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UPMC, other nonprofits in crosshairs as Pittsburgh announces new challenges to tax exemptions

Pittsburgh City Solicitor Krysia Kubiak stands at a podium with Mayor Ed Gainey and city budget director Jake Pawlak behind her.
Kiley Koscinski
90.5 WESA
Pittsburgh City Solicitor Krysia Kubiak announced alongside Mayor Ed Gainey that the city would pursue recovering taxes from another 104 parcels owned by nonprofits.

Pittsburgh Mayor Ed Gainey has unveiled the next phase of his plan to challenge the tax-exempt status of properties owned by nonprofits. At a press conference Wednesday, his administration said it plans to challenge the exemptions for 104 such properties this year.

The filings, which officials said they will submit within the next week, are an attempt to bring more properties onto the city’s tax rolls and to boost revenue. The city challenged 27 properties last year, arguing that the parcels didn't meet the state’s standard for tax exemption.

“If you do not meet the standard as defined by the Supreme Court … you shall pay your fair share for the paving of the roads in front of your hospitals, to the EMS crews that bring patients to your doors, for the police and fire teams that help keep you and your students safe,” Gainey said at a press conference announcing the new challenges.

City leaders have repeatedly described the initiative as an effort to get “everyone to pay their fair share” when it comes to city services. But UPMC has emerged as the main target. Of the 104 new properties being challenged, more than half are owned by the health care giant.

Many of the 61 UPMC properties being challenged by the city appear to be parking lots and garages.

Paul Wood, a UPMC spokesperson, said the health system was confident that the tax-exempt status of those parcels would withstand the city's challenge.

“The parcels being challenged that are located on the campuses of UPMC Children’s, UPMC Magee-Womens, UPMC Mercy, UPMC Presby Shadyside and UPMC Montefiore clearly support the charitable mission of those hospitals.”

Wood noted that none of the six UPMC properties challenged by the city last year have been added to the tax rolls, because “they all satisfied the requirements for their tax-exempt status.”

The city has appealed the county's ruling for those six UPMC properties, according to a city spokesperson.

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Pittsburgh's other major nonprofit property owners — Allegheny Health Network, the University of Pittsburgh, Carnegie Mellon University and Duquesne University — also own properties that will be challenged in the city's new filings.

If the city wins all 104 challenges, administration leaders say, city coffers would receive another $6.5 million in property tax revenue. Officials noted that the parcels would also provide new tax revenue to the school district, libraries and parks — a potential windfall totaling $15 million for the entities.

That money could also help pad the city’s financial cushion in the years ahead.

In the wake of the coronavirus pandemic, downtown property owners have sought and won reductions in the assessed value of their property. While they argue that a rise in vacant office space has reduced the buildings' earning potential, the reduced value means the city will take a hit as well.

But the real estate challenged under the nonprofit review initiative could actually be more valuable than its current assessment, according to Jake Pawlak, the city’s office of management and budget director.

He told reporters the property could be worth a lot more than it is today after a potential county-wide reassessment, taking into consideration any updates and improvements made by the property owner.

That means the property's tax bill "would go up significantly," he said.

Still, Pawlak argued that the tax-exempt property review is about “fairness," not solving the city’s financial woes. Pawlak said worries about a coming fiscal crunch have been “overstated,” and noted that the city ended 2023 in the black.

“We are not seeking these judgments to address any immediate budget gap or close a hole or stave off an impending challenge, but rather to ensure … the long-term success of the city of Pittsburgh,” Pawlak said Wednesday.

City solicitor Krysia Kubiak told reporters that her office has completed its review of roughly 62% of the 940 parcels in the city with a charitable tax-exempt status. Kubiak said that the city has learned a lot about how to better monitor property tax exemptions.

“During the last year, we've gained a deeper understanding about the nonprofits in our region and the legal support for our position,” she said. After the initial review of properties is completed, Kubiak said the city will make reviewing tax-exempt properties a routine task of the law department.

In its first round of challenges last year, the city challenged the status of 27 properties. The county’s Board of Property Assessments and Appeals Review sided with the city on 12 of them. Property owners can appeal that ruling to Common Pleas Court, but officials declined to specify how many of those 12 properties had done so. They did say the city netted $100,000 in its initial effort.

As for the remaining 15 challenges, the city appealed the board’s ruling on 12, and withdrew its challenge of the remaining three.

City Council authorized a $400,000 contract with an outside law firm to assist in the initiative and according to the law department, the city has spent $204,000 so far. On paper, that would suggest the city has so far come away from the lawsuits $104,000 in the red.

But Gainey attempted to ward off such criticism Wednesday, describing the challenges as an ongoing effort the city “should be doing … every year,” that could net additional revenue for years to come. Kubiak too said city staff had gained expertise and experience that would be useful in future challenges.

Some officials outside the administration suspect the city could reap a larger windfall if the city and big nonprofits figured out a "payment in lieu of taxes," in which a property owner contributes to city coffers but with no impact on its tax exemptions. Gainey told reporters Wednesday that such an agreement is not off the table. He said he met with UPMC leadership as recently as last week, but declined to specify what was discussed.

UPMC's statement did not disclose details about any purported negotiations but said the mayor “knows he has UPMC’s commitment to participate in a program that’s fair and equitable and includes the other 'Big 5' nonprofits.”

Corrected: March 28, 2024 at 10:24 AM EDT
A previous version of this story reported that the city has spent $400,000 on outside legal assistance. According to the law department, the city has authorized that amount but so far has spent $204,000.
Kiley Koscinski covers city government, policy and how Pittsburghers engage with city services. She also works as a fill-in host for All Things Considered. Kiley has previously served as a producer on The Confluence and Morning Edition.