Universities Need to Visit History Department

Pursuing a court case against the University of Pittsburgh Medical Center (UPMC) will tangentially affect the City’s institutions of higher education according to the Pittsburgh Council of Higher Education, which in turn will affect the task force working on non-profit issues (such as payments in lieu of taxes) that was created as a condition of the oversight board for approving the 2013 budget. Sounds like a house of cards or a big city version of the domino theory.

Because if the City challenges the medical system’s charitable status, as it has made clear it wants to, then the universities will feel threatened, and then any talk of cooperation on the task force will crumble under the specter of a lawsuit.

The universities indicate through a letter to the Mayor that they would prefer to move on to less controversial subjects like "…the city’s burgeoning pension obligations and the imposition of a tax on those who commute to the city". If the universities’ focus sounds eerily familiar it should: it was not long after the Mayor floated a variety of taxes and fees to see what would stick that what survived was the "post secondary education privilege tax" on college tuition. After that was eventually dropped in late 2009, the universities (along with one large Pittsburgh corporation) promised to go to Harrisburg and seek reform for pensions (this was post Act 44, but prior to the garage privatization plan) and possibly spreading the tax burden on to others. We noted at the time that "the universities should not, and in good conscience cannot, move from celebrating their hard work against the tuition tax to helping the City lobby Harrisburg for some other tax, most likely to be one imposed on people who cannot vote for the City’s elected officials."

There is a glimmer of hope four years later: the Council letter did note "The ultimate solution is not to look at another source of funding, but rather looking at the financial stresses of the city…Maybe there are some approaches that would reduce the need for funds". There’s been no shortage of recommendations on that line of thinking.

Tax Exempt Myopia

The City and County are justifiably working assiduously to assess and collect taxes from large non-profits that actually have for-profit operations or that do not meet the Supreme Court’s five part test to qualify as tax exempt. Too bad both the City and County have long supported and promoted some of the worst examples of tax dodging by for profit enterprises.

And what would that be? Think Heinz Field, PNC Park and CONSOL Arena to name three. With combined property value approaching a billion dollars, these structures represent over $25 million in foregone property tax revenues owing to the tax exempt status of the facilities.

Ironically, one of the complaints about UPMC has been the high salaries of some of its top officials. Why ironic? Consider the yearly pay of many of the athletes performing in the three venues. Several are well above the $5 million mark that has raised so much ire when attached to the head of UPMC. This is not to justify the UPMC head’s compensation. For a tax exempt non-profit, it is does seem out of touch with a prudent approach to pay.

But the point is that the teams and the players using the tax exempt facilities are in effect being subsidized by the low rent they pay to utilize them. If a market based rent were being paid, the total for the three facilities could be above $50 million year, some of which would be used to pay taxes if the facilities were not tax exempt. So, the taxpayers get hit twice. They put up the preponderance of the money needed to build the structures, get no property tax revenue and pittance for rent.

Now that is a sweet deal.

Diagnosing the UPMC Hearing


Allegheny County Council held a public hearing recently regarding the University of Pittsburgh Medical Center, better known as UPMC.  Based on the motion passed by Council in November the purpose of the hearing was “…to allow the opportunity for public comment regarding the tax exempt status of property owned by [UPMC] within Allegheny County pursuant to the Institutions of Purely Public Charity Act”. 


The twelve Council members who were present at the November meeting voted in favor of holding the hearing. The Council member who would chair the hearing said at the time “it’s a good idea to have this meeting and air it out properly in front of everybody” though the “it” and the “everybody” were never exactly clear.  The motion said “tax-exempt property” but some believed “labor relations” was the intent. 


A day after that quote an opinion piece appeared stating “given the backdrop of labor politics, the event should not be a club aimed at UPMC, but a lens through which a broad system of tax exemption and its public impact get close examination”.  However, a newspaper report detailing the meeting stated “…many of the speakers talked more about what they said was UPMC’s opposition to union organizing efforts by the Service Employees International Union.” 


Maybe we will never know for sure whether this was supposed to be a fact-finding mission or a show trial.  In the spirit of the holiday season, let’s give Council the benefit of the doubt on three points; one, the meeting really was aimed at examining UPMC properties exempt from taxation  to ascertain whether the justification for each parcel was warranted; two, the chair could not stop the large numbers of people from speaking on issues tangentially related to the topic at hand (salaries, pay levels, and organizing come to mind) thereby depriving many who might have  been ready to speak to the tax-exemption issue of that opportunity (they have been encouraged to submit their comments in writing); and third, there will be a sincere effort to examine other tax exempt property owners and that the UPMC hearing was just the first of many (the Council meeting chair was quoted as saying “We’re not picking on UPMC. They just happen to be the biggest and the first”).

However, even assuming all the benefit of the doubt is warranted, what transpired was in direct violation of the ordinance Council passed to determine if properties are deserving of their tax-exemption. 


Council passed ordinance #3504-07 in November of 2007 to establish “a County policy for periodically reviewing the status of all properties qualifying for exemption from property taxation under the Institutions of Purely Public Charity Act”, the state law that sets out the parameters for non-profit tax exemption. 


But this County ordinance does not give Council the power to review tax-exemptions: that’s the job of the Chief Assessment Officer.  The ordinance’s language added a new section to 5-210.12 of the Administrative Code stating:


“All properties granted tax-exempt status by the Chief Assessment Officer under the provisions of the Institutions of Purely Public Charity Act…shall be subjected to a parcel review by the Chief Assessment Officer…at least once every three years…the Chief Assessment Officer shall determine whether each property or any portion thereof continues to qualify for tax-exempt status , and shall forward written notice of this determination to the legal or equitable owner of the property and all taxing bodies within which the property is located”.


Nothing in that language assigns Council or the public responsibility for determining whether a tax-exemption is warranted under state law.  Was the Chief Assessment Officer (currently a contract employee holding the title of “acting” director) or assessment office staff present at the hearing?  Were they invited? Is Council forwarding the recorded comments to the assessment office? Will officials from municipalities and school districts where UPMC owns property get any information on the findings of the hearing?


In addition, note that the ordinance language states the review is to be done every three years.  Since the ordinance was passed in 2007, all exemptions subject to review should have been done in 2010 and the County should be gearing up for another review next year.  Clearly, something happened on the way to implementation-much like the delays in carrying out the County Charter’s required Sunset reviews. 


A news article in September quoted the Council member who chaired the hearing-and who sponsored Ordinance #3504-that something “fell through the cracks…and what we have to do is sit down with [the County Executive] and talk about that”.  In that same article the administration said that the tax-exempt review process had not been formalized and that it would start once the reassessment was over.  Since the reassessment is supposed to be completed December 20th it is curious as to why the UPMC hearing took place December 5th.  Two days after the hearing it was reported that the administration was prepared to direct the Office of Property Assessments to begin the process of reviewing exemptions, thus enforcing the ordinance six years after its enactment.  Is there confusion over territory in this episode? 


Lastly let’s examine something the ordinance does not do; a sin of omission, perhaps.  State law allows tax exemptions for many types of property, not just those owned by non-profits.  Ordinance #3504 does not instruct the Chief Assessment Officer to review all tax-exempt property every three years, only the tax-exempt property owned by non-profits under the provisions of the Purely Public Charity Act. 


That means the County is not going to scrutinize the broad swathes of property owned by Federal, state, local, school, and authority governments.  A report done by the County Controller’s office in June looked at exempt property in the County based on land use codes.  Roughly the same percentage of property value is held by higher education, churches, and hospitals as that attributed to County, municipal, and school district uses.  But stadia and the convention center owned by the Sports and Exhibition Authority, and property owned by the array of authorities at the County, City, and municipal level (redevelopment, housing, transit, airport, parking, etc.), school districts, municipalities, and the County itself won’t come under the auspices of #3504.  Council’s thinking in 2007 must have been that only non-profits are expansionist and take taxpaying properties off of the tax ledgers and that such action must be justified every three years. 


There is merit in reviewing tax-exempt property to see if the exemption is truly justified.  It is not clear if anyone involved in the UPMC hearing, either from County government or members of the public who attended came away with a better understanding of the issue of property tax exemptions.  That is a shame, but with plenty of tax-exempt non-profits, and Council’s pledge to be vigilant, along with the Executive’s directive to the Office of Property Assessments to do the job Council gave it, the public might be become well-informed of the topic in the months and years to come. 

Councilwoman Puts Economics Ignorance on Display

Pittsburgh and Allegheny County are planning to revisit the issue of whether some large non-profit organizations in the City should have their property tax exempt status repealed. It is an argument that has been around awhile and a thorough discussion of the pros and cons is worth having. But as is invariably the case some politician will sally forth with an irrelevant, disturbing and illogical argument.

Enter a City Councilwoman saying that UPMC pays virtually no property taxes and commenting in a news report, "Additionally, many service workers at UPMC are not making family-sustaining wages", and continuing, "Roughly half of the service workers at UPMC make less than $12 per hour…while the living wage to support a family of four in Pittsburgh is $25.40 per hour."

First of all, when did a living wage reach $53,000 per year? That’s well above the regional average wage rate. Second, even if $53,000 a year is the family of four sustaining income, where is it written that everyone working at UPMC is the sole provider for a family of four? Third, if the skill levels of "service workers" can command no more than $12 per hour in the market place why is it the government’s job to artificially boost their wage rates? If UPMC is forced to pay higher wages, how will they make those payments? Charge more for services, offer less free health care, hire fewer workers, reduce the benefit packages for all employees?

If UPMC loses its non-profit status and has to pay millions in property taxes, where does it take the money from? Wages, benefits, free health care?

Whether UPMC should have all or parts its organization lose non-profit status is something to be debated and will probably either end up in court or require more legislation before tax exempt status is taken away. But that decision should not take into account the fact some workers do not earn $53,000. There are many non-profits with employees who do not earn that much. It is an irrelevant argument.

Obscure Authority in Thick of Debate, Again

The ongoing conflict between UPMC and Highmark has set up shop, briefly, at the County courthouse. Not because the Council or the Executive is bringing those parties to the table, but because there is a request to use the County’s Hospital Development Authority as a conduit through which one of the parties would like to borrow more than $330 million.

The County has had a hospital development authority since 1971. What amounts to a mission statement comes from the County’s page on boards, authorities, and commissions: "The ACHDA was created and is authorized by law to acquire, hold, construct, finance, improve, maintain, operate, own and lease, as lessee or lessor, health centers (including but not limited to, personal care facilities and nursing homes), hospitals and facilities devoted to hospital purposes. Financing is provided by the Authority through the issuance of tax-exempt bonds. The rate and term of financing are negotiated. The interest income on the bonds may be exempt from federal and Commonwealth income taxes which results in a reduced rate to the borrower (emphasis added)."

Could the County and its authority deny the borrowing as a way to force a negotiation between the providers? It is doubtful. For one, a committee approved moving the issue along and the chair of that committee was quoted as saying the County has "no effective financial leverage". And two, a denial would simply mean a borrower would go to another issuing authority to get what they want. What was surprising on this second point is that it was supposedly something committee members had not known about as implied in a newspaper article (the language said "members learned").

If that means members were surprised or caught off guard that’s interesting because the County just went through a similar episode in 2009-10 when one of the providers came asking for a refinancing as it was planning to close a facility in the Mon Valley. Membership on the committee has not changed much since then. The authority, Council, and the state Higher Educational Facilities Authority all voted to approve the $1 billion bond issue. After the state authority vote an article pointed out that "The hospital system decided to seek state approval as a contingency plan in case its efforts to issue bonds through the county authority hit a snag."

County Calls Both Sides of Non-Profit Coin

Will there be signs of an identity crisis at County Council’s regular business meeting tomorrow night? On the one hand, Council is scheduled to take up business regarding the issuance of over $1 billion in refinancing bonds through the County Hospital Authority for the benefit of UPMC. The taxpayers are not on the hook for any of the bonds, the purpose of which, according to the legislation, is "to benefit the health and welfare of the citizens of Allegheny County, Pennsylvania".

Soon thereafter, at the same meeting, Council is expected to consider two separate pieces of legislation, both concerning the tax-exempt status of parcels owned by UPMC. One would direct the Solicitor to "undertake a challenge to the tax exempt status of all parcels owned by UPMC within Allegheny County". The second would deal specifically with the parcels comprising the UPMC Braddock hospital site, the hospital slated for closure by UPMC.

Council is purely within its rights under the state’s tax exempt property law (The "Institutions of Purely Public Charity Act" of 1997) and if there are properties in use by the medical system that don’t meet the law’s test then those properties would have to pay real estate taxes if they are not already. For instance a 2009 report by the state’s Legislative Budget and Finance Committee noted that the University of Pittsburgh (not UPMC) paid $700k in real estate taxes to the City, County, and School District in 2007.

So would County Council breezily approve the refinancing deal and then show a hard line approach on the parcel legislation? It is hard to say. Even City Council has brought up the idea of adding additional layers of approval for building projects located in zoning districts labeled industrial or medical-educational while praising the benefits of "eds and meds". That goes without mentioning the "educational privilege tax" proposal.

This season is shaping up to be a challenging one for the non-profit community in the region.