Taxing large nonprofits: What will it take to bring the titans to bear in Pittsburgh?


Photo by Sonja Reis

Construction of the nine-story, 410,000-square-foot physical rehabilitation center tower UPMC Mercy Pavilion site in Pittsburgh's uptown.

-EDITORIAL-


By Editorial Board


Should nonprofits of a certain size be required to pay property taxes?


In this instance, we’re referring to regional healthcare giants University of Pittsburgh Medical Center (UPMC) and Allegheny Health Network (AHN). We aren’t the only ones to wonder about this over the years. You probably have an opinion on the subject yourself. And every so often the topic gets pulled out and dusted off by some politician bemoaning budgetary gaps or looking for a way to seem relevant to constituents.


Pittsburgh City Controller Michael Lamb just added to the list of politicians who publicly called out the tax-exempt status of UPMC and Highmark. He joins the likes of former City of Pittsburgh mayors Bill Peduto and Luke Ravenstahl. They both assembled commissions to try to get major medical employers on the hook to pay property taxes with no results.


It’s unclear what Lamb will use to bring the titans to bear. A special financial report released in May recommends forming a task force, like Boston did with success, to calculate what the nonprofits owe.


It should be noted that Boston’s program is entirely voluntary, which makes one wonder if it would be successful here since UPMC and Highmark had to be compelled through consent decrees to abide by their charitable obligations. They engaged in an increasingly heated competition which left patient care hanging in the balance. UPMC withheld access to doctors for patients whose employers had contracts with a competing health plan and refused to negotiate reasonable payment with self-insured employers, “resulting in UPMC’s unjust enrichment through excess reimbursements for the value of its services,” Attorney General Josh Shapiro said in a statement released in 2019.


In Allegheny County, the five largest tax-exempt organizations are UPMC, AHN, the University of Pittsburgh, Carnegie Mellon University and Duquesne University.


In a statement released Aug. 18, Lamb asserted the biggest five tax-exempt institutions would contribute “$127.5 million annually in taxes to local municipalities, school districts, and the county,” but added that none of them have PILOT (payment in lieu of taxes) agreements in place.

With a PILOT in place, these nonprofits would agree to pay a portion of their profits to the county.


Up north, the City of Erie has secured PILOT agreements that have gotten some large nonprofits to provide 50% of the property taxes from their holdings. Both UPMC and AHN have agreed to these 50% PILOTs on their Erie-based hospitals, which seems to offer some hope for a similar agreement to be successful here in Pittsburgh.


As of 2021, about 10% of all property in Allegheny County and about 20% in Pittsburgh was owned by nonprofits. The Big Five own 47% of non-government exempt property in the county and 63% in the City of Pittsburgh.


“City residents should not be expected to bear the financial burden of city operations when the region’s largest employers pay next to nothing,” Lamb said.


In 2013, UPMC communications specialists penned a three-part series entitled “Separating Fact from Fiction: UPMC’s Nonprofit Status.”


This self-published series pointed out that 10 years ago, in 2012, “UPMC paid more than $200 million in local, state, and federal taxes.


UPMC already pays real estate taxes on 49 percent of the property we own. Our hospital campuses compose almost all of the remaining 51 percent of the land UPMC owns – those properties were tax-exempt when each hospital joined UPMC, and they continue to operate as “institutions of purely public charity” in every sense of the phrase.


All told, our 500 acres of tax-exempt property accounts for just 1/10th of 1% of all the land in Allegheny County.”


Those numbers continue to grow. And the Big Five employers continue to expand, reinvest and turn vast profits.


And while UPMC also reported that it provided $238 million (this is system-wide, not in Allegheny County) in uncompensated (charity) care in 2012 that’s part of the cost of doing business. Sadly, even little businesses like ours have people who skip out on paying their bills. Maybe we’ll start referring to them internally as charity cases, too.


All that said, we still agree with Lamb, and note that it’s time to share the wealth, but the question remains will a stern argument have any impact. So far, these nonprofits have been short on charity and long on raking in money to reinvest in themselves.


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