Allegheny County lacks resources to scrutinize tax breaks for ‘Big 4’ charities | TribLIVE.com
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Natasha Lindstrom

Allegheny County says it lacks the resources to scrutinize hundreds of tax-exempt properties owned by the region’s so-called “Big 4” charities, further delaying an oversight probe that was supposed to be completed years ago, the Tribune-Review has learned.

Four massive nonprofit organizations with billion-dollar portfolios control the county’s most valuable, tax-free real estate: UPMC, Highmark/Allegheny Health Network, the University of Pittsburgh and Carnegie Mellon University.

Worth a combined $5.47 billion, roughly 700 parcels owned by the Big 4 and other complex nonprofits make up just 25 percent of tax-exempt properties countywide, but they account for 72 percent of the total value of the county’s tax-exempt properties.

In February 2013, at the request of Allegheny County Executive Rich Fitzgerald, the owners of all 2,800 tax-exempt parcels on the books countywide received letters stating they had to submit documents proving their statuses as “purely public charities” — or risk having their tax exemptions revoked. Fitzgerald pledged to follow through on a 2007 ordinance by County Council calling for the review to take place once every three years.

As of Friday, the county real estate department has completed its review of all but 708 parcels. About 200 of the yet-to-be reviewed parcels belong to either UPMC or Highmark/AHN, and more than 220 belong to universities, county real estate data show. The rest belong to other types of complex nonprofits, such as senior living centers.

If all 708 parcels yet to be examined were added back to the tax roll, they would generate a combined $25.87 million in property taxes a year for the county alone, based on existing millage rates, plus pump millions more dollars toward school districts and municipal coffers.

“This group of tax-exempt properties are still outstanding because of the time and level of expertise that is needed to complete this review,” Allegheny County Solicitor Andrew Szefi said. “At the same time, the county has been pursuing Payment in Lieu of Taxes, or PILOT, with the organizations so that some type of contribution for the common good is made.”

‘Big 4’ talks continue, no end in sight

Fitzgerald and Pittsburgh Mayor Peduto continue to meet with Big 4 representatives to discuss potential payment arrangements. Peduto spokesman Tim McNulty said that talks are “ongoing” and have been “productive” but provided no time frame for when a deal might be struck.

In 2015, Peduto said he believed they were close to reaching a compromise that would get the Big 4 to contribute a combined $20 million a year. Now, Peduto says the negotiation is a piece to his broader “One Pittsburgh” initiative.

When asked about the holdup, McNulty said, “It’s complicated.”

Both UPMC and Highmark say that they already provide hundreds of millions of dollars to the region annually via charity care and other community benefits.

“Highmark Health has participated in several meetings with the mayor’s office and other potential partners on the OnePGH initiative,” Highmark spokeswoman Lynn Seay said . “We look forward to continue to working with the city and the county as the process evolves.”

UPMC spokeswoman Susan Manko has pointed out that UPMC already pays taxes on about 49 percent of its real estate portfolio. “Mayor Peduto knows he has UPMC’s support and can count on our fullest possible participation that is fair and equitable,” Manko said .

University officials say they benefit the region through job creation, neighborhood revitalization, cultural resources and advances in research and innovation.

“As OnePGH continues to take shape, we look forward to engaging with Mayor Peduto and other OnePGH partners to find new ways to support this important work,” Pitt spokesman Joe Miksch said.

“We have been engaged in positive discussions with the mayor on his OnePGH proposal and are optimistic an agreement will be reached,” CMU spokeswoman Julie Mattera said.

Brad Korinski, chief legal counsel for county Controller Chelsa Wagner — who championed the countywide review when it began six years ago — said that the county’s reluctance to complete it threatens to have “a chilling effect upon all municipalities.”

“It’s likely to discourage them from conducting any meaningful reviews so that they’re only option is a negotiation out of the generosity of the heart of UPMC,” Korinski said.

“It’s something that should have happened, and it should happen now,” Korinski said.

Citing a recent legal challenge filed against UPMC by state Attorney General Josh Shapiro, Korinski argued that “there’s a reasonable case to be made that some of the UPMC properties should not have tax exemptions.”

Nearly 300 tax breaks revoked

Starting in 2014, the county added back to the tax roll 271 parcels belonging to about 150 organizations that failed to respond to letters demanding they prove their status as a purely public charity under state law.

Some of the affected organizations included land trusts, neighborhood associations and volunteer fire departments.

About 20 parcel owners self-reported they did not qualify for the tax breaks they had been receiving.

Twenty-six UPMC or AHN-affiliated properties almost immediately lost their tax breaks because they fell under subdivisions or only partially exempt properties that did not meet the state’s charitable requirements.

By this year, the county approved the exempt statuses of just under 1,700 parcels worth a combined assessed property value of $2.05 billion.

It revoked the tax exemptions of 291 parcels worth a combined $79.83 million — representing 10 percent of the exempt properties countywide but less than 1 percent of their combined value.

Downtown Pittsburgh nonprofit tax attorney Jack Owen said that the whole effort came off as “heavy-handed” and required small nonprofits “to jump through a lot of hoops that they shouldn’t have had to do.”

He said that the county seemed to go after the “low-hanging fruit” rather than the large, complex organizations that own the most valuable property.

At least 31 parcel owners appealed their revocations and won, according to Jerry Tyskiewicz, the county’s director of administrative services.

The revocations thus far amount to about $378,000 in taxes more per year pumping into the county’s coffers, plus millions more dollars into schools and municipalities.

County officials had predicted in late 2013 that revoked exemptions could net the county more than $800,000.

Though the original plan called for a countywide review every three years, Tyskiewicz said tax-exempt groups will not have to undergo the process again until “the first round is complete.”

Public charity?

The Pennsylvania Supreme Court set the standard of a five-part test to decide whether an entity qualifies under state law as a purely public charity (and thereby can avoid paying property taxes).

To qualify, a nonprofit organization must:

1. Advance a charitable purpose

2. Donate or render gratuitously a substantial portion of its services

3. Benefit a substantial and indefinite class of persons who are legitimate objects of charity

4. Relieve the government of some of its burden

5. Operate entirely free from private profit motive

Source: Pennsylvania Supreme Court

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