Kenneth Service / Think before you tax: A city payroll tax on nonprofits would hit higher education

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At the insistence of the Intergovernmental Cooperation Agency, a commission is being formed to examine the issue of payments by nonprofit organizations to the city of Pittsburgh and state Sen. Jim Ferlo has proposed a payroll tax for nonprofits.

While the question of addressing Pittsburgh's revenue needs is certainly a valid subject for investigation, early comments regarding both approaches seem to indicate a predetermined outlook that ignores the reason why nonprofit organizations are exempt, by law, from the payment of some taxes; namely that they provide benefits to the public that municipal governments are not equipped to provide or could not afford to provide.

This is true in the case of higher education in Pittsburgh. The 10 colleges and universities of the Pittsburgh Council on Higher Education together educate more than 60,000 students annually. In the process, they dispense $365 million of their own revenues in the form of financial aid, significantly increasing the access to education opportunities for tens of thousands of area citizens.

The benefits that accrue to Pittsburgh from its colleges and universities go far beyond the direct provision of educational services. The PCHE schools also devote substantial resources to addressing and supporting community needs, ranging from upgrading and revitalizing neighborhood infrastructure to providing job training, dental care and even operating a pharmacy in an under-served neighborhood.

Then there is the role in Pittsburgh's economic revitalization. The 10 PCHE institutions sit at the heart of the strongest employment sector in the region. According to data from the U.S. Census Bureau, 34 percent of all workers in Pittsburgh are employed in the "eds and meds" sector, with the PCHE institutions employing almost 25,000 individuals.

As governments continue to give tax rebates to for-profit companies in the hope that they will be job creators, it seems counterproductive to add financial burdens to those institutions that already are the major providers of good employment opportunities for local residents, placing them at a competitive disadvantage with peer institutions not located in the city.

In that regard, it is a misnomer to say that universities pay no taxes. The PCHE schools already pay more than $5 million annually in various city taxes (e.g. parking, amusement, etc.), another $17 million in city employee wage tax, and $900,000 in property tax for property unrelated to their main educational mission. Also, several PCHE members already participate in the Public Service Fund, which, by year end, will have made nearly $25 million in unrestricted contributions to the city.

The effort to address Pittsburgh's revenue shortfall primarily by seeking funds from nonprofits, all of whom are beset by state and federal funding cuts that are already limiting community services, overlooks several important issues that call for attention first. Primary among these is the municipal pension fund problem, the main contributor to Pittsburgh's fiscal woes.

For more than 40 years, this issue has been dealt with through a series of short-term "fixes," with no structural solution. Now is the time to address it rather than seek new funding sources that will allow it to be once again avoided.

Another thorny problem is the question of a commuter tax. Some local officials have been heard to opine that the many ways by which nonprofits benefit local citizens "don't fix the potholes." Yet every day, thousands of suburban commuters increase the wear and tear on city streets without adequately contributing toward their upkeep. There is no question that those living in the suburbs benefit from the amenities, conveniences and opportunities provided by the city. The time has come to examine the ways in which they should help .

Finally, as both the city and Allegheny County pursue separate processes for examining the issue of payments by nonprofit organizations, it brings to mind the need to address city/county consolidation and cost savings that could result.

The PCHE schools are not insensitive to the resource challenges facing the city. They're also aware of the valuable contributions that the nonprofit sector makes to Pittsburgh's prominence.

There is no one solution that will address the city's budget problems, and the colleges and universities of the PCHE stand ready to assist the city in expanding its efforts to investigate all possible solutions, rather than focusing on only one source of funds.


Kenneth Service is the executive director of the Pittsburgh Council on Higher Education (


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