Sunday, January 17, 2010

Is Money from Universities and Hospitals the Solution to Pittsburgh’s Fiscal Woes?

Although the short-lived proposal for a tuition tax in the City of Pittsburgh was ostensibly aimed at having students pay their “fair share” of City services, in reality it was just the latest attempt to get tax-exempt colleges and universities to help support the City’s budget, nearly a third of which comes from property taxes. Whether that makes sense depends on whether you feel that tax-exempt facilities are burdens or assets for the City.

No one really knows for sure what proportion of Pittsburgh’s or any municipality’s property is tax-exempt, since there is little incentive to ensure that assessed values are accurate for properties that do not pay taxes. It’s not even clear how to assess the value of many exempt properties, since they’ve never been sold and there aren’t always clear comparables. (Try naming a building that you think is comparable to the Cathedral of Learning, i.e., similar neighborhood, size, construction, etc.) However, the best estimates available indicate that about one-third of the property value in the City of Pittsburgh is tax-exempt.

Although that sounds like a lot, it’s actually not unusual in Pennsylvania or other states. It’s not even that unusual in Allegheny County. The municipality in Allegheny County that is most burdened by tax-exempt property isn’t Pittsburgh, but Findlay Township, where over 80% of the property is tax-exempt. The cause there isn’t universities and hospitals, it’s Pittsburgh International Airport.

In fact, nationally, the largest owners of tax-exempt property aren’t colleges, hospitals, or any type of non-profit, but governments themselves. In Pittsburgh, about 50% of the tax-exempt property value is owned by federal, state, and local government agencies and authorities. A little over 20% is owned by colleges, universities, and private schools, a little under 20% is owned by hospitals, nursing homes and other social services institutions, and about 5% is owned by churches, synagogues, and other religious facilities.

Indeed, in many ways, the City of Pittsburgh may be more disadvantaged by being the county seat for Allegheny County than it is by being home to colleges and universities. For example, should Allegheny County be paying the City for using prime Downtown riverfront property for a jail that houses criminals from every municipality, when the City could be using it to attract new businesses or residents that would pay property taxes and income taxes?

In contrast, even though the universities and medical centers don’t pay taxes on their own property, it’s likely that there would be a lot fewer taxable office buildings, stores, hotels, and restaurants in Oakland if it weren’t for the presence of Carnegie Mellon, Pitt, and UPMC. Moreover, research at the universities and medical center have resulted in hundreds of for-profit startup companies that were or are located in the City. Similarly, it’s unlikely that Google would be moving to East Liberty if Carnegie Mellon were located somewhere in the suburbs, or in some other state.

Every dollar that the universities and medical center contribute to the City’s budget is one less dollar that they can invest in maintaining their status as cutting-edge centers of research, education, and treatment, and that’s what attracts students, researchers, and entrepreneurs from around the world to live and work in Pittsburgh. Although the universities might seem wealthy relative to the City, they’re not wealthy relative to their competitor institutions. Despite extraordinarily successful capital campaigns and generosity from local foundations, Pitt’s endowment still ranked only 29th among universities nationally in 2008, and Carnegie Mellon’s ranked 69th. In fact, one could argue that the City should be helping get more money to the universities, rather than trying to take it away from them.

The combination of the unusually small size of Pennsylvania’s municipalities and their high dependence on property taxes means that communities which happen to have a large number of regional tax-exempt facilities, whether they be colleges, hospitals, airports, or jails, will have lower property tax revenues than those which do not.

Other states have implemented programs to address this; for example, the state of Connecticut makes over $200 million in payments in lieu of taxes to those municipalities where hospitals, universities, and state facilities are located.

Rather than pitting our cities and colleges against each other, Pennsylvania’s Governor and General Assembly should follow the lead of other states and create a more effective tax-base sharing program that can help promote municipal fiscal health and a competitive non-profit sector.

(A version of this post appeared as the "Regional Insights" column in the Sunday, January 17, 2010 Pittsburgh Post-Gazette.)


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