(Photo illustration by Natasha Khan Vicens/PublicSource)
Mayors have tried, with little to no success, to get more money from tax-exempt organizations. Candidates in this year’s election say it’s time to finish the job with city funds dwindling.
“PublicSource is an independent nonprofit newsroom serving the Pittsburgh region. Sign up for our free newsletters.”
The city’s biggest nonprofit owner of tax-exempt property should “pay taxes like anyone else,” Gainey argued at the time, and do so “on our terms.”
Almost four years later, Pittsburgh’s budget situation has tightened, with Mayor Gainey and his team predicting “lean” years ahead, federal pandemic relief funds expired and property tax revenue in turmoil. But there’s been no uptick in city revenue from UPMC or any other major nonprofit.
Gainey is now running in a heated Democratic primary against County Controller Corey O’Connor, who is using the city’s lack of agreements for payment in lieu of tax, or PILOT, as an example of why he should replace Gainey next year. The primary is scheduled for May 20.
“This mayor said he was going to do it, [and] produced absolutely nothing,” O’Connor said. “… A lack of a PILOT or a vision to get people in a room to discuss what you would do with that money shows a big issue.”
Gainey defended his record by pointing to his administration’s effort to challenge the tax-exempt status of nonprofit-owned properties one by one rather than at the organizational level. The approach, which targeted UPMC heavily and included a challenge to the tax exemption for Children’s Hospital, has yielded little result so far. By Gainey’s account, it has netted the city just $47,000 more than the $247,000 it has incurred in related legal fees.
He also touted a commitment from Highmark to make a contribution if other major nonprofits did the same — a position that included no firm timeline or dollar amount and is essentially the same stance the healthcare group, as well as UPMC, has taken for years.
Time of need
While Gainey was running for office in 2021, the federal government awarded Pittsburgh $335 million in pandemic relief funds through the American Rescue Plan Act [ARPA] with a broad set of eligible uses. The money was an unusual cushion for a newly inaugurated mayor, and allowed Gainey to govern for years without making significant spending cuts — or becoming desperate for new revenue sources.
Things are different now. The federal relief funds expired last year and several revenue streams are forecast to come in below 2019 levels this year. That includes the real estate tax, the city’s largest single revenue stream, which the mayor budgeted to come in at $144 million this year, about $3.6 million below 2019’s intake, while inflation and city spending keep growing.
The parking tax and local service tax are also expected to come in below 2019 rates, while some other revenues have stagnated at close to pre-COVID levels.
Gainey’s 2025 operating budget sketches a five-year plan that would shrink the city’s rainy day fund from $208 million at the start of 2025 to $72 million by the end 2029.
That’s where major nonprofits could come in — at least according to some policymakers, like Gainey and former county and city controllers, who released a joint report on the matter in 2022.
The city’s tax loss from exemptions on property owned by the “big five” nonprofits — UPMC, Highmark, the University of Pittsburgh, Carnegie Mellon University and Duquesne University — totaled $34.5 million that year. If Pittsburgh added that amount to its annual revenue and changed nothing else, its deficit spending wouldn’t just slow. It would reverse, growing the rainy day fund and allowing city leaders to maintain or expand services.
Searching for a deal
The nonprofits have settled law on their side, though, making it hard for cities to compel payments. While other major cities have struck deals with major nonprofits to make voluntary payments, Pittsburgh leaders have been unable to come to a lasting solution.
Mayor Tom Murphy was responsible for the Pittsburgh Public Service Fund, which saw about 100 nonprofits combine to contribute about $5 million per year in the mid-2000s. That program collapsed after Mayor Luke Ravenstahl sued UPMC to try to revoke its tax-exempt status in 2013. That lawsuit was discontinued by his successor, Peduto, who said it was futile and preferred to seek a deal outside the courtroom.
Peduto spent years working on a comprehensive deal involving the major nonprofits and announced one just before his own re-election primary in 2021. The agreement would have seen the nonprofits provide funding or services worth $115 million over five years instead of paying the city itself.
Peduto lost the Democratic primary that year to Gainey, who discontinued the program, criticizing the lack of city control over the funds.
In a recent interview with PublicSource, Peduto said there’s no agreement to be had with the nonprofits through legal force.
“There has to be a two-way discussion on this,” Peduto said. “The law states that no municipality can tax any nonprofit. But the nonprofits recognize that they’re a part of this community … I think [the next mayor] would find willing partners in the nonprofit community and especially the ‘big four.’”
Fresh ideas?
O’Connor said he would seek a middle ground between Peduto’s plan to route money through an independent nonprofit and Gainey’s demand of total city control over the funds. He would aim for money to go directly to the city, but tell nonprofits what the money would be spent on up front.
He said Peduto’s plan shows that “if you point out where the money is going to go, all our universities and all our nonprofits are willing to pay. And I think it just takes a leader that is going to say, OK, your money’s going to go to buying ambulances, plowing streets, whatever it might be.”
Gainey said he would not change his approach in a second term.
“We will always keep the door open to have a conversation with UPMC and others,” Gainey said.
Gainey said in March that he thought he struck a deal with UPMC in February 2024 for $12.5 million per year for 10 years. It would have been a landmark deal for Gainey and the city, and would have almost entirely offset UPMC’s city property tax exemption, which the controllers estimated at $13.9 million in 2022.
But UPMC spokesperson Paul Wood contradicted the mayor, saying no such deal was ever offered. Wood reiterated a longstanding position that UPMC would participate in a program that equitably includes the region’s other nonprofits, and pointed out that UPMC already satisfies its obligations to receive a tax exemption by providing charity care and other community benefits.
Wood also noted that UPMC was part of Peduto’s OnePGH plan in which UPMC pledged about $52 million over five years, mostly for affordable housing initiatives. The rest of the money was to come from Highmark, Carnegie Mellon and Pitt.
The total would have made up for most of the city’s tax loss from the four nonprofits’ tax exempt properties — at least for five years — putting it on par with other cities’ PILOT programs.
‘Big 5’ nonprofits receive $34.5 million in city property tax exemptions
A 2022 report from the City of Pittsburgh and Allegheny County controllers showed how much money the organizations would owe if state law did not grant them exemptions.
| City taxes exempted/abated | ||
|---|---|---|
| UPMC | $1,425,031 | $13,935,575 |
| Highmark/AHN | $529,960 | $2,138,961 |
| University of Pittsburgh | $452,468 | $11,633,766 |
| Carnegie Mellon University | $270,105 | $3,551,821 |
| Duquesne | $25,671 | $3,265,421 |
| Total | $2,703,235 | $34,525,543 |
Providence, Rhode Island struck a deal with local universities in 2023 worth $11 million per year for 20 years. Officials at both the city and the universities told PublicSource then that it was vital for the city to take a collaborative approach and to make requests instead of demands or threats.
Though he criticized Gainey’s lack of results, O’Connor did not say he would take a friendlier approach to the nonprofits.
“You look at the nonprofits that have to pay their fair share. We know that. You have to be somebody that’s gone toe to toe with them in the past,” O’Connor said, referring to City Council’s ultimately fruitless push while he was a member to pressure UPMC and other entities to contribute money to the city.
Charlie Wolfson is PublicSource’s local government reporter. He can be reached at charlie@publicsource.org.
This story was fact-checked by Rich Lord.
This article first appeared on PublicSource and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.
About Post Author
