Pittsburgh to challenge more than two dozen tax-exempt properties in opening salvo against major nonprofits

Pittsburgh will formally challenge the tax-exempt status of more than two dozen properties owned by some of the region’s largest nonprofits, setting up what could be a massive legal showdown over huge sums of property tax dollars.

Mayor Ed Gainey said at a Tuesday morning news conference that he is focused on making sure everyone in the city “pays their fair share,” and the initial challenges are “just the beginning.”

“We are here to protect the taxpayer and make sure that everybody pays their fair share,” he said. “We made a promise to the people, and in order for this region to grow, we all have to come together and do what’s necessary to ensure that everybody is paying their fair share.”

Gainey announced two months ago that city officials would review whether all charities that own tax-exempt property in city limits are indeed charitable organizations, and whether they have earned all of their tax exemptions. Nearly a third of all city property is exempt from taxes, and the city has thus far gone through about a tenth of such properties.

There are 26 properties in the city’s opening legal salvo, including six owned by UPMC, two by Carnegie Mellon University and one each by the University of Pittsburgh and Highmark Health. A successful challenge of all could net the city $3.5 million in property tax revenue, covering the current year as well as back taxes for any of the past five years where the property had the same owner.

Other owners are included in the first round of challenges, such as several private citizens and companies ranging from the Village of Shadyside Community Association to Mr. Property LLC.

While in the process of getting properties back on the tax rolls, the city also plans to appeal some of their tax-assessed value, which could provide further revenue.

The full review could potentially result in millions of dollars in new revenue to the city, Allegheny County and Pittsburgh Public Schools. It also could have far-reaching ramifications for the region’s major nonprofits — including UPMC, Allegheny Health Network, the University of Pittsburgh, and Carnegie Mellon and Duquesne universities — that have powered the local economy’s new focus on “eds and meds.”

Krysia Kubiak, the city’s top lawyer, told the Union Progress earlier this year that she felt the monumental task could be compared to the federal government’s litigation against large tobacco companies nearly 20 years ago.

“We have incredibly talented federal litigators and state litigators, who have years and years of experience amongst them,” she said. “The federal government faced a similar problem when they fought against Big Tobacco, and, even though they were vastly outspent, they still ended up succeeding. So I do think being on the right side of an issue is very helpful.”

The challenges will first go to the county’s Board of Property Assessment Appeals and Review, and Kubiak said the city legal team is prepared for what could be a lengthy appeals process. But she thinks the property owners will “realize that they don’t really have much [of a] case.”

“I am hopeful that some of these people will just realize, ‘Hey, it’s time for us to start paying our taxes,’” she said.

UPMC spokesperson Paul Wood said in a statement that the properties challenged by the city have “all been previously approved for their tax-exempt status as they support UPMC’s charitable mission of serving our patients, members, and communities.”

Highmark, Pitt and CMU all said in statements that they remain in conversations with the mayor and his team. Pitt said it is “confident” that its challenged property, which contains the OC parking lot, meets requirements for tax exemption.

The city has two main legal avenues that it can pursue when reviewing a tax-exempt property.

It could challenge the tax-exempt status on the grounds that the property’s supposedly charitable owner is actually not a charity at all. The city would have to show the owner does not meet the definition of a “purely public charity,” as described in state law and a five-part test established by the state Supreme Court.

It could also argue that while the owner is indeed a charity, all or part of a given property is not used to “advance” the owner’s “charitable purpose,” as required by state law. There is a history of court rulings to place golf courses, parking lots and vacant land owned by charities back on the tax rolls.

The city’s review comes as it faces a possible budget crunch in the next few years, and a joint report issued last year by the city and county controllers argued the “current financial relationship between the region’s local governments and large nonprofits is untenable.”

Gainey met with all major nonprofits upon taking office last year to try and work out an agreement, and he said Tuesday that “the door is still open.”

Gainey’s property review initiative joins other attempts over the years by Pittsburgh politicians to extract more revenue from the region’s powerful nonprofits.

As opposed to the new strategy of reviewing all charities and properties, then-Mayor Luke Ravenstahl filed a lawsuit in 2013 seeking to specifically strip UPMC of its charitable status, but the suit was ultimately dismissed on technical grounds.

Ravenstahl’s successor as mayor, Bill Peduto, chose to drop the lawsuit and instead talked privately with the nonprofits about potential solutions. He ultimately helped create the OnePGH Fund, a separate entity that would gather voluntary payments and fund specific projects, with some city oversight. Peduto was able to collect commitments for an average of $23 million per year to be paid over five years.

But a new mayor again chose to take a different approach, and Ed Gainey had the city sever ties with OnePGH a few months after taking office last year. Gainey promised on the campaign trail in 2021 to make the big nonprofits “pay their fair share, on our terms.”