As Pittsburgh faces a budget crunch, City Council members met Thursday to spitball ways to generate new revenue.

Greenfield Councilwoman Barb Warwick, for instance, raised the possibility of a tax hike — even though none was included in outgoing Mayor Ed Gainey’s preliminary budget proposal for next year.

Others suggested taxing unearned income or renewing efforts to convince major nonprofits to pitch in.

Whatever the strategy, said Erika Strassburger, the Squirrel Hill councilwoman, there will be a price to pay.

“Any kind of revenue generation involves trade-offs and involves some level of pain for some partners, or institutions, individuals, residents, et cetera,” Strassburger said. “There’s no easy answer.”

Finance Director Jen Gula, who attended the council meeting, said raising the city’s real estate tax rate, even by small amounts, could help address financial pressures.

Pittsburgh’s millage rate is 8.06, meaning $8.06 of property taxes is charged for every $1,000 of assessed value.

For a person whose home is assessed at $100,000, a 1% hike would increase the tax bill by about $8 a year and bring in about $1.7 million more a year, according to Gula.

A 10% increase, Gula said, would generate more than $17.4 million more annually for the city each year. A person whose home is assessed at $100,000 would pay $81 more a year.

Unearned income tax floated

Diana Polson, senior research analyst at the Keystone Research Center, pitched to council what she called a “fair share tax” instead.

It would involve taxing unearned income — money that does not come from salaries — like dividends, capital gains, interest, income from estates or trusts and net gains from rents, royalties, patents or copyrights.

Taxing such income streams at 1%, she said, would generate between $20 million and $27 million for Pittsburgh each year, as the city does not currently tax those categories at all.

A 2% unearned income tax, Polson estimated, would bring in $63 million to $78 million each year.

Those taxes, Polson said, would primarily impact the city’s wealthiest residents.

“While Pittsburgh has a revenue problem, we don’t believe that a broad-based tax increase is the best answer,” Polson said.

Philadelphia-based attorney Richard Feder — who spent about two decades in Philadelphia’s law department — said such a levy would be legal in Pennsylvania. Philadelphia currently taxes interest, dividends and capital gains, he said.

But Gula said levying a new tax is not as simple as it may sound. Setting up a collection system for a new type of tax would take time.

“It’s not an immediate fix,” Gula said.

Warwick said implementing an unearned income tax was unlikely this year.

City Council Budget Director Peter McDevitt noted the city had believed it could levy a different tax — the facility usage fee on professional out-of-town athletes and performers — only to have it struck down in court. As a result, roughly $4 million in revenue the city had counted on is now gone.

Still, McDevitt didn’t rule out going forward with a new type of tax.

“It is definitely something we should look into,” McDevitt said. “We should get every penny we possibly can because we want to provide good services to the city of Pittsburgh and its residents.”

Spending curbs

Councilwoman Theresa Kail-Smith of the West End said she will not support a tax hike. She wants to see the city curb its own spending first.

“I think our residents are struggling with so much right now,” said Kail-Smith, who is in her final months in office.

Kail-Smith said some people who “on paper” look like they’re high earners may still struggle with a tax hike. Some are saddled with hefty student loans or spend large sums caring for children or other relatives.

The councilwoman pitched the idea of a spending and hiring freeze, though she never formally introduced legislation to implement such a pause.

She suggested the city could look to cut down on the grants it gives out, halt non-essential hiring or find other areas of spending to trim before asking residents to pay more.

“It’s hypocritical,” Kail-Smith said. “I think we need to start looking at our finances.”

Officials said they also could explore asking major nonprofits — like hospitals and universities — to chip in, potentially reducing the burden on taxpayers.

But the city has long struggled to convince nonprofits to voluntarily pay a portion of what their tax bills would be if not for their tax-exempt status.

A 2022 report released by the city controller’s office suggested the largest nonprofits could contribute $14.5 million a year through payments in lieu of taxes, often called PILOTs.

Keeping core services

Controller Rachael Heisler said the city needs to contain costs while bringing in more cash.

This comes after officials have condemned Mayor Ed Gainey’s preliminary budget proposal, which some have called unrealistic.

The spending plan budgets for fewer firefighters than are currently on staff, less public safety overtime than the city is spending this year and not even half of the investment officials believe is needed to upgrade an aging vehicle fleet.

The city has seen property tax revenues dip in recent years, as Downtown commercial property values have decreased since the pandemic and the county has been slow to order a reassessment.

Meanwhile, costs continue to increase.

Warwick said she doesn’t want to see the city cut the services that benefit residents and attract newcomers.

The city already struggles to gather litter, clear snow and tear down vacant, abandoned buildings.

Thursday’s freewheeling conversation comes before the mayor is expected to present his formal budget address Monday.

That launches a weekslong process in which all city departments present their spending requests to council. Council can amend the plan before approving a budget by the end of the year.

Mayor-elect Corey O’Connor will inherit that budget when he takes office in January.

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