Pittsburgh Mayor Luke Ravenstahl Hits on UPMC

The City of Pittsburgh is in trouble. The once Steel City has been drowning in underfunded pension liabilities for over a decade. The unfunded pension liability for the municipal employees is around $1 billion. The cash flow deficit in 2011 was $8.3 million. Over half of the city’s $460 million budget goes to debt, pension and health care expenditures. The city has pledged $730 million in parking tax receipts to the pension fund over the next 30 years. It’s a start, but not enough. The unions, of course, oppose pension reform. The coffers are ravenous. Mayor Ravenstahl keeps searching therefore for additional revenues to feed the beast. He proposed in 2009 a 1% tax on college tuition at Pittsburgh institutions of higher education, ranging from community colleges to The University of Pittsburgh and Carnegie Mellon. He dropped the proposal after the institutions agreed to voluntarily make payments in kind to the city. He’s still searching. His eyes focused on UPMC, formerly the University of Pittsburgh Medical Center. The University spun off UPMC in 1998 as an independent non-profit. The University maintains its medical school and control over the academic program and faculty appointments. UPMC has expanded to become the largest employer in Western Pennsylvania with 54,000 employees. 20 hospitals,4,200 beds, and 400 outpatient clinics. The $10 billion enterprise is ranked as one of the top 15 hospitals in the United States. The UPMC also pays property taxes on less than half of its holdings in Pittsburgh because of its status as a non-profit. One of the fiscal problems faced by cities like Pittsburgh is that an increasing percent of the land base is owned by non-profits such as churches, hospitals, museums, and universities. Pittsburgh lost much of its industrial base and corporate headquarters in recent decades, depriving the city of revenues. Pittsburgh’s conundrum is that much of its current economic base centers around UMPH, the University of Pittsburgh, and Carnegie Mellon. They provide the jobs and economic revenues that fuels the region’s economy. He knows though that even if a Andrew Carnegie can move to New York or Andrew Mellon donate his extensive art collection to the National Gallery in Washington, Carnegie Mellon University remains in Pittsburgh. The Pennsylvania Supreme Court issued last year a decision, which limited the definition of charities. The Court held that a non-profit to qualify as an “institution of purely public charity” had to meet five standards: 1) Advance a charitable purpose; 2) Donate a substantial amount of its services; 3) Benefit a large portion of people who need charity; 4) Relieve the government of some of its burden; and 5) Operate entirely free of a profit motive. The Mayor claims that UPMA fails to meet one to three of these criteria. He claims that this battle is like David and Goliath and that ”Enough is enough. Today is the day we start to fight back.” He sounds like he’s trying to bully the medical institution as he did the two famous universities. UPMC claims to have provided $622 million in charity care and other community benefits last year. Mayor Ravenstahl filed actions against UPMC attempting to strip it of its tax exempt status. He wants to claim an additional $20 million annually in property taxes from the medical provider as well as six years of back payroll taxes. He asked the Allegheny County Court to order UPMC to pay the payroll taxes, and will challenge the non-profit’s tax exempt status before the Allegheny County Board of Property Assessment, Appeals and Review. Not everyone likes UPMC and its economic power. The Service Employees International Union, for example, complains that it underpays the blue collar employees while paying excessive salaries to management. Several executives earn over $1 million annually. UPMC issued a press statement after the actions were announced. It starts out “The challenge to UPMC’s tax-exempt status appears to be based on the mistaken impression that a non-profit organization must conduct its affairs in a way that pleases certain labor unions, certain favored businesses, or particular political constituencies.” This battle may get interesting.