When attorney Joe Froetschel commutes to work on his bicycle, he thinks about how the city operations work and where the money comes from. As he rides through Oakland, he notices hospitals like UPMC and University of Pittsburgh buildings that dot the neighborhood. He's also surrounded by churches and charities and the Carnegie museums.
All these spaces have one thing in common: they're immune from paying property taxes. This got Froetschel thinking about their impact, especially as hospitals and higher education systems grow in Pittsburgh, so he reached out to 90.5 WESA for our Good Question! series.
“Because the city is dependent on property taxes,” Froetschel said. “How much of the city’s real estate is untaxed?”
Froetschel is referring to tax-exempt properties. These are entities that the government decides can legally forgo filing property taxes. They include hospitals, universities, schools, churches, charities and any building owned by the government—including vacant or abandoned property.
Property taxes fund police and fire services, garbage collection, paving of some city roads and even the library. If you have a Pittsburgh zip code, you’re paying taxes to the city, the county, the school district and the Carnegie Library system.
If you had a property that was assessed at $100,000, for example, with exemptions, you’d pay about $2,242 each year in property taxes. That works out to a little more than 2 percent of the land’s value.
In the city, about 40 percent of the assessed value of Pittsburgh properties fall into this tax-exempt category, or around 19,000 parcels.
City Finance Director Paul Leger said the percentage isn’t unique to Pittsburgh, many Rust Belt cities have about the same amount of tax-exempt properties, but it’s still a problem, considering the city is struggling financially.
“The effect of that is that those who do pay property tax, like you and I on our houses, we have to pick up the slack and pay the amount that the city needs to operate under property tax,” Leger said.
While government buildings, like police stations and courts, aren’t going to start paying into property taxes, the city still has some options for getting some of these exempt entities start to contribute.
Major Charities Writing Heavy Checks
Cities can negotiate an agreement with nonprofits called payments in lieu of taxes, or PILOTs.
“A tax-exempt organization will pay a certain agreed-upon amount every year in lieu of taxes,” Leger said. “They may not have the available amount that they would owe in taxes, but they would be able to pay something.”
PILOTs are a goodwill offering, of sorts. In the past, UPMC has entered into an agreement with the city by donating to the Pittsburgh Promise program each year. Leger said currently no organizations are in PILOT agreements with the city, but negotiations are ongoing.
Pittsburgh officials aren’t interested in getting every nonprofit to have a PILOTs. They’re interested in the “Big Four,” which include Highmark, UPMC, University of Pittsburgh and Carnegie Mellon University. Combined, they own billions of dollars in tax-exempt property, according to the finance department.
But Pennsylvania Association of Nonprofit Organizations Executive Director Anne Gingerich said charitable organizations that her group represents aren’t big fans of PILOTs.
”It works for some communities, and that’s fine. But we tend not to support them because they are not necessarily, nor always are they, voluntary,” Gingerich said.
She said sometimes municipalities will ask for PILOTs in exchange for smoother zoning permits or other city-administered regulation. Discrepancies in agreements from one community to another can also be difficult for nonprofits, Gingerich said.
Drop a Dollar in the Land Bank ... Eventually
In Pittsburgh, there are about 14,000 city-owned vacant or abandoned properties. Leger said the ultimate goal is to get those buildings back on the tax rolls by selling them to developers who can flip them and start paying property taxes again.
But it’s not that easy.
Buying a blighted property can take months to years and there’s no shortcut—yet. Leger said the city is working on setting up a Land Bank that would expedite the process.
“If we manage to move these properties to the Land Bank and they can sell them more efficiently and get them into the hands of private individuals,” Leger said, "then it takes off of what I call the ‘zombie properties,’ which just sit there.”
Pittsburgh’s Land Bank, or PLB, has been slow getting off the ground, but city officials are confident in its progress. The PLB board is holding a public input sessions throughout the city and recently created a draft of their policies and procedures.
The Pittsburgh Community Broadcasting Corporation, which is the parent company of 90.5 WESA, is also a tax-exempt organization.
Have a specific topic about Pittsburgh you want us to look into? Head over to our Good Question! page and submit your curiosity.