Birthplace of PILOTs about to Cut a New Deal with its Big Four

December 29, 2016; Pittsburgh Tribune-Review

Government leaders in the birthplace of PILOTs (payments in lieu of taxes) and that region’s flagship nonprofits are close to an agreement that will result in large annual payments over the next decade.

Pittsburgh and Allegheny County officials tell the Pittsburgh Tribune-Review that the deal will see the region’s four largest nonprofit employers making “hefty annual payments toward public projects for the next decade.”

PILOTs are the controversial funding mechanism used by many local governments in the eastern U.S. to extract financial support from large institutions that are normally exempt from property taxes, even though they rely heavily on local government services.

The still-confidential agreement—being hailed as a “comprehensive investment proposal”—will come after three years of negotiations between Pittsburgh Mayor Bill Peduto, Allegheny County Executive Rich Fitzgerald, and the four big institutions: the University of Pittsburgh Medical Center, Highmark Blue Cross-Blue Shield, Carnegie Mellon University and the University of Pittsburgh.

“Those are the four agencies that are driving our local economy right now. They are at the heart of the resurgence in this city,” an aide to the mayor told the paper. “What we’d like to do is to make sure that the cost of running a city is borne by those who are leading its economy.”

The four nonprofits generate “billions” of dollars in revenue, according to the Tribune-Review, and employ approximately 120,000 people.

The plan is a payment formula that moves funds from the four health and education institutions into public works projects, such as improving parks and roads, as well as into government-driven special programs, but not necessarily ongoing public services. Hospitals and universities in Boston, New Haven and other eastern cities with large tax-exempt institutions that dominate their local economies have struck similar deals with local governments.

Peduto has told reporters “he expects to get more than the $5.2 million in payments the city received from…PILOTs in 2012 and 2013 under a previous pact.”

Despite the long-term nature of the deal, the mayor’s staff told the Tribune-Review that they “would like to see state legislators enact broader reforms to tax laws to account for areas such as Pittsburgh that have shifted toward nonprofit-driven economies.” Chief of staff Kevin Acklin said:

Every time UPMC or Highmark or Pitt or Carnegie Mellon expands, our real estate tax base shrinks. That doesn’t mean that we don’t encourage expansion, job growth and the new economy, and people coming here because of the innovation that’s happening, but it is a reality that we have to address. The situation you have right now is there are taxpaying citizens who are subsidizing the growth that’s occurring.

Spokespeople for the nonprofits offered only noncommittal (but positive) comments and declined to discuss details with reporters. They met with city and county officials just before the holidays.—Larry Kaplan