Pittsburgh Mayor-elect Peduto, nonprofit coalition butt heads over giving

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At the end of this year, the city of Pittsburgh's accord with a coalition known as the Pittsburgh Public Service Fund will end.

The fund -- which will amount to about $2.6 million this year -- represents the voluntary contributions from about 40 tax-exempt nonprofits, which are the beneficiaries of millions in tax breaks. While the identities of the groups that give are known, the amounts they contribute are not.

It represented a temporary solution to a long-running debate in the city over what -- if any -- money nonprofits should contribute to the city, given that many pay no property taxes or payroll preparation taxes, or pay taxes on only a portion of their properties and employees. From the city's perspective, it represents millions in lost revenue from institutions and organizations that use the city's services just like any other business. But for nonprofits, the laws that keep them exempt from property and payroll preparation taxes exist for a reason, because, under the eyes of the law, they're charitable operations.

This year, an effort to renegotiate the terms of the Pittsburgh Public Service Fund was abandoned when Mayor Luke Ravenstahl decided to sue UPMC to strip it of its public charity status. The lawsuit is working its way through Allegheny County Common Pleas Court. It iced over an already uncomfortable relationship between the two groups.

Now, Mayor-elect Bill Peduto wants to change the game entirely, ridding the city of the short-term agreements that leave it renegotiating -- or begging -- every few years. So far, it's been an unstable source of revenue for the city.

"It's on a yearly basis the city is left in a position where it has to beg for money," he said. "We need something that is a more structured approach and on a long-term basis."

He is ambitious about how much he hopes to extract from nonprofits, though he has declined to put a number on that. Earlier this month, he said he hoped to get enough from nonprofits to start shifting earned income tax revenue back to Pittsburgh Public Schools, which is facing a deficit that's projected to eat up its reserves by 2016. (The schools have lost out on millions in earned income tax revenues after the state shifted a greater portion of that tax back to the city when it faced its own financial troubles.)

Instead, he wants more structured, longer-term agreements, ones that are based on how much those organizations might have paid in payroll preparation tax.

"There has to be a starting point for a discussion where it needs to be and a helpful metric would be on the payroll tax," he said.

Mr. Peduto said he already has had discussions with the "Big Four," the University of Pittsburgh, Carnegie Mellon University, insurer Highmark (which pays taxes on two Downtown properties) and the state's largest private employer, UPMC. He seemed confident that a long-term deal for far more money was possible. All four organizations declined to say how much they have given to the city in voluntary payments.

In a statement, Kenneth Service, a spokesman for Pitt, appeared resistant to the idea of more voluntary payments. The service fund, he said, was created as a way for nonprofits to assist the city while it attempted to climb out of the depths of a devastating financial crisis.

"That fund was created by the broader nonprofit community to provide help to the City during a particular period of financial crisis," Mr. Service wrote in the statement. "Because the City now has moved through a succession of balanced budgets, it appears that its time of financial crisis may be over, which also should mean that the need for the Public Service Fund and the nonprofit contributions that it has collected no longer exists."

Don Smith, president of Regional Industrial Development Corp., chaired a now-defunct task force that was supposed to negotiate a new agreement with the Pittsburgh Public Service Fund. But he abandoned the effort when the city sued UPMC, saying the suit -- along with other factors, such as Mr. Ravenstahl's decision not to run for office this year -- threw too many unknowns into the equation. And he said that will likely remain the case next year.

"I think until that lawsuit's settled, it really casts a cloud over voluntary contributions," he said. But he did not rule out the possibility of a deal with nonprofits.

"If they sit down at the table and talk about what the city's needs and priorities are and what the nonprofits' needs and priorities are and look for ways to collaborate together to advance the city's goals in a way that's compatible and acceptable to the nonprofits, I think there's a deal," he said.

It does not hurt, too, that Mr. Peduto has separately pledged to work with nonprofits to address problems in chronically underserved communities and even plans to appoint liaisons to help nonprofits cut through red tape. Mr. Smith said nonprofits that he's spoken with often feel as if their investments in the community are taken for granted.

"The nonprofits have a sense that all the things they do for the city are not well-known and appreciated," he said.

And he said many nonprofits would like greater say in what happens to the voluntary contributions that end up in the city's coffers. The nonprofit community has criticized the city's handling of its finances, saying officials have not been "responsible stewards" of tax revenues. In his statement, Mr. Service criticized the city for its high legacy costs from pension obligations.

Mr. Smith proposed creating a fund -- separate from the general fund that supports most of the city's operations -- that could be steered toward economic development with input from the nonprofits.

"When you talk about putting money in the general fund, [nonprofits] feel like they're being taxed," he said.

But Mr. Peduto said the voluntary payments are a critical part of the city's goal to get to 2018 without borrowing substantially more. That's the year the city is slated to pay off the bulk of its debt, enabling it to begin sinking additional funds into its anemic pension fund.

"We know what the amount would be to get to 2018 without having to borrow that much," he said. "We also know that if we do look to help the schools ... that that will leave a hole in our budget. And we know that all of these things can be dealt with a fair payment in lieu of taxes."

Moriah Balingit: mbalingit@post-gazette.com, 412-263-2533 or on Twitter @MoriahBee.

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