UPMC recently has been claiming it isn't as profitable as people believe.
But last month, the health care giant paid $25 million cash to buy an office building in the SouthSide Works development that it has leased for a decade -- by far the most UPMC has ever paid for a non-hospital building in its 30-year history.
UPMC bought what is known as the Quantum One Building, located at the intersection of South 29th and East Carson streets, from Soffer South Side Works Ltd. on Oct. 11. The price was agreed to a decade ago as an option on the lease it signed in 2001 for the four-story, 151,000-square-foot building.
Though the price was set 10 years ago, UPMC said in an emailed statement that it believes it paid a fair price compared to other comparable sales in the city recently.
"The reason we bought Quantum is because we plan to be there for the long term and buying was much less expensive than renting," UPMC spokeswoman Susan Manko said in an email response to written questions.
But it wasn't the sales price alone that had local officials and critics concerned with the purchase of the building, for which UPMC had been paying at least $2.5 million in annual rent, plus another $417,600 annually to rent part of a nearby parking garage, according to financing documents on the property.
"When I read [UPMC bought the building], I figured, 'Well, there goes another UPMC property off the property tax rolls,' " said Pittsburgh Councilwoman Natalia Rudiak, who has been pushing UPMC and other large nonprofits to make more payments in lieu of taxes for their exempt property.
UPMC said immediately after the sale that it had no plans to apply for a property tax exemption for the building, which houses about 900 UPMC employees doing an array of back-office accounting and billing operations both for its for-profit and nonprofit subsidiaries and health care facilities.
However, Pittsburgh's Urban Redevelopment Authority said that even if UPMC wanted to apply for an exemption for the building, it couldn't until 2019. That's when the tax increment financing (TIF) district that helped finance construction of the SouthSide Works expires.
When UPMC bought the property from Soffer South Side, a subsidiary of The Soffer Corp., the deed of sale it signed includes a covenant that UPMC continue to contribute a portion -- 60 percent -- of its annual property taxes on the site to the TIF fund. TIF money is used to pay off the 20-year bonds that helped build the infrastructure (streets, sidewalks, utilities) that was a big part of the redevelopment of the SouthSide Works from the former LTV Steel plant into an urban mall, office park and residential area.
The 1.4-acre site is valued by the Allegheny County assessor at $15.8 million in 2012 values. The 2013 reassessment figure nearly doubles that value to $31.5 million, an assessment UPMC is appealing. With a 2 percent discount for early payment, Soffer would have paid about $473,000 in taxes this past year on the property to the county, the city of Pittsburgh and Pittsburgh Public Schools. But URA director Robert Rubinstein said $256,000 of that was diverted to the TIF fund, money that will eventually go to the local governments. The remaining 40 percent already goes to local governments.
UPMC said it doesn't know if it will apply for an exemption in 2019 because "we don't know right now what will happen in 2019. We'll follow whatever the tax laws are," Ms. Manko said in an email.
But the prospect of UPMC, or any nonprofit, applying to exempt property that was developed with the use of taxpayer funds like the SouthSide Works TIF district is an issue that has local officials troubled.
"Obviously it would be something we'd prefer not to see happen," Mr. Rubinstein said. "This is obviously part of an ongoing issue with nonprofits and property. They're helping drive the economy, but they're gobbling up more and more property."
Mr. Rubinstein noted, however, that when UPMC agreed to lease the Quantum One Building from Soffer in 2001, it was Soffer's first office building in the SouthSide Works, and more were later built, so "one could argue that UPMC's presence there was an affirmation to others who followed, because, again, they are the largest employer in Western Pennsylvania."
American Eagle Outfitters, for example, has its headquarters a block away from UPMC's building, he noted.
That may be, but state Sen. Wayne Fontana, D-Brookline, who has proposed a bill that would force large nonprofits to pay at least a portion of the property taxes they escape on exempt property, was incensed by the possibility that UPMC could apply for an exemption on a former TIF property.
"There is no question that they shouldn't be able to benefit from a TIF and then apply for an exemption," he said. "That's not the intent of the [TIF] program. Maybe that's something the Legislature needs to address."
City Councilman Bruce Kraus, who represents the South Side, said he isn't sure it's currently legal.
"I'm going to ask our Law Department to ask a broad-based question of whether buildings built with public subsidies can be sold to nonprofits and ultimately taken off the tax rolls," he said.
The purchase of the office building points to larger questions about how UPMC operates that have increasingly troubled local officials and critics, who took note of UPMC's effort in September to demonstrate how little money it actually has in profits.
In September, UPMC put out a brochure and created a page on its website -- www.upmc.com/about/facts/Pages/investment.aspx -- that made the case that UPMC really doesn't have all the money local governments think it does.
Though UPMC told the IRS that it made $351 million in profits last year, and more recently told bond holders that it made $220 million, UPMC said that with all the investments it had already planned in the community and payment on its debt, it really only made $7 million last year on revenue of $9.6 billion.
Barney Ousler, executive director of Pittsburgh United, an advocacy organization that believes UPMC pays its workers too little and should pay property taxes, said UPMC's $7 million in profits doesn't make sense when it can pay $25 million for an office building "that it was already leasing."
"How does [buying the building] improve health care for Pittsburgh?" he asked. "They have too much money is what it looks like to me."
Barring some state legislation that changes how nonprofits operate, or someone locally challenging the charitable status of UPMC and others, Mr. Fontana believes it is going to take a coalition of local officials to lean on the large nonprofits to pay more to help local government.
"It's the same story over and over again. UPMC and other nonprofits keep buying up property and the city and county and schools have less and less money from it," he said. "And until there's some unified pressure on them, they're going to keep buying up property and not paying their fair share."
Sean D. Hamill: email@example.com or 412-263-2579. First Published November 4, 2012 4:00 AM