Tuition tax Archives - Allegheny Institute for Public Policy

An old tax idea is resurrected

Posted on March 23, 2022 by allegheny

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’.”

Conclusion

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.

PILOTs: Grounded or Ready for Flight?

Posted on May 30, 2012 by Editor

"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?

Posted on December 7, 2010 by Editor

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?

Posted on September 22, 2010 by Editor

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?

Posted on April 9, 2010 by Editor

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

Posted on March 5, 2010 by Editor

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

Posted on December 23, 2009 by Editor

Monday, December 21^st 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.

Continue reading →

Tuition Tax—R.I.P.

Posted on December 21, 2009 by Editor

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

Posted on December 15, 2009 by Editor

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.