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Council ‘Investigates’ Tax-Exempt Status of City Nonprofits

City Council President Darlene Harris said she is investigating whether the city could legally challenge the tax-exempt status of large nonprofits in Pittsburgh.

If organizations like Highmark, UPMC and city universities don't measure up to state nonprofit criteria, Pittsburgh could stand to gain tens of millions of dollars more in revenue from real estate and payroll taxes that are currently waived.

Harris said a Pennsylvania Supreme Court decision in April found that a nonprofit working in Pike County didn't meet the state constitution's criteria to be a "purely public charity." She said the ruling has opened the door for legal challenges to other nonprofits' tax exemptions.

"What some call 'nonprofit' is not necessarily all nonprofit," said Harris. "If you can pay for having commercials during Super Bowls, if you can pay for your name to be on the top of the highest buildings in the City of Pittsburgh… There are doctors that will not see poor people."

City Council is wholly dissatisfied with the latest voluntary payment proposal from a consortium of Pittsburgh nonprofits. All nine Council Members voted for a one-week delay to a bill that would accept an estimated $5.2 million in voluntary contributions from nonprofits for 2012 and 2013 to help pay for city services. The city's nonprofits will be discussed by a panel of experts at a public hearing Tuesday afternoon.

Council Budget Director Bill Urbanic said the $2.6 million yearly offering from the Pittsburgh Public Service Fund pales in comparison with the tax revenue Pittsburgh is forgoing.

"If these were 'taxable organizations,' the amount of payroll tax we would receive would be somewhere around $22 million… Also, the real estate, with the new assessment, is probably somewhere between $35 to $50 million," said Urbanic. "So, you're looking at somewhere around $60 to $70 million that we're forgoing, and what we're getting instead is $2.6 million annually."

History of Pittsburgh Nonprofit Contributions

From 1991 through 1996, Pittsburgh's nonprofit community gave the city government an average of roughly $4.3 million per year.

However, City Finance Director Scott Kunka said Act 55 of 1997 dramatically changed the relationship between Pennsylvania municipalities and nonprofits.

"It sort of took all the arrows out of the quiver as far as the municipalities' ability to challenge nonprofit status," said Kunka. "Since Act 55, there was a steady dimunition of the revenue received." According to the Finance Department, Pittsburgh nonprofits gave the city an average of $1.5 million per year from 1998 through 2004.

When the Pittsburgh Public Service Fund was established in 2005, the average yearly contribution shot back up to $4.6 million for three years. However, the city didn't reach an agreement with the group in 2008 and 2009.

"2008 and 2009, didn't receive a penny from any of the nonprofits," said Council President Harris.

Over the past two years, the city received an average of $2.7 million a year from the Public Service Fund. The Fund estimates it will give $2.6 million this year.

"There's no reason the University of Pittsburgh, Carnegie Mellon [and] Highmark should not be giving this city $2 million, $3 million apiece in a year, as a voluntary contribution to the city of Pittsburgh," said Council Finance Chair Ricky Burgess. He said Brown University voluntarily gives the city of Providence about $8 million each year.

However, it seemed Council would be willing to accept the $2.6 million yearly contributions from the Pittsburgh Public Service Fund for this year and next. Harris said her investigation into tax exemptions would take longer than 18 months to finish.