Another Tax Plan for Pittsburgh’s Non-Profits

Noting that non-profits in the City of Pittsburgh own a lot of property and employ a lot of people but are tax exempt and not a lot of them participate in helping the City through payments in lieu of  taxes, a state Senator has supported extending Pittsburgh’s Payroll Preparation Tax (PPT) to non-profits having 250 or more employees. 



The PPT is a flat rate levy of 0.55 percent on the total payroll of businesses within the City. This tax was imposed by Act 222 of 2004, signed into law on December 1 of that year, and was part of a package of tax reforms that led to abolishing the mercantile tax and the business privilege tax-two very onerous taxes that were not based on company earnings and were quite punitive for some businesses.


Act 222 of 2004 does mention charitable organizations.  It says they should calculate the PPT but would only be liable for activities that do not meet the requirements of the IRS Code or the state’s law on public charities. The law also notes that nothing in the Act would prevent a non-profit from making agreements with the City to provide services or make voluntary payments.


The Senator’s memorandum on the proposed legislation states that his proposal would reduce the PPT on for-profits to 0.5 percent and levy the PPT on large non-profits at a rate of 0.4 percent.  The memorandum notes that non-profit employers with more than 250 employers account for over 70 percent of all non-profit employment in the City.  Governmental entities including authorities were not subject to the tax when the Act was written and will not be in the future in light of the constitutional provision exempting government entities.


The issue of extending the tax to non-profits was debated prior to Act 222 becoming law.  Indeed, the first Act 47 recovery plan for Pittsburgh noted “there are constitutional impediments to levying this tax on charitable organizations… [and would likely] lead to litigation between the City and the institutions.” 


Pittsburgh is the only municipality in the Commonwealth to have a payroll preparation tax (it was created only for Cities of the Second Class and Pittsburgh is the only one in that class) but there are large non-profits in other corners of Pennsylvania.  A 2009 study by the Legislative Budget and Finance Committee identified 183 municipalities that are home to either a non-profit general acute care hospital, a private four year college or university, a state related or a state owned college or university, or some combination of the four. 


Could a selected group of non-profits in one city be subject to a tax that only exists in that Pennsylvania city?  Can that city treat non-profits differently based on their size?  Why should a charitable organization with 250 employees pay the tax but those with 249 employees not?  Even more to the point, since the Pennsylvania Constitution allows tax exempt status for charitable organizations as defined in statutes adopted by the General Assembly, how would it be constitutional to allow a municipality to levy a tax on charitable organizations that have been granted exempt status under Pennsylvania law?  These are just some of the long list of technical and legal questions raised by the proposal that will have to be addressed by legislative committees if the bill ever reaches the committee hearing stage.  


Moreover, there can be little doubt that in the event the proposed legislation moves forward, the foundations, universities, churches and other non-profits in the cultural, educational and economic development community will be up in arms about the tax, especially the larger ones currently in the crosshairs of the proposed tax bill.  These groups have many loyal and powerful friends who will point out all the good the non-profits do for Pittsburgh to help maintain its high rankings in many desirable amenities and in their attention to community needs.  These friends will almost certainly importune Harrisburg so as to make sure this bill never gets out of committee. 


It is unknown and perhaps unpredictable at this point whether the proposed PPT reduction on for-profit businesses will prompt that sector to mobilize and urge the Legislature to adopt the lower tax rate planned for them as part of the scheme to levy the PPT on non-profits. 


None of this means there are no legitimate questions about what constitutes a qualified charitable organization.  Take for instance the rise of the mega-hospital such as UPMC where revenues have, on occasion, exceeded expenditures by large amounts or when a university steps over the line into areas of for-profit activity.


Now would be the perfect time for the Legislature to review and update any laws pertaining to the criteria that must be met to qualify as a charitable organization and to delineate clearly what constitutes for-profit and non-profit activities.  The Legislature can and should work on assisting taxing bodies in determining what if any for-profit activities exempt organizations are involved in. It might be as simple as requiring charitable organizations to file with state and local taxing bodies the equivalent of a Federal form (or copies of their Federal report) that contains information and explanations about for-profit activities to the state and local taxing authorities.  Does the City know how much it collects from property taxes or payroll taxes attributable to non-profit activity that does not meet the charitable test?  If not, that surely needs to be learned and quickly. 


Bottom line for the proposed PPT bill: Non-profits that qualify as charitable organizations and have been granted tax exempt status under Pennsylvania laws and by the IRS will not be taxable under Pennsylvania’s Constitution.  To levy any taxes on these organizations will require either an amendment regarding Article VIII, Section 2, paragraph v of the Pennsylvania Constitution or a General Assembly rewrite of laws spelling out the criteria required to be granted tax exempt status.  Neither will happen any time soon, if ever, given what is at stake for the parties involved. 


Something needs to be done to put a stop to the almost annual controversy over non-profits and whether they should somehow be taxed. 

How Much Do Users Pay for PA’s Roads?

The Governor has let the cat out of the bag, or maybe, more apropos, some of the air out of the tire, on a holistic transportation fix for the Commonwealth. Part will be a proposal to take away a cap on the Oil Company Franchise Tax, a tax that is levied upon gas at the wholesale level but presently applies to the first $1.25 of the wholesale price. Removing the cap to apply the tax to the entire wholesale price, and by one estimate reported in a newspaper article would generate $1.8 billion on top of the $1.3 billion currently collected with the cap.

That was but one recommendation made by the Governor’s Transportation Commission in 2011; others include paying more in fees and registrations but lessening the frequency at which driver’s licenses and auto registrations must be renewed.

Its not clear what lifting the Franchise Tax cap, license proposals, etc. will mean for the end user, the person filling their gas tank and traversing one of Pennsylvania’s roads. A recent study by the Tax Foundation shows that nationally gas taxes, tolls, and other user fees generated just a third of the spending on roads-the rest comes out of general revenues. According to their analysis Pennsylvania is right at the national average: 33%, ranking it 18th out of the 50 states. Outliers include Alaska, Wyoming, and the Dakotas generating 20% or less of road spending from "user fees" and Delaware, Florida, and New Jersey at 49% or more of road expenditure coming from gas taxes, tolls, and driver related charges. Another Foundation document shows that as of 2013 Pennsylvania has the 7th highest gasoline tax at 39.2 cents per gallon (Connecticut has the highest at 56.2 cents, Alaska the lowest at 8 cents).

Southside Streets as Urinals

A resident of the Southside is facing assault charges for shooting a man with BB gun who refused to heed the resident’s demands that he stop urinating on his property. This after the man became fed up with the constant abuse of his residence by revelers.

So, now he must go to go court and hope for the best. Ironically, the man shot was charged with public urination but his charge was dismissed.

The history of the unsanitary, filthy behavior is one of longstanding and repeated pleas to the City for help from the residents have largely gone unheeded. If something is not done, it is just a matter of time before someone gets badly hurt.

If the City cannot offer adequate police patrols, it should require the restaurants, bars and saloons to build an adequate supply of public convenience facilities and keep them clean. Obviously, their own facilities are not enough to keep folks from wandering into alleyways or storefronts to relieve themselves. Anyone caught by police publicly urinating would be assigned toilet cleanup duty for two weekends. A second offense, three months and a third offense, 30 days in jail.

The City should ask the County for a share of the drink tax revenue collected by Southside establishments to help with patrols and perhaps construct toilet facilities to prevent drunks and miscreants from having to relieve themselves wherever they please. There was a proposal for an improvement district and an additional tax, but that plan did not move past City Council.

In short, this problem is not a hard one to fix as City Council apparently believes it is. When one of your neighborhoods is being treated like a sewer by residents and non-residents alike, the Council should get angry and act accordingly.

Another BID at Improvement

Several months after City of Pittsburgh voters opted to increase their property taxes in order to fund the Carnegie Libraries and after residents and businesses in the South Side never got a chance to see if a Neighborhood Improvement District (NID) concept would come to pass and what higher taxes would do for improvements in that part of the City, the next improvement district is being proposed in Lawrenceville this week in City Council.

There are still only two improvement districts in the City, one in Downtown and one in Oakland. Others have been tried in East Liberty, West End, and the aforementioned South Side. If the opposition to the proposed Lawrenceville BID reaches the point where 40% or more of the affected property file objections to the plan then the BID plan does not move forward.

According to published reports the fee assessed on businesses would be based on the linear storefront width rather than on property value which would likely see big changes as the new assessments would likely be in effect about the time the approval process would be completed.

Mechanics of the Library Tax

With voters in the City of Pittsburgh approving an additional 0.25 mill to provide dedicated funding for the Carnegie Library system in a referendum this week the logistics of moving from ballot question to handing over money from City coffers to the Carnegie system will commence forthwith.

The ballot question said that the tax would be levied "effective January 1, 2012 and thereafter" and the "plain English" explanation stated "all money raised as a result of this tax can be used to aid in the maintenance and operation of the Carnegie Library of Pittsburgh and cannot be used for any other purpose".

Four communities in Allegheny County currently have dedicated millage for their local library-Brentwood (0.5 mill out of 8.5 mills), Castle Shannon (.514 mill out of 9.4 mills), Robinson (0.1 mill of 3.05), and Wilkinsburg (0.71 mill out of 14 mills). In 2010 those communities raised anywhere from $150k to $389k for their libraries. Pittsburgh anticipates raising over $3 million annually.

How will this money be accounted for? The additional millage will presumably be tacked on to property tax bills and the money will flow back to the City’s treasury. But then what happens? Will there be a separate library fund, or will the money be counted in the general fund? A quick phone survey of the four communities with a dedicated library tax found that only one (Castle Shannon) has a separate library fund for accounting purposes. The others write a check annually or quarterly to transfer tax money from the general fund to the library. Some provide space and cover utilities for the library as well.

Given the sheer size of the City’s Carnegie system, with 19 branches and 5.2 million items, and a budget of more than $20 million with various public, corporate, and foundation sources currently, and the amount of the tax to be generated, it would be reasonable to assume that the City might create a separate library trust or fiduciary fund. The County created a Transit Support Fund once it began to receive monies from the drink and car rental taxes. Perhaps the City will use that same accounting practice.

How Would Library Tax Affect Corporate Giving?

Recommendation Three by the Public-Private Task force concerned with the finances of the Carnegie Libraries of Pittsburgh said this: "provide the citizens of Pittsburgh an opportunity to vote on whether dedicated funding support should be provided to the library". All reports point in the direction that there will be a ballot question in November asking voters if the City’s millage rate should increase .25 of a mill to support the libraries.

Of course, the impact of a voter-supported tax increase goes far beyond those who get to pull the lever. Much of the property value in Pittsburgh is tied to commercial uses, and that includes corporations that may donate voluntarily to the library system. For instance, the ten largest property taxpayers in the City are commercial in nature, accounting for $1.6 billion, or 12% of the total taxable assessed value in the City.

The 2010 annual report for the Carnegie system shows that "unrestricted corporate donations" were $129k, and the overall total from corporations was $818k. How will this giving be affected if a dedicated property tax were to be levied? Will there be a "side effect" on other charitable organizations that receive money from those that give to the libraries voluntarily?

The quarter mill proposed tax increase would raise just under $3 million, of which $2 million would come from non-residential sources (based on previous work on City market values and land use). It is possible that some corporations might view a compulsory tax as a substitute for their voluntary giving. It is also possible that some corporations might keep committing to restricted giving for specific projects while focusing less on unrestricted or general contributions. How the corporate community at-large comes down on the issue of a tax increase will be determined at the time the merits of the tax are discussed.

Should Suburbanites Make Charitable Donations to the City?

A recent opinion letter printed in the Post Gazette urges suburbanites to voluntarily send money to the City to help it with its financial problems. The letter writer laments the City’s inability to expand its borders to increase its tax base. Then the writer leaps to the conclusion that those living in the suburbs have an obligation to provide monetary support to the City.

Obviously the author of this nonsense does not read our Policy Briefs or blogs. As we have documented time and again, non-residents pay a lot of taxes to the City for precious little services in return. Here’s a partial list: Anyone paying sales taxes in Allegheny County contributes through the one percent Regional Asset District tax which provides substantial funding for the new stadiums, as well many of the City’s cultural and recreational assets. Many pay this tax and yet never set foot in the City. Anyone purchasing a ticket to a sporting event, concert, or play pays an amusement tax and lest it be forgotten when you park in the City, you have the dubious privilege of paying the highest parking tax rate in the nation-almost 40 percent.

People working in the City not only pay the $52 local services tax but their private sector employer has to pay business taxes such as the payroll preparation tax. These businesses also pay real estate taxes either directly on the properties they own or through rent for building space owned by others.

In short, non-residents pay significant amounts into the City’s coffers.

The real problem, studiously ignored by the author, is City spending. Anyone attempting to weigh in with solutions to the City’s problems should at least be familiar with the facts. As we have documented on many occasions in reports and Policy Briefs, similar cities such as Charlotte, Columbus, Salt Lake City, and Omaha, all spend less per capita, have healthier pension plans, and much lower debt levels than does Pittsburgh. Virtually all other municipalities in Allegheny County have lower per capita spending and debt levels.

People and businesses are not located in Pittsburgh for a variety of reasons, one of which is the heavy tax burdens. Surely they have no interest in voluntarily paying for the exorbitant, wasteful spending of the City.

Agency’s Request Sure to Lead to Deluge of Others

The head of the Fish and Boat Commission wants a slice of a proposed severance tax on Marcellus Shale development in order to provide for additional oversight and enforcement of streams and the creatures that populate them as the intensity of Marcellus activity ramps up.

According to the Commission’s most recent annual report its mission is to "protect, conserve, and enhance the Commonwealth’s aquatic resources and provide fishing and boating opportunities". It operates on a $48 million budget: 67% of its revenues comes from licenses and fees related to angling and boating. By and large this agency does not rely on tax dollars and a Penn State publication on the role of regulation in the Marcellus drilling industry states the Commission’s water quality officers "work with DEP personnel to monitor the impacts of drilling and other activities on stream quality and aquatic life, and offer input to DEP on regulatory decisions".

As the Commission’s Executive Director noted "the commission has a role in patrolling streams and can punish operations that cause pollution, but we don’t have the money to hire new additional staff". He’d even like to lower the price of fishing licenses because he feels the state has "priced itself out of the market…and would like to reduce those".

The predictable fallout of the Commission’s request will be to spur on other state agencies and municipalities to wrangle for a piece of the pie. And why not? The Game Commission has lands to maintain where there will be Marcellus drilling, local fire departments might have to respond to incidents, state and county roads will have to be maintained, etc. But if the Commission feels it needs to devote additional resources to water quality or slash the price of its licenses, the best place to do that would be on the existing balance sheet and not from a yet-to-be-created tax.

Pennsylvania’s Anti-Growth Trifecta

govt state

The decades’ long anemic growth of Pennsylvania’s economy has been well documented. Consistently over many years, the state has posted job gains ranking among the bottom five or ten states. That should come as no surprise given the business climate and regulatory environment special interests have saddled the Commonwealth with. Let’s look at three of the worst of the legislative and policy measures inhibiting Pennsylvania’s growth.   



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Pittsburgh’s 0.3 Percent Solution Is a Very Bad Idea

According to Mayor Ravenstahl there is unanimous agreement in his task force of government, university and business leaders that Pittsburgh needs a new source of revenue to bail out its ailing financial situation. We can think of a few gigantic problems with the Mayor and his task force’s assessment of the situation.



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