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June 12, 2003

Mayor defends tax proposals

Pittsburgh’s universities and hospitals are vital “economic engines” helping to power the local economy — but they’re not paying their fair share of taxes for city services, Mayor Tom Murphy told a skeptical audience of about 50 Pitt professors, staff and administrators at the June 3 Faculty Assembly meeting.

“It is clear that the University of Pittsburgh and the city are intertwined, and that you are very important to the success of Pittsburgh,” Murphy said. “On the other hand, there are costs associated with that [success], and we’re asking you to help to pay those costs.”

Pittsburgh’s current tax structure “is based on a city that doesn’t exist anymore,” he said. “It is based on a city where 60 percent of the people worked in manufacturing. Fifty years ago, we had 600,000 people who lived and worked in Pittsburgh,” compared with today’s city-dwelling workforce of 335,000. Another 270,000 non-city residents commute to Pittsburgh daily to work, study at the city’s universities and seek care at its hospitals.

“So, in many ways we still have a city of 600,000 people,” Murphy said. “But who pays for the underlying services to support that has changed remarkably.”

Faced with a $60 million shortfall in the city’s budget for the fiscal year starting July 1 — and a worst-case scenario of being forced to declare municipal bankruptcy later in the year — Murphy is seeking additional state aid and a merger of Pittsburgh’s fire and emergency medical services departments.

The mayor also wants the state General Assembly to approve:

• A new, 0.5 percent city “payroll preparation tax” on the gross payrolls of all Pittsburgh employers, including non-profit institutions. (It is estimated that this tax would cost the University $32 million annually, based on Pitt’s current payroll.) Murphy pointed out that 30 percent of properties in Pittsburgh are occupied by schools, universities, hospitals and other non-profit institutions that pay no city property taxes. Nor do these institutions pay city business taxes, the mayor said.

• A hike from $10 to at least $58 in the annual occupation tax on city workers, which has not increased since 1965. Two out of three jobs (representing 85 percent of total payroll) in Pittsburgh are held by non-city residents, Murphy said, yet non-residents pay just $2 million in occupation taxes while city residents pay $49.5 million in wage and occupation taxes.

• A new 10 percent alcoholic drink tax. “When you go out to dinner and you pay the city’s 7 percent sales tax on your bill, it covers just the food, not the drinks you’ve had,” Murphy said. “That tax doesn’t apply to alcohol.

“Bars and restaurants pay a lot of taxes to the state, but they don’t pay any to local government,” the mayor noted. “Now, if any of you don’t believe that there’s a direct correlation between 911 calls and alcohol consumption, come with me on a Friday night down to our 911 emergency operations center. There’s a direct correlation, yet we don’t get one dollar of revenue from the sale of alcohol to cover the costs of police calls. That is why we believe this would be a fair tax, and a user-based tax.”

Faculty Assembly members didn’t argue against the alcoholic drink tax or increasing the occupation tax, although some professors pointed out that the latter hike would add to the tax burdens of city residents as well as suburbanites. They also said a percentage increase would be fairer than hiking the tax by a specific dollar amount.

Murphy agreed, but said Pennsylvania lawmakers are reluctant to approve percentage increases in city occupation taxes because of the precedent set by Philadelphia, which charges suburbanites a whopping 4 percent levy for working in that city.

Murphy converted few, if any, audience members to his crusade for more taxes on non-profit institutions. Assembly members responded to Murphy’s presentation like stay-at-home moms who’d just been told that, while their work really, honestly was appreciated, it contributed little to their families’ financial well-being.

The mayor surprised Pitt lobbyists who attended Faculty Assembly by conceding that “it’s unlikely” Pennsylvania lawmakers will approve either the payroll preparation tax or the alcoholic drink tax anytime soon.

The General Assembly is reluctant to approve a bailout plan for Pittsburgh until the Allegheny County delegation of legislators agrees on plan details, which they have yet to do, said G. Reynolds “Renny” Clark, Pitt vice chancellor for Community and Governmental Relations. “The legislature isn’t required to act on this before they recess for the summer,” he noted.

After hearing Murphy describe Pittsburgh’s budget-reducing efforts, which have included cutting the city’s payroll from 5,100 to 4,100 employees, several staff and faculty members replied that Pitt, too, has increased efficiency and trimmed as much as it can without slashing programs and services.

Even with those economies, Assembly members said, state funding cuts have forced the University to impose double-digit tuition hikes while limiting salary raises for most employees to not much above inflation.

After hearing Murphy complain that 45 percent of Pittsburgh businesses pay no business taxes, theatre arts chairperson Attilio Favorini recommended that the city focus on convincing the state to eliminate outdated regulations that exempt utilities, banks and financial institutions from such taxes.

One problem with that, Murphy replied, is that the city could tax PNC Bank, Alcoa and other, currently exempt companies only on their Pittsburgh-based revenues, not their national or international business.

“My point is,” Favorini continued, “let’s not lose sight of the meaningful difference between for-profit and not-for-profit enterprises. There seems to be enough in the deep pockets of the for-profits that if we had a rationalized way of going after them, then the not-for-profits could go about continuing to contribute in their substantial ways to the reputation and health of the city.”

“That doesn’t pay a police officer or a paramedic,” Murphy rejoined. “The contributions you’ve mentioned are noted and appreciated and important, but at the end of the day they don’t pay the salaries of essential personnel in the city.”

Rich Colwell, newly elected president of Pitt’s Staff Association Council (SAC), pointed out that the city gets nearly $10 million annually, thanks to Pitt, in amusement taxes, parking taxes, occupation taxes, city wage taxes, and property taxes charged on Sennott Square and some other Pitt real estate.

(See SAC’s letter to the editor on page 2 for details on Pitt financial contributions to the city.)

“I would be the first to admit that universities represent an important part of the city’s economy,” Murphy said. But the mayor noted that Pitt itself does not pay the taxes that Colwell mentioned, except for $800,000 in property taxes.

“When people attend a basketball game at the Petersen Center, the University doesn’t pay any amusement taxes. It merely acts as an agent for us to collect those taxes,” Murphy said.

When Colwell began citing the contributions of Pitt campus police in patroling Oakland, the mayor bristled. “Are you suggesting that the City of Pittsburgh does not have a very highly visible, very expensive police presence?” Murphy asked Colwell.

“If you’re telling me that the University of Pittsburgh now wants to police Oakland, I’m delighted to let you have it,” Murphy said with a grin, eliciting laughter from the audience.

“Is that what you’re saying to me?” Murphy pursued. “Because I’m going to tell you, if I go down across the street from the O [the Original Hot Dog shop at Forbes Avenue and Bouquet Street], I will see half of the city police from this zone sitting down there on most Friday evenings when classes are in session.”

Colwell noted that 80 percent of the people arrested by Pitt police are not University students or employees.

Murphy countered: “Do you want to talk about the costs of Pittsburgh Police investigations related to Pitt students?”

“We don’t want to go down that road,” the mayor added, coolly. “I don’t think you do, and I don’t think it’s productive.”

Pitt administrators who attended the Faculty Assembly meeting likewise tried not to sound antagonistic.

“We have to find a way to resolve this [city financial crisis] without it becoming confrontational,” said Vice Chancellor Clark. But Pitt officials view the University’s tax-exempt status as being “sacred,” Clark said.

“We feel that if we allow a payroll preparation tax, then a couple of years from now — maybe it won’t be the city, but maybe the county or some other entity would try to apply another tax,” said Clark. (Murphy disagreed, arguing that the city’s proposed payroll tax would not threaten the tax-exempt standing of Pittsburgh non-profit institutions.)

Pitt’s $1.3 billion annual operating budget is based on the University’s tax-exempt status, Clark said. “If we incurred an additional, significant cost — if we had to pay our full property tax bill, for example — then obviously we’d have to come up with a whole new funding structure.”

Murphy replied: “We believe the payroll preparation tax is a fair, relatively simple way for an employer to measure a tax. But, at the end of the day, there are 25 ways to solve this problem” of insufficient city revenues.

After Murphy left the meeting, Pitt Vice Provost for Academic Planning and Resources Management Robert F. Pack told Faculty Assembly members that Pittsburgh city schools and government buildings together represent the largest component of tax-exempt properties in the city — a fact that Murphy didn’t mention.

“So, this isn’t a case where certain non-profits like Pitt and UPMC have somehow been voraciously gobbling up the city of Pittsburgh and taking property off the tax rolls,” said Pack. “Pitt has not expanded significantly at all in taking property off the tax rolls.”

Pack said it is “pretty easy to resent” suggestions that Pitt is not pulling its weight in the city’s economy.

“The future of the city doesn’t rest in getting $32 million from the University of Pittsburgh each year through a payroll preparation tax,” the vice provost said. “It exists in attracting jobs and industry and creating companies, in doing exactly the kinds of things the University of Pittsburgh is trying so hard to do. And to do that, we desperately need partners in the city.”

Pitt’s long-term partnership with the city “is much more important, and ultimately much more beneficial, than this short-term issue of the payroll preparation tax,” Pack said.

— Bruce Steele

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