Pittsburgh's pleading for nonprofit money called 'unique'

Most cities have formulas for payments in lieu of taxes payments

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Faint during Pilates class at the Downtown YMCA, and it's likely a paramedic will come quickly. There's an ambulance station on the same block.

The city of Pittsburgh buys and equips the ambulances, maintains the station and pays the paramedics. And the YMCA, as a tax-exempt organization, gets that service, along with police and fire coverage, and (usually) drivable roads, at a 94 percent discount compared with what businesses and homeowners pay in property taxes.

Figuring out how to pay for basic services while tax-exempt organizations control large blocks of land is a problem for cities nationwide.

Pittsburgh's solution has been to go hat-in-hand, asking nonprofit institutions to give the city whatever they can.

That's a "unique" approach to a national problem, said Evelyn Brody, a professor of law at Chicago-Kent College of Law and author of the book "Property-Tax Exemption for Charities: Mapping the Battlefield." Pittsburgh is "relying on something voluntary," she said, when most cities "are looking for something more certain."

Boston, for instance, gets tax-exempt institutions to pay part of the taxable value of properties they buy that were formerly on the tax rolls. The state of Connecticut pays its municipalities most of what they lose due to the property tax exemptions granted colleges and hospitals -- an arrangement that brought the city of New Haven alone $38 million last year.

Those are the gold standards for dealing with the fiscal problems cities face when big chunks of their property base are tax-exempt, Ms. Brody said.

Pittsburgh, meanwhile, has a voluntary, secretive system that evolved out of 16 years of efforts to deal with large nonprofit holdings.

One-third of the city's property value is tax-exempt, and that's split evenly between government holdings and private property. According to a 2003 study by the Allegheny Institute for Public Policy, medical facilities, churches, colleges and universities owned $2.9 billion worth of property in the city -- land and buildings that could otherwise generate $31.3 million a year in city taxes.

Starting in 1991, the city hit up nonprofit organizations for cash by threatening to challenge their tax-exempt status in court. Payments peaked at $4.6 million in 1993.

A 1997 change in state law gutted cities' ability to challenge tax exemptions. With its ability to strong-arm institutions eliminated, city collections dwindled to $688,000 in 2004.

As part of its recovery plan under state Act 47, the city in 2005 sought pledges of $6 million a year from nonprofit institutions. Those institutions put together an umbrella group called the Pittsburgh Public Service Fund, and 102 groups promised a total of $13.25 million over three years.

The deal expires after this year's $4.2 million payment, and the fund's board hasn't decided whether to give more.

"You can't budget [based on] that," said acting city Controller Tony Pokora. "We don't know what they're going to give us from one year to the next."

The fund's pledge came with three catches. There would be no presumption of any payments after this year. The organizations could give what they wanted, with no firm guidelines. And the public wasn't supposed to know who gave how much.

The Pittsburgh Post-Gazette obtained documents showing payments to the fund in 2005, and revealing the lack of any firm standards for the size of the gift.

For instance, the University of Pittsburgh Medical Center's $1.5 million donation to the fund in 2005 was the largest of any organization. That amounts to around 20 percent of what a for-profit company would have to pay on the $660 million worth of untaxed property the health behemoth owns, according to land and building assessments.

But the donation is less than one-third of 1 percent of the $512 million in surpluses -- like profits in the business world -- that UPMC rolled up that year.

Mercy Hospital paid a much smaller $58,200 under a deal with the city that is handled outside of the fund. That's just 6 percent of what it would have paid in property taxes -- a comparative bargain. But Mercy lost money that year and is trying to merge with UPMC.

The fund's leaders note that member groups are untaxed precisely because they lift some burdens from government. Notably, UPMC gave $176 million in charity health care in 2005, and Mercy provided $15 million in services for free.

The University of Pittsburgh runs its own police force, funds health clinics, and conducts many programs for young children, among other contributions.

The city property tax bill on the Downtown YMCA building -- a small part of which is taxable -- is $5,314, around one-sixteenth of what for-profit owners of a building valued at $8.6 million would pay. When the city asked nonprofit groups to pony up whatever they could in 2005, the YMCA pledged just $100.

"We want to help the best way we can," said YMCA President Eric Mann. With four branches in city neighborhoods, it picked up the slack when city recreational facilities shut down, he said.

Mr. Pokora acknowledged the value of such services, but he said cities should get payments from the state for hosting such institutions. He said those with huge surpluses -- like UPMC and Highmark Inc. -- should also pay the city something.

Highmark made $342 million in 2005 and paid $1 million into the fund.

Ms. Brody said Connecticut's system effectively combines state payments and contributions from nonprofit organizations.

Connecticut reimburses cities for more than half of the property taxes they lose due to the exemptions granted to private colleges and hospitals.

If it weren't for those payments, the city of New Haven would be in trouble. The home of Yale University, half of its property value isn't taxable.

In addition to the state payment, five large nonprofit institutions, including Yale, voluntarily pay the city $250 per each employee they have and each dormitory or hospital bed they host. Yale's payment under that formula is $3.2 million a year, which is four times what the University of Pittsburgh paid to the public service fund in 2005.

New Haven's deal with Yale and others, plus the state payment, total $42 million a year, which is 10 percent of that city's operating budget.

By contrast, the Pittsburgh Public Service Fund's payment of $4.2 million this year amounts to 1 percent of the city's operating budget. A handful of additional payments from nonprofit organizations, like Mercy Hospital, are expected to bring in another $1.5 million, or one-third of 1 percent of city spending.

Boston loses $258 million in revenue a year due to the prevalence of tax-exempt institutions, including 19 colleges. The city asks large institutions to pay around one-quarter of the tax bill on property that they buy or improve, bringing in $33 million last year.

Providence, R.I., is in the fourth year of a 20-year deal with four colleges that will pay a total of $40 million. If they buy additional land, taking it off the tax rolls, they pay a steadily diminishing portion of the property taxes that were previously due.

Under that deal, Brown University is paying Providence $1.1 million this year -- three times Carnegie Mellon University's payment to the fund here.

Mayor Luke Ravenstahl said last week that he will discuss options with nonprofit leaders but indicated he won't "set any goals that won't be attainable."

Pittsburgh Public Service Fund spokesman the Rev. Ron Lengwin said his members aren't looking for guidelines on what to pay and haven't decided whether to pay anything beyond this year.

City Councilman William Peduto, a Democratic mayoral challenger, said the Connecticut model would be ideal, with the state paying a portion of the revenue cities lose to tax exemptions.

Barring state action, Mr. Peduto would like to see "a 20- to 40-year plan that focuses only on hospitals, universities and insurers." He would have them make payments based on the size of their payroll, just as for-profit businesses do.

A fair standard for nonprofit groups' payments to cities might take into account the value of their land holdings and their wealth, and provide a discount based on their service to city residents, said Pamela Leland, an associate professor of urban affairs and public policy at the University of Delaware.

Putting together such a formula might not be worth the trouble, she said. "Why should we go through all the rigamarole of putting together a comprehensive system, when it's really five organizations we want to go after? ... In reality, there's only a few organizations with the wealth to make a significant difference in the long haul."

Pittsburgh no longer has any legal means to compel nonprofit payments, and there's no guarantee that public pressure could bring about long-term commitments. Other cities have tried, and failed, to get long-term deals with tax-exempt organizations.

Philadelphia went the same route as Pittsburgh, threatening to sue and reeling in around $12 million a year from nonprofit institutions at one point, said David Glancey, chairman of that city's Board of Revision of Taxes. Philadelphia also wrangled donations of $20 million worth of services every year, from mobile mammography vans that toured poor neighborhoods to health clinics in public schools.

But the same change in state law that undercut Pittsburgh's program also killed Philadelphia's. Now the City of Brotherly Love asks for contributions, but gets less than $1 million a year from untaxed institutions.

"Our experience has been, don't count on it," Mr. Glancey said.

Cuyahoga County, which includes Cleveland, tried to wheedle payments from the two biggest hospitals in the region, especially the Cleveland Clinic. If successful, the plan was to move on to other large institutions.

"We looked at the lowest possible appraised [property] value, and then wanted one-quarter of what they would've paid in taxes," said Cuyahoga County Treasurer Jim Rokakis. The hospitals wouldn't do it.

Mr. Rokakis said that as a result, Cleveland's story is increasingly a tale of two cities.

In one, "philanthropic organizations are able to raise hundreds of millions of dollars to build monuments."

In the other, he said, schools are forced to use photocopies of textbooks, the city government struggles to pay its bills, and high property taxes are driving foreclosures and blight.

"We're forced to come back to voters for property tax increases," he said. "They keep getting shot down."


Rich Lord can be reached at rlord@post-gazette.com or 412-263-1542.


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