PILOTs: Grounded or Ready for Flight?

"It’s in the university’s best interest to help the city thrive. And the city has to realize it can’t kill the goose". That’s the assessment of the lead author of a Lincoln Institute for Land Policy report on PILOT (payment in lieu of taxes) programs between cities and non-profits. Killing the goose might have been what would have happened if the "post-secondary education privilege tax" proposed by the Mayor of Pittsburgh would have gone into effect.

The report provides quite a comprehensive picture of where PILOT agreements exist, but it still is not perfect owing to the fact (acknowledged by the authors) that many municipalities might have individualized agreements with non-profits or might not identify them as PILOT programs. The data shows there are only 117 municipalities in 18 states that have a PILOT agreement. Many are concentrated in the northeast U.S.

Pittsburgh is one of those municipalities: it has reported a positive dollar figure under the heading of "non-profit payment for services" at least going back to 1999. The highest amount for any one year came in 2006 when the total was $9.038 million as the Pittsburgh Public Service Fund came together. Recent audited numbers are much lower.

The report says that with the scrutiny on non-profits as to what constitutes non-profit activity and the pressure on local budgets that the interest in PILOTs is quite high, but yet their use it not widespread. Municipalities in Massachusetts account for 70% of the agreements found in the report. As we wrote in a Blog two years ago, Boston-a city that is often looked to when studying non-profit/municipal agreements-had a total value of hospital and university property that was just slightly less than the value of Pittsburgh’s total (taxable and exempt) property.

Pittsburgh’s last few budgets have said this in regards to PILOT agreements with non-profits: "the City and the non-profit tax-exempt organizations are developing a long-term arrangement regarding this revenue source".

Does County Have a Non-Profit Commitment?

It may be a small (perhaps miniscule is a better way to term it) piece but in the 2011 County budget there is $4 million in non-profit contributions that some on Council have labeled "phantom revenue".

That’s because there is no assurance the money is coming other than a prediction by administration officials that it will be there. That echoes what was said earlier this year. As of September it was reported in print media that "no deal has been reached to provide those funds, but [the County Executive] pledged that an agreement would be signed by year’s end and the money would be available for 2011. He declined to identify any of the non-profits with whom his administration is talking."

It is not clear if it is one non-profit or a group of non-profits, whether the contributor(s) carries out services in communities not including the City of Pittsburgh or if there is overlap between City and non-City locales, or if the $4 million is for a specific service(s) the County provides or if the money is restricted or targeted in its use.

If the County’s agreement does come through it will be quite a coup given the often contentious climate between non-profits and local government in the region. Recall that just a year ago the City attempted to impose a tuition tax after other fees aimed at non-profits fell through. The County Executive noted at the time that there were better ways than a legal fight to gain the support of non-profits. In addition, non-profit payments to the City have fallen from the 2007 audited amount of $5 million or so.

If the deal does not come through then there will be scrambling to locate another source of funds to make up for the shortfall.

Phantom Revenue, or a “Ghost of Bad Budget Decisions” Past?

Next year Allegheny County hopes to get $4 million in revenues-officially termed payments in lieu of taxes-from non-profit organizations. A likely bet is that the non-profits targeted by the County will be hospitals and universities, both inside and outside of the City of Pittsburgh as the County covers the City’s boundaries.

The County’s desire to get non-profit money for next year should not come as a surprise. It was mentioned at this time last year that the County would seek $4 million. The County Executive made a distinction at the time between the County’s request and what was shaping up to be a battle in the City over the proposed tuition tax. "These are two separate issues…the city budgeted [for the revenue through nonprofits]. I didn’t budget for it at all; it’s not in my budget until 2011." The County Council president added that "we don’t come at this with any level of leverage. The city tried their approach, but we have been focusing on a much different style,"

And what different style would that be? The 2011 budget is here, but there is no type of agreement with non-profits on paying the $4 million. "No deal has been reached to provide those funds, but Mr. Onorato pledged that an agreement would be signed by year’s end and the money would be available for 2011" was what one newspaper report noted. How long before we hear claims about how rich non-profits are not doing their civic duty to help the County out in difficult times?

Target a revenue source, place it in the budget, and work out the details later: that’s not in the spirit of good governance.

Two Cities Steering their Pilot Programs: But to Where?

Like Pittsburgh (population 310k, 55 square miles), Boston, Mass. (population 609k, 49 square miles) is trying to get more money from its tax exempt properties, especially those properties owned by the health care and university community.

Here’s how some of the comparative data stacks up: Both cities have collected voluntary donations under PILOT (payment in lieu of taxes) payments for years. Recent data shows that Boston received about $13.3 million in PILOTs; Pittsburgh, during the recent years of Act 47 and the establishment of the Pittsburgh Public Service Fund, received contributions in the area of $14 million over the three year period of 2005-2007.

Keep this in mind that according to published reports and the Boston City Assessor’s office that the value attributed to that City’s health care and higher education institutions alone is $12.7 billion: by comparison Pittsburgh’s total exempt value (non-profits, government, etc.) was $7.7 billion in 2008. Pittsburgh’s taxable property value ($13.2 billion) is slightly higher valued than Boston’s exempt property.

Boston wants to have a gradual movement toward having the non-profit community pay up to 25% of their assessed value in a PILOT to the city. Pittsburgh’s recent approach was to propose a raft of fees, such as charging for water use and possibly hospital stays, before settling on the now dead tuition tax.

Both cities likely are quick to acknowledge that the non-profits deliver wonderful benefits but pay no taxes. It is also fair to say that it is likely that neither has conducted a study measuring all of the related costs and all of the related benefits from the non-profits to determine whether or not, on net, the city derives a loss or a benefit. Until that happens, the PILOT talk fails to achieve liftoff.

Mr. Ravenstahl Goes to Harrisburg

Unlike Mr. Smith who went to Washington and attempted to do the noble thing by defending liberty and attacking graft, Mayor Ravenstahl is going to Harrisburg to plead for state money to help the City with its perennial and seemingly unfixable fiscal problems. After rebuffing the Legislature’s efforts to help the City with its pension difficulties last year, the Mayor might get a polite but cool reception when he shows up in Capitol City.

This time he is coming with the purported support of yet another newly formed coalition of corporate, university and elected officials. Interestingly, one of those is the Chancellor of the University of Pittsburgh who vigorously fought the Mayor’s effort to impose a tuition tax on college students in the City. The Chancellor also headed the task force looking into a City-County merger. A task force that recommended strongly the City and County consolidate duplicative services. In two years since, there is no measurable progress in that direction. Now the Chancellor is back as a member of the new coalition agreeing to help lobby the state for additional sources of revenue for the City.

How ironic. The state is facing serious fiscal problems of its own and to make matters even worse, revenue is coming in a half billion dollars below projections in the current fiscal year-an additional shortfall to be made up somehow. The universities have complained about the inadequate funding they receive from the state while many municipalities and school districts will also be pleading for more state funds. And the answer from the Chancellor is to lobby for more or higher taxes on already strapped Pennsylvanians to fix Pittsburgh’s spending problem.

Perhaps it never occurs to these folks that the voters in Pittsburgh were silent partners and enablers in creating the monstrous fiscal mess the City finds itself in. And, it must be noted, the state has helped with new revenues several times already over the past couple of decades. If more revenue would solve the City’s financial problem, it would have been solved. Even under supervision of two state watchdog groups for the past six years Pittsburgh has failed to make substantial progress. The real problem is the City cannot bring itself to make the serious cuts it needs to make and it has refused to take the steps other communities have taken to reduce expenses through outsourcing.

Basically, Pittsburgh’s government is run by and for the people who work for the City government. Until that situation changes, Pittsburgh will never get well.

Humbug: Coal to the Coalition for More Taxes

Monday, December 21st marked the demise of the proposed tuition tax, also known as the “Post Secondary Education Privilege Tax” and the “Fair Share Tax”, as the City and the Pittsburgh college and university community reached an accord in which the Mayor and Council agreed to table the tax. But what has arisen in its stead brings a new set of very troubling concerns. 


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Tuition Tax—R.I.P.

The tuition tax, also known as the "Post-Secondary Education Privilege Tax", also known as the "Fair Share Tax" has been put to rest after weeks of almost coming up for a vote before City Council only to be temporarily shelved time and again. All along proponents had the necessary five votes and an opinion from an attorney that the tax would stand up to a court challenge.

So what comes next? Obviously the City is determined to obtain $15 million to put toward pension costs. According to early news reports on the tax being tabled, there is a collation of universities and colleges, along with some of the City’s corporate interests, that will work toward getting "significant legislation in Harrisburg". What could it be? Certainly an increase in the $52 Local Services Tax-levied on everyone who works in the City-would not help many of the same college students targeted by the tuition tax since many have jobs. And a boost in that tax would certainly be enabled for all municipalities (except for Philadelphia) since that’s what happened just five years ago when the last pieces of "significant legislation" were crafted for Pittsburgh.

All of this smacks of the "don’t tax me, tax the fellow behind the tree" mentality on the part of the college community-they won’t see a tuition tax, but would be perfectly fine with enabling a new or higher tax instead of holding the City accountable for its continued growth in expenditures in recent and coming years.

And what makes this coalition think that legislators would be agreeable to help? Just a few short months ago the City was a big part of the collapse of the initial plan for municipal pension reform (the City wanted exempted so as to pursue the parking garage lease plan). Now the "heavy hitters" want to return to the Capitol to pursue a new a pension solution? Good luck with that. What other revenue sources can there be? The City has obtained the RAD sales tax, payroll tax, casino money, etc. They need to take a much more hard line approach to their costs.

The Ghosts of Surplus Past

Hard as it may be to fathom now with the City and the college community locking horns over the "Fair Share" tax and "voluntary" contributions to the City’s finances, but just a few short years ago the City was flush with cash as represented by its fund balance. The high point in the last few years came in 2007 when the total (reserved plus unreserved) general fund balance reached $89 million. That was up from a scant $14 million in 2004, prior to the Act 47/oversight board era, and the rise was due largely to the new taxes created by the state Legislature.

At the time the administration seemed bullish on the size of the surplus (the Finance Director noted in August 2007-just two years ago-that "we are positive that the fund balance is going to continue to grow as is did through 2006 and 2007") while the Controller’s office was not so sure (‘this is the high point and then [the City’s finances] are going to go down").

The Finance Director also noted in the same article that "there are long-term problems out there" referring to the legacy cost problems. These problems have come much faster than exuberant city officials believed or wanted the public to believe. With the City trying to pay for infrastructure needs without adding to the massive debt load and no strict controls placed on the growth of general fund spending (in 2004 the City spent $375 million and is expected to spend $446 million next year, a 19% increase) the City predictably began looking in other places for additional funding to meet the Act 47 requirement of putting $10-14 million additional money into pensions annually. Thus the turn to the tuition tax, which may be a moot subject very soon.

Going forward the fund balance is projected to be $26 million in 2014-higher than the low point of 2004, but much lower than the high point of 2007. And of course that is just a forecast, something the City’s prognosticators have not been very good at.

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.


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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.