November 25, 2013; Pittsburgh Post-Gazette


At the end of this year, the City of Pittsburgh’s accord with a coalition known as the Pittsburgh Public Service Fund will end, and it’s already caused friction between local nonprofits and the city’s newly elected mayor, Bill Peduto.

The fund—about $2.6 million this year—is comprised by voluntary contributions called PILOTs (payments in lieu of taxes) from about 40 tax-exempt nonprofits whose identities are known, while the amounts they contribute are not. Pittsburgh, while not the only city in America with PILOTs, probably has the largest, most well known, and most contentious program.

PILOTs emerged from a long-running debate in many cities over what, if anything, nonprofits should contribute to local government, since virtually all of them are tax-exempt. In Pittsburgh, most either pay no property or payroll preparation taxes, or pay taxes on only a portion of their properties and employees. The city views that as millions in lost revenue from institutions and organizations that use the city’s services just like other businesses. Nonprofits say the laws that keep them tax-exempt exist because they are charitable operations performing public and community services for residents, and are engaged in economic and community development by virtue of their projects.

Earlier this year, negotiations over the terms of the Fund collapsed when outgoing mayor Luke Ravenstahl decided to sue the University of Pittsburgh Medical Center (UPMC) to strip it of its tax exemption. The Post-Gazette story says the lawsuit is working its way through the courts, and has deteriorated an already ambivalent relationship between the city and local nonprofits.

But now, says the story, Mayor-elect Bill Peduto wants to go further, getting rid of the short-term agreements that leave the city renegotiating—or “begging”—every few years.

To date, the Fund is an unreliable source of revenue for the city, he said. “It’s on a yearly basis, and the city is left in a position where it has to beg for money,” Peduto told the paper. “We need something that is a more structured approach and on a long-term basis.”

The article says that he hopes to extract more funds over a longer timeframe from local nonprofits, although he has not revealed specifics. Earlier this month, Peduto said he hoped to get enough from the nonprofits to start shifting tax revenue back to Pittsburgh’s public schools, which are facing a deficit that will exhaust their reserves by 2016. He wants more structured, longer-term agreements, based on how much those nonprofits might have paid in payroll preparation taxes, for starters.

The mayor-elect told the Post-Gazette that he already has had discussions with the University of Pittsburgh, Carnegie Mellon University, insurer Highmark and UPMC, the state’s largest private employer. He said he was confident that a long-term agreement for more money was possible. All four organizations already contribute an undisclosed amount of PILOTs.

The University of Pittsburgh appeared resistant to the idea of increased PILOTs, according to the newspaper, because it viewed the Fund primarily as a way for nonprofits to assist the city while it climbed out of the depths of the Great Recession and earlier financial crises.

“Because the City now has moved through a succession of balanced budgets, it appears that its time of financial crisis may be over, which also should mean that the need for the Public Service Fund and the nonprofit contributions that it has collected no longer exists,” said a spokesperson for the school.

A task force was supposed to negotiate a new agreement with the Fund, but the effort was abandoned when the city sued UPMC, and observers say it is unlikely to resume anytime soon, although the task force’s chairman would not rule out the possibility of a deal later on, said the article.

At the same time, Peduto has pledged to work with nonprofits to address problems in chronically underserved communities, and to appoint liaisons to help nonprofits cut through red tape. These mixed signals exemplify the ambivalent relationship between many of America’s revenue-starved municipalities, like Pittsburgh, and the community-based nonprofits that serve their residents. It is an unfortunate—and ironic—example of entities with the same basic public service objectives fighting over limited resources.

Many nonprofit leaders would like greater say in how PILOTs are spent. Some in the nonprofit community have criticized Pittsburgh’s handling of its finances and its high legacy costs from pension obligations, a viewpoint heard in cities across the country. Some think that PILOTs should go into a fund separate from the general fund that supports most city operations, perhaps for economic development with input from the nonprofits.

Peduto told the Post-Gazette that PILOTs are critical to the city’s goal to get to 2018, the year it’s scheduled to pay off the bulk of its debt, without borrowing, as well as to help the school district.—Larry Kaplan