Mayor Gainey’s Challenges: Tax-Exempt Properties

On Tuesday, January 24th, Mayor Ed Gainey signed an executive order directing Pittsburgh’s law and finance departments to conduct a full review of all properties owned by tax-exempt organizations, which they anticipate will take years to complete. 

These tax-exempt organizations are currently not required to pay real estate taxes on the property they own where they conduct tax-exempt activities. These exempt properties represent nearly a third of all properties in the City of Pittsburgh. Mayor Gainey’s order is focused on ensuring that the business being conducted on these properties complies with the Pennsylvania public charity test, which is what allows them to be tax-exempt. If the business being conducted on a particular property does not meet the requirements, the business at this property cannot be considered a purely public charity, and the City of Pittsburgh will potentially move to restore tax payments. Religious organizations and places of worship will not be subjected to this review.

On March 28th, Mayor Gainey’s office reported that approximately 10% of the properties have been reviewed since the executive order was signed in January. The City began its review by looking at the largest tax-exempt property owners as well as any properties reported to the City by residents.  City Solicitor Krysia Kubiak shared that if the properties reviewed to date were removed from the exempt list, this would generate about $3.5 million in tax revenue for the City. The largest group of parcels belongs to the Presbyterian University Hospital System, which is owned by UPMC. 

The Pennsylvania public charity test contains five criteria that nonprofit organizations must meet in order to be considered a purely public charity. 

These criteria were determined by the Pennsylvania Supreme Court in 1985 and include the following:

1. the organization must advance a charitable purpose
2. donate a substantial portion of its services
3. benefit a class of people that are legitimate subjects of charity
4. relieve the government of some of its burden
5. and operate without seeking profit.

Ensuring that nonprofit organizations are operating as purely public charities has been an ongoing battle between the City of Pittsburgh and major nonprofit organizations for 20 years. On March 12th, 2022, a bill was introduced to Pittsburgh City Council to determine the amount of real estate and payroll taxes that Pittsburgh nonprofits would have to pay if they were for-profit entities. The City’s goal was to partner with Pittsburgh’s nonprofits on payment-in-lieu of taxes agreements, or PILOT agreements, indicating that if Allegheny County and the City of Pittsburgh secured PILOTs with just the five largest nonprofits, this would generate $5.9 million and $8.6 million in revenues for those governments each year, respectively. Many nonprofits already make PILOT payments, but they are just a fraction of what the property tax for the organization would normally be. 

Any challenges made by property owners that arise will be referred to the seven-member Allegheny County Board of Property Assessment Appeals and Review for final determination. 

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