An old tax idea is resurrected

Summary: Pittsburgh City Councilman Ricky Burgess recently introduced a bill that would levy a 1 percent tax on consumers of higher education and medical services within the City of Pittsburgh.  This is similar to a bill introduced in 2009 which only sought to tax higher education.  That bill never made it out of the council and resulted in some of the city’s nonprofit institutions negotiating a payment-in-lieu of taxes (PILOT) agreement.  At the time, the city was in Act 47 financial distress status and state oversight and was grasping for any revenue stream it could find. 

Thirteen years later, the excuse is infrastructure repairs in light of the bridge collapse over Fern Hollow.  It remains to be seen if this tax proposal makes its way to ratification or if the purpose is to once again extort money from the educational and medical institutions that call Pittsburgh home.  A resolution to move toward PILOT agreements was introduced to council one week later. 

Comparing the proposals

In 2009, then-Mayor Luke Ravenstahl proposed instituting a post-secondary education privilege tax of 1 percent on tuition.  As Policy Brief, Vol. 9, No. 69, noted at the time, “The Mayor’s plan derives from Act 511, the state law granting permission to municipalities the right to tax certain privileges.”  The city had a business privilege and occupational privilege tax and by 2009 those were replaced by the payroll preparation tax and the local services tax.    And since going to college in the city was also a “privilege,” it should be taxed as well.  But as was argued in that Brief, those privilege taxes were based on earnings and simply not one’s presence. 

The Burgess proposal also contains a “medical facilities user” privilege component. This would tax medical services rendered in the city at 1 percent—again taxing the presence of someone using a medical facility, not on any earnings. 

In both proposals, the city Treasurer’s Office would collect the tax and administer any fines and penalties.  The only difference is that, under the new proposal, city taxpayers subject to the tax would be eligible for credit against their wage taxes, so this would primarily fall on non-city residents—those who don’t vote for city officials.

State law authorization

As mentioned above, Act 511, known as the Local Tax Enabling Act (53 PS 6924), provides a list of certain items/activities municipalities are forbidden to tax.  There are 17 such prohibitions (Policy Brief, Vol. 9, No. 75).  However, taxing tuition and medical facilities usage are not among the restrictions.  After the 2009 proposal, there was an attempt to amend Act 511 to explicitly ban the ability to levy, assess or collect a tax on higher education tuition.  There was also an attempt to amend the Tax Reform Code of 1971 to do the same.  Neither attempt was successful, abandoned when the tuition tax failed to advance in City Council. 

Pittsburgh’s financial position

In 2009, the city was in Act 47 financial distress and under financial oversight and looking to increase revenues wherever possible.  But as we noted in a report and subsequent Briefs, the most recent, Vol. 19, No. 25, was released before the pandemic, comparing Pittsburgh’s spending with a composite benchmark city, Pittsburgh has been well out of line with areas such as personnel, spending and legacy costs.   

That Brief, looking at 2018 data, showed Pittsburgh had declining overall population and declining school enrollment.  Pittsburgh’s total city revenue per capita was 50 percent higher than the benchmark city ($2,111 vs. $1,406) with per capita total taxes almost 70 percent higher ($1,611 vs. $953).  But more importantly, per capita total expenditures were 51 percent higher ($2,238 vs. $1,478).  These gaps have persisted since the first benchmark study in 2004. 

Pittsburgh’s workforce has also been much higher than the benchmark city.  When looking at total employees per 1,000 residents, Pittsburgh came in at 11.0 while the benchmark city had just 7.5—a 47 percent difference.  Similar gaps exist for police (40 percent higher) and fire employees (38 percent higher). 

The implication is simple: work to lower costs for city operations and there should be enough money from existing sources to manage the infrastructure requirements of the city.

The pandemic was difficult on all aspects of life; government finances were no exception.  However, the federal government pumped stimulus money to state and local governmental entities to assist with any shortfalls.  In Policy Brief, Vol. 21, No. 36, the stimulus funds were analyzed. 

Pittsburgh, by its size, did not qualify for a direct CARES Act distribution but did receive $6.2 million from Allegheny County’s share.  In the American Rescue Plan, the city received a more generous distribution of $335.1 million.  A task force recommended how to allocate the money and decided to designate $59.9 million for the capital budget; infrastructure repairs from that money include $2 million for a pedestrian bridge in 2023.  The 2022 capital budget has $7.3 million for projects where “bridge” is mentioned. It is also worth noting that the U.S. Department of Transportation has pledged $25.3 million to the reconstruction of the Fern Hollow bridge, estimated to be more than enough to cover costs. 

New resolution

This proposal has met with resistance in the education and health care communities.  As mentioned above the 2009 proposal never made it out of the council but did result in a PILOT agreement that lasted for a few years.  Is this latest incarnation another attempt at coercing money out of the hospitals and universities? 

It must have been, given that one week later a separate resolution was presented to council that would not directly tax tuition or medical expenses but would instead direct the Director of the Finance Department and the City Solicitor to determine the fair market value of land and buildings owned by tax-exempt institutions and what those institutions would be paying in payroll preparation taxes if they were for-profit businesses and use that to determine the starting point for PILOT negotiations.

Based on the 2022 certified assessment roll the city has $31.8 billion in taxable and exempt value with the latter accounting for $11.6 billion (36 percent) of the total.  There are 142,642 parcels in the city. The resolution notes that an estimated 500 parcels with an assessed value of $3.7 billion are owned by colleges and hospitals.  If subject to property taxes, that amount would generate around $33 million for the city based on its millage rate and special levies for parks and libraries.

The findings are to be delivered within 60 days of the effective date of the resolution.  PILOT agreements are to be negotiated by the mayor (or a designee), the council president and the City Controller (or designees if the mayor approves) and be based on the value of 50 percent of the real estate holdings or 75 percent of the payroll preparation tax liability or “a combination of the two” of a tax-exempt institution.

In the 2022 operating budget approved prior to these proposals the city expects $151.4 million in property tax revenue, $66.1 million in payroll preparation tax revenue and $0.4 million in nonprofit contributions, which the budget notes does not include money from “the city’s large multi-billion dollar ‘Institutions of Purely Public Charity’.”


While the Burgess proposal may be moot, it was a cudgel used by a councilman to put pressure on nonprofits operating in the city.  One way to curtail such future proposals is to amend Act 511 to prohibit such taxation.  The Legislature needs to add to the list of prohibitions the inability to tax someone based on their presence.  They failed before; they must be more diligent this time.  If Pittsburgh does it, every small town with a college will seek to do the same.

Pennsylvania already has a reputation as a tax-unfriendly state and it is inhibiting economic growth, population and economic development.  Allowing municipalities the ability to tax someone for attending higher education or a health care visit would send a terrible message and slow progress even more. 

Ding Dong, the Parking Space Tax is Dead

The attempt by Steel Valley School District to create a tax that would apply to free parking spaces serving businesses is over as the school board removed the tax after they heard rumblings that the business community raised the possibility that a lawsuit would soon follow enactment of the tax.

That was the predictable outcome based on the fact that it has yet to be established how a municipality or a school district can levy a tax on parking where there is no money paid for the transaction and how that would differentiate itself from being another tax on real estate. Calling it a "parking privilege tax" does not mean that it is a taxable privilege under Act 511. Much like the City of Pittsburgh’s tuition tax plan this past year, officials try to levy taxes based on the feeling that nothing in the law prevents them from doing so.

If the school board really believed they had this power, then they should have spent the taxpayers’ money to get the backing of the courts. After all, many on the board said they wanted to enact the tax so as to take pressure off of residential property owners, yet they exempted many types of businesses and the first 30 parking spaces from inclusion in the tax base. Instead the board passed a 2.86 real estate mill increase with enough wiggle room for the district to avoid putting the issue before those very same homeowners in an Act 1 referendum.

Thus in the last two years or so both Steel Valley School District and Robinson Township have considered the tax only to back off of it. Interestingly, the municipalities within the district (Homestead, Munhall, and West Homestead) are levying the tax and, for whatever the reason, have not faced a legal challenge.

As we have suggested previously, it would be beneficial for the General Assembly to revisit and clarify Act 511 and make it clear as to what type of taxes local governments are permitted to levy, the rates, and possibly a cap on how many tax sources they can draw upon.

The Tax That Really Wasn’t

As a quick follow up to our entry earlier this week on the Steel Valley school board’s discussion of a parking space tax, one of the directors argued that "Robinson Township has a similar tax on the books and it looks like Robinson Town Centre is doing just fine".

Well Robinson is doing fine, and it is likely because the township in fact does not have a parking space tax on its tax menu. It was discussed in 2008, which prompted an Allegheny Institute Brief soon after which raised the problems associated with taxing free parking. The tax was never approved, which was confirmed by both the administration office and the tax collector of that municipality. Hopefully the director doesn’t believe that the City of Pittsburgh has a tuition tax just because that tax was briefly entertained.

For now, cooler heads have prevailed in Steel Valley and the tax has been tabled.

Schools to Take Parking Tax for a Test Drive

We’ve written in previous Briefs and blog entries about the efforts of several municipalities in Allegheny County to levy a tax on supposedly free parking spaces where no transaction is carried out. Unlike the parking tax in Pittsburgh and other municipalities around the state where patrons pay for an on-street or garage space and the payment is subject to a tax, this new levy would place a flat fee on a business based on the number of spots they have.

Municipalities have taken this course of action under the presumption that parking is a taxable privilege under Act 511 and, since the Act does not prohibit taxing such a privilege (recall the same argument was made for the tuition tax) then they are free to do so. Someone wronged by the tax would have to bring a lawsuit to determine if the privilege is indeed taxable.

Well the stakes have been raised in the Mon Valley as the Steel Valley School District is prepared to discuss levying a $30 per space tax in the communities of Munhall, Homestead, and West Homestead-all three communities levy a similar tax-after exempting the first 30 spaces. Clearly, the logic for the District is either (1) since Act 511 applies to school districts as well as municipalities and nothing in the law prevents districts from having such a tax they should do it or (2) if no one has yet challenged whether this tax is permissible why leave money on the table?

Is there a limit to taxable privileges for local governments in PA? This instance might give us an a better answer to that still murky question.

Legislature Moves to Squash Tuition Tax

With thirty co-sponsors, a bill introduced by Rep. Paul Costa would ban the imposition of the proposed education privilege tax in Pittsburgh and preclude any other municipality in Pennsylvania from enacting such a levy.  The so called “fair share tax” is highly controversial and has enraged students and prompted university officials to mount a serious opposition campaign. And rightly so: as we have pointed out over recent weeks, this tax is one of the worst ideas ever to arise out of Pittsburgh government.


Continue reading

Legislature Moves to Squash Tuition Tax

With 30 co-sponsors, a bill introduced by Rep. Paul Costa would ban the imposition of the proposed education privilege tax in Pittsburgh and preclude any other municipality in Pennsylvania from enacting such a levy. The highly controversial so called "fair share tax" has enraged students and prompted university officials to mount a serious opposition campaign. And rightly so. As we have pointed out in Policy Briefs over recent weeks, this tax is one of the worst ideas ever to arise out of Pittsburgh government.

But seeing the virtual certainty of widespread adoption of such a tax across the state if it is implemented in Pittsburgh, the Legislature is moving to stop the ill-conceived and damaging tax before it advances any further. The Legislature will have to move quickly or it might have to make the bill retroactive. Pittsburgh could decide in a week or so to pass the bill and it could stand up to court challenge under current state law.

And that means state law is severely flawed. Indeed, Act 511, which permits the consideration of such nonsensical taxes, must be reformed to narrow the range of permissible local taxes. So rather than simply passing a bill to ban the tuition tax, the Legislature should amend the governing statute to spell out exactly what can be taxed by municipalities, eliminating "privilege" taxes not specifically permitted by the statute. And there should be few, if any, of those.