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While people in Philadelphia are whispering about large nonprofits providing money to help the city and school district they are shouting about the issue in Pittsburgh.
Maybe mud wrestling is a better description.
Since March, Mayor Luke Ravenstahl has been involved in a no-holds barred fight with the gigantic University of Pittsburgh Medical Center over a touchy issue with wide implications: Is UPMC, as it is universally called, a non-profit or a for-profit institution or – to put it another way: Is it a charity or a business?
Ravenstahl says it is for-profit and filed suit in Allegheny County to collect payroll and property taxes for his city from UPMC, a $10-billion a year colossus with 20 hospitals and 400 outpatient clinics, not only in Western Pennsylvania but in a number of foreign countries as well.
UPMC says it is a non-profit and has counter-sued in federal court, saying the city is trying to violate its constitutional right, darn it, to operate as a non-profit entity.
The Ravenstahl suit is advancing ever so slowly through the courts. The latest gambit: UPMC, which boasts of having 50,000 employees in its PR releases and in its tax filings, argued last week that it actually has no employees.
They all work the medical center’s 37 subsidiaries, the UPMC lawyer told the judge, so Ravenstahl should sue them one-by one, not the parent organization.
And so it goes.
The Pittsburgh case is being watched by local governments – and legal professionals involved in tax and health care issues – because it could have statewide and even national implications.
If the courts eventually rule the UPMC is, in reality, a for-profit business and subject to taxation, many (make that many, many, many) other local governments will go knocking on the door of their large hospitals and other non-profits seeking to tax them.
Gary Young, an expert on health policy at Northeastern University in Boston, said if Pittsburgh wins it case in court it could have a significant impact
“The case is attracting a lot of national attention because it is UPMC, which is very influential and very powerful and has a lot of resources,” Young said. “Removal of its property tax exemption is potentially a big deal and would send a chill down the spines of so many other hospitals around the country.”
For one thing, it could prompt local communities to demand that their non-profits pay real estate taxes.
“A lot of municipalities are hurting,” said Young, who is director of Northeastern’s Center for Health Policy and Health Care Research,. “They have gone through a recession and tax revenues are down. A lot of municipalities look around and say: ‘We are barely getting by here. We have a tax-exempt hospital that owns a lot of land and we’re just getting by.”
In his suit, Ravenstahl argued that UPMC is not a “purely public charity” under recent court decisions, a reference to a 2012 state Supreme Court ruling involving a Jewish overnight camp in Pike County. I wrote about that important case recently.
To oversimplify, the Supremes narrowed the definition of what a charity is, making it easier for local governments to approach some non-profits and ask them to pony up property taxes.
Both sides in the Pittsburgh case have filed reams of briefs and supporting documents. I can summarize the city’s case thusly:
UPMC walks like a duck, talks like a duck, has been seen consorting with ducks. Therefore, it is a duck.
UPMC acts like a business (it’s CEO makes $6 million and has a private jet at his disposal); its revenue vastly exceeds its expenses (by close to $300 million in the most recent IRS filing); and it provides little in the way of real charity – it donates less than two percent of its revenues to needy patients, the city avers in its suit.
On top of that – and I mean literally on top – UPMC rents the priciest office space in Pittsburgh, at the pinnacle of the U.S. Steel building.
Pittsburgh stands to gain $11 million for the city budget and $14 million for its schools if UPMC is declared a for-profit by the courts.
The most important part of the Pittsburgh suit is not its juicy details about the imperial style of its CEO Jeffrey Romoff (who has a private chef in addition to that jet plane), it’s that two percent figure on charity.
There is no law against non-profits doing well by doing good, as the old saying goes. But, there is an expectation that if they are going to be exempt from taxes because they are a charity, they should be….well, charitable.
Young was the principal author of a recent study in the New England Journal of Medicine that examined the tax returns (even non-profits must file with the IRS) of 1,800 hospitals across the nation. It found that, on average, hospitals devote 7.5 percent of their expenses to their charitable mission and to benefit the local community.
Young notes that while 7.5 percent was the average, there was a great variation among hospitals.
At two percent, UPMC is an under-achiever when it comes to good deeds. In fact, one reason Ravenstahl – and City Council – are ticked at UPMC is because it shut down some underachieving clinics in poor areas of the city.
With most charities, it is plain as the nose on your face that they are doing good deeds that benefit the public. Those nuns in the soup kitchen at the St. Francis Inn in Kensington? That’s a charity. Sister Mary Scullion helping the homeless? Charity. A hospital that charges amply for its services, has 20 executives making $1million or more a year, a $300 million “excess” of revenues over expenses, an office atop the U.S. Steel building and a private jet?
Hmmm. Looks more like a business to me.
God bless America, I have no objection to businesses doing business, but not under the guise of being – nor with the tax breaks enjoyed by – charities.
Opponents of the suit hope it will die after Ravenstahl leaves office in three months. That’s unlikely. Councilman Bill Peduto, who is the Democratic party’s nominee – and therefore the likely winner, has said he will not only continue the suit against UPMC, but perhaps expand it to other large non-profits in Pittsburgh.
That doesn’t necessarily mean the city won’t decide to withdraw the suit in exchange for UPMC offering PILOTS – payments in lieu of taxes.
As City Council President Darlene Harris told the Pittsburgh Tribune-Review she would like the city to get at least a portion of the $24 million it would get if UPMC were declared a for-profit business.
“I’d just like to get the money they spend on TV commercials,” Harris said.
In the meantime, local non-profits take note. The Pittsburgh case could have wide repercussions if decided in the city’s favor.
Photo: The Associated Press