City weighs UPMC trade-off

Medical center would donate $10 million a year to Promise program, but stop making $1.5 million annual payment to the city

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More money for college may mean less money for running the city of Pittsburgh.

The University of Pittsburgh Medical Center, the key funding source for the Pittsburgh Promise of college help for city school graduates, plans to stop contributing to the city's coffers when it starts kicking into the tuition fund, officials said yesterday. They argued that represents a net gain for residents, because a $10 million-a-year contribution for scholarships far outweighs a $1.5 million-a-year payment for general government.

That trade-off, accompanied by a resolution to ensure that UPMC doesn't have to pay both levies and scholarships if laws on its tax exemptions change, spawned a sharp battle-of-the-quotes between some City Council members and Mayor Luke Ravenstahl's administration.

"My phone is ringing off the hook with disgust about the backroom deal that's been done," said Councilman William Peduto, at a meeting in Council Chamber. "Do not ask for a special tax credit or tax deduction that other people do not have an opportunity to ever ask for."

"It would be unfortunate if the actions of a few council members have the effect of preventing the class of 2008, those [2,000] seniors, from participating in the Pittsburgh Promise," said city Chief of Staff Yarone Zober, outside of the chamber. "There are only so many things a city can do that are real game-changers, that can change the landscape of a city entirely. ... The Promise is one of them."

Council delayed a vote on the resolution pending an as-yet-unscheduled public hearing that activist residents demanded.

The controversy stems from the Dec. 5 announcement that UPMC would give $100 million over 10 years to fund the Pittsburgh Promise, an effort by the city and the Pittsburgh Public Schools to ensure that all graduates have the money needed to go to college. During the last nine years, the city and schools must raise another $135 million in other contributions.

Mr. Ravenstahl's administration asked council on Monday to ensure that if UPMC was ever required to make payments to the city it would get what a proposed resolution calls a "tax credit ... equal to certain payments which may be made by UPMC to the Pittsburgh Promise."

City Solicitor George Specter said that if the city was required to tax UPMC, the healthcare giant's bill would be reduced by the amount it was paying to the Promise. If such a credit were not legal, UPMC could reduce its payment to the Promise.

UPMC has voluntarily given around $25 million to the city since the mid-1980s, including $1.5 million a year the last three years, according to its General Counsel Robert Cindrich.

If the Promise starts, that will end. "For the residents of the city of Pittsburgh, [the Promise payment] would be the annual gift that we will make," he said. "So naturally, [city officials] are going to be concerned. I would be, too, if I was in the city government."

He guessed that other donors to the Promise would seek similar trade-offs. Whether that hurts the city's bottom-line "depends on whether they find alternate revenue sources, whether other nonprofits step up to the plate."

The city is counting on $4.2 million a year from tax-exempt organizations to balance its next five budgets. That covers 1 percent of city costs like public safety, public works and debt payments.

"I don't know that all of the nonprofits are going to go in this direction" of giving to the Promise instead of the city, said Maxwell King, president of the Heinz Endowments. He noted that UPMC's gift to the Promise is "20, 30 times what anybody put into" the city's coffers.

Mr. Zober said the city is in "conversations" with nonprofits geared toward ensuring that its bottom line is protected.

Mr. Cindrich said a short delay for a public hearing would not jeopardize UPMC's proposed donation -- though failure to eventually ink the arrangement would nix it.

"The deal was expressly made contingent upon city council and the city school board agreeing to these arrangements whereby we won't get hit double" with both a contribution and some new tax.

Mr. Ravenstahl said in a statement that he is "confident that City Council will do their part in making the Promise a reality."

UPMC reported a $618 million surplus in its last fiscal year. It owns property within the city assessed at $773 million, according to a City Controller's Office audit released in May. That would translate to an $8.3 million property tax payment to the city, if the healthcare giant was subject to the tax.

Mr. Cindrich noted that UPMC is making hundreds of millions of dollars in improvements to hospitals.

He said UPMC may try to deduct part of its contribution to the Promise from federal taxes due on its for-profit subsidiaries.

Rich Lord can be reached at or 412-263-1542.


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