students);
• Benefit a substantial and indefinite class of persons;
• Provide a service that otherwise would have been provided by government.
In other words, there are good reasons for colleges and universities to be tax exempt. Basically, if we didn't exist, the government would have to invent us to support the educational needs of its citizens.
We believe that attempts to tax colleges and universities are based on two false perceptions.
First, many people seem to believe that colleges and universities drain services while providing no return to the city. Pittsburgh colleges and universities already provide millions of dollars to the city each year in parking taxes, amusement taxes and other taxes and fees. They also provide vital services to our neighborhoods, especially police protection.
If you are searching for a police station in Oakland, the third busiest business district in Pennsylvania, what you will find is one staffed either by a University of Pittsburgh or Carnegie Mellon University police officer, an effort supported by more than $11 million in funding from the two institutions. Pittsburgh would need to increase its police force by 10 percent to make up for the contributions provided by Pitt and Carnegie Mellon.
Pittsburgh colleges and universities provide more than 300,000 hours of community service every year. These include providing educational and learning opportunities for children in K-12 schools in southwestern Pennsylvania.
Our institutions have undertaken a variety of building projects aimed at improving neighborhoods and creating new economic vitality for our campuses and those around us. Far from draining services, Pittsburgh colleges and universities provide direct investments and generate significant economic impact that anchor the city's economy and that are vital to its long-term financial viability.
In a recent column in the Post-Gazette about the value of the city's nonprofits, economic analyst Harold Miller noted that there would be fewer taxable buildings, stores, hotels and restaurants in Oakland if it weren't for the presence of the nonprofits. The column also noted that in many ways, the city of Pittsburgh is more disadvantaged by being a county seat for Allegheny County, with all of its tax-exempt property, than it is by being home to colleges and universities.
The second false perception is that, as they expand, universities convert tax-bearing property to tax-exempt status, eroding Pennsylvania's tax base.
To begin with, we don't own as much land as many people seem to think and we represent a small minority of tax-exempt land. Pittsburgh colleges and universities own only 6.5 percent of city property and about a quarter of city tax-exempt property. Universities hold only a small fraction of tax-exempt property statewide, while government owns the vast majority.
Furthermore, our expansion in recent years has often increased tax rolls, and, even when it hasn't directly, it has produced substantial and continuing benefits. There are many outstanding examples.
Chatham University purchased a building in East Liberty, renovated one-fifth of it and is now paying at least twice the amount of taxes as the previous owners on the remaining four-fifths of the building.
The Petersen Events Center, constructed by the University of Pittsburgh, generates both amusement and parking tax revenues. Pitt also constructed the Sennott Square Academic Center on the most blighted block of the Forbes Avenue business corridor, creating new tax-bearing and job-generating retail space on the first floor. On Fifth Avenue, the Bio Sciences Tower 3 is a magnet for research dollars.
Down the street, Carlow University purchased a rundown lot on the corner of Craft, Fifth and Forbes avenues to build a Science and Technology Center, enhancing retail and commercial opportunities along the Forbes Avenue corridor. Carlow also purchased a church and rectory at Robinson Street and Fifth Avenue to further protect and enhance an important Oakland entry point.
Duquesne University redeveloped a site containing a series of dilapidated warehouses into its Power Center, which contains a vital mix of retail and university space -- bringing both new taxes and jobs to the city.
Point Park University has invested well over $40 million in its Academic Village initiative.
Carnegie Mellon University built the Collaborative Innovation Center on its campus as a tax-bearing facility, believing that the powerhouse ideas of its students and faculty could bring jobs to Pittsburgh. Since then, Google, Intel and Apple have moved into the facility. We estimate that CMU's presence alone has created 200 companies and 9,000 jobs in the past 15 years.
All of this is good news for Pittsburgh and its employment picture. Google is now doubling its size in Pittsburgh and will become the anchor tenant of a development in East Liberty.
A striking example of the catalytic role of the nonprofit community is the development of the South Side. Early investments by UPMC and Pitt in sports performance and regenerative medicine centers were keys to critically important developments on the South Side. Thanks to their visionary investments and initial developments, this once-blighted area now boasts the South Side Works retail complex, the corporate headquarters for American Eagle, attractive housing, restaurants and a new hotel.
Beyond the false perceptions about universities, taxing our institutions would take away, dollar for dollar, from the benefits we provide to the city. We are not rich organizations (another false perception), and, as a general matter, the tuition we charge does not cover the full cost of education, nor does the external support we receive cover the full cost of research. Imposing a tax on us in order to balance the city budget would force us to raise tuition in order to balance ours, or to provide less financial aid or forego investments in new and enhanced programs.
We are proud of the role that we have played in the success of our city. Pittsburgh is hailed as a model of urban rebirth based, in part, on the direct contributions we have made, the jobs we have created, the companies we have spun off, the innovative employers we have attracted and the developments we have built. Taxing us will take away from our efforts to do more for the city, dampening the economic impact of what we do and ultimately hurting all of Pittsburgh's citizens.
Taxing Pittsburgh's colleges and universities would be contrary to long-settled law. The repeated attempts to do so seem to be based on false perceptions about what we contribute to the city. And, while well intended, taxing our institutions would have immediate negative impacts and long-term consequences that no one wants.
Pittsburgh colleges and universities have been a major part of the city's success, and we are committed to helping find long-term solutions to the city's budget problem. We look forward to working with Mayor Luke Ravenstahl and other city and state leaders to chart a course for the future of Pittsburgh of which we all can be proud.
This article is based on statements made on behalf of the Pittsburgh Council on Higher Education during a recent state Senate hearing. In addition to Dr. Cohon and Dr. Carl, the members of the council include the leaders of Carlow University, Chatham University, the Community College of Allegheny County, Duquesne University, La Roche College, Point Park University, Robert Morris University and the University of Pittsburgh.