UPMC, Pittsburgh drop tax-status fight

Brian Bowling
| Monday, July 28, 2014, 7:06 p.m.

Pittsburgh dropped its legal challenge of UPMC's tax-exempt status because the two sides hope to establish a fund for nonprofits to invest in city neighborhoods and housing, Kevin Acklin, the mayor's chief of staff, said on Monday.

He said talks are just starting and he couldn't provide details.

Mayor Bill Peduto took office in January hoping to secure as much as $20 million a year in lieu of taxes from major nonprofits for critical needs such as roads and bridges. Dropping the lawsuit against UPMC is a first step, Acklin said.

“I think what both sides were trying to accomplish here was just to have a period of peace,” Acklin said. “To have these discussions outside of litigation.”

The city declined to appeal Allegheny County Common Pleas Judge R. Stanton Wettick's ruling that UPMC's employees work for 37 subsidiaries, meaning the city couldn't pursue collecting an estimated $20 million a year in payroll and property taxes in a single lawsuit.

The city told UPMC about its decision on Friday, UPMC spokesman Paul Wood said.

The health care giant responded on Monday by dropping its lawsuit in federal court that claimed the city, former Mayor Luke Ravenstahl and a union group conspired to violate UPMC's constitutional rights by challenging its tax status.

“Now that the city has terminated the lawsuit initiative by former Mayor Ravenstahl seeking to strip UPMC of its payroll tax exemption, UPMC believed it was appropriate to drop our countersuit,” Wood said.

The city's lawsuit, which was filed in state court in March 2013, chilled relations between the Ravenstahl administration and the nonprofits.

A task force established by a mandate from one of the state agencies overseeing the city's finances was looking at ways to increase nonprofit support. A month after the city sued UPMC, several members of the task force sent a letter to Ravenstahl saying that the action jeopardized their work.

About 40 nonprofits have contributed $30.9 million to the city since 2005. The largest amount — $14 million — came in between 2005 and 2007, when the city was dealing with chronic deficits and out-of-control employee pension costs, according to Pittsburgh's financial recovery plan.

Contributions since then have declined.

About 40 nonprofits agreed to contribute $2.6 million to the city in 2012 and 2013 through the Pittsburgh Public Service Fund. Reynolds Clark, chief of staff and vice chancellor for external relations at the University of Pittsburgh, chaired the group. He said the fund disbanded in April once it made its final payment from 2013.

The city budgeted $2 million this year in nonprofit contributions, but that represented money owed from 2013. Its five-year financial plan budgets $830,000 annually from nonprofits after 2014.

Brian Bowling is a staff writer for Trib Total Media. Reach him at 412-325-4301 or bbowling@tribweb.com.

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