Last week, Keystone Research Center’s Pittsburgh project, the Pittsburgh Budget and Policy Center, released this short brief outlining the importance of big “eds and meds” non-profits in the city contributing more to city revenues (in “payments in lieu of property taxes” or “PILOT” payments). We followed that up with publication of this op ed in the Pittsburgh Tribune-Review is this past Monday.
Today, Mayor Gainey held a press conference in Pittsburgh updating the public on the city’s challenges to the property tax exemption for non-profit parcels of land. You can view the video of the digital presser HERE. In that digital presser, Amy Hanauer, the executive director of KRC’s national partner, the Institute on Taxation and Economic Policy, made the following remarks about why it’s so important for big non-profits to pay their fair share in Pittsburgh.
Amy Hanauer is the executive director of the Institute on Taxation and Economic Policy, the premier national non-profit that conducts rigorous analysis of state and local tax systems.
At ITEP, we have built a reputation based on high-quality, reliable tax modeling. We provide fact-based recommendations to shape equitable and sustainable tax systems.
Let me by reminding this audience that the starting point when considering Pennsylvania’s and Pittsburgh’s tax systems is a great deal of inequity. As the 7th edition of ITEP’s signature report on state and local tax systems (https://itep.org/whopays-7th-edition/) released earlier this year points out, 44 of the nation’s 50 state and local tax systems exacerbate inequality – in them, incomes are even more unequal after collection of state and local taxes. One reason for this: two of the main state and local taxes, sales taxes and property taxes, are highly regressive. The rich pay substantially less as a share of their income in sales and property taxes than do typical families.
In some states, a progressive income tax offsets regressive sales and property taxes. That does not happen in Pennsylvania, which has a flat income tax. For that reason, Pennsylvania has the 4th most regressive state and local tax system in the nation (https://itep.org/whopays-map-7th-edition/) . As a share of income, the bottom fifth in Pennsylvania pays 15.1% of its income in state and local taxes and the top 1% only 6%.
In many localities, including Pittsburgh city and school district, the local income tax is even more regressive. Why? Because nearly all income that comes to working families – in the form of wages and salaries – is taxed at the combined 3% income tax rate imposed by the city and school district in Pittsburgh. Meanwhile, income that goes mostly to the rich in Pittsburgh, including dividends, capital gains, and interest, is not taxed. For this reason, the top 1% in Pittsburgh pays only 0.4% of its income in taxes, about half the rate paid by middle-income taxpayers.
Given this starting point, even before the pandemic, central public policy challenges in Pennsylvania and in Pittsburgh include achieving more equitable state and local tax systems.
The pandemic has increased the urgency of achieving more equitable state and local tax systems. One reason is the focus of today’s discussion: the decline in commercial real estate property values in the wake of increased teleworking and plunging commercial office building vacancy rates. This is likely to reduce commercial real estate property tax payments. In conjunction with the wind down of American Rescue Plan dollars, declining commercial property taxes create a need for new revenue to avoid cuts in services or increases in local tax rates for families.
The need for new revenue is not, of course, unique to Pittsburgh. Far from it. Both the decline in commercial property values and the end of ARP funding are hitting almost every city in America.
This brings us to the issue of solutions.
ITEP is developing a more comprehensive set of options for cities to equitably replace revenue lost falling commercial property tax collections. [As discussed in the release last week by the Pittsburgh Budget and Policy Center OR As amplified by other speakers today from [Boston/Providence]], asking large and growing eds and meds non-profits to contribute more to city revenues is an option with the potential to generate significant revenue. It is also likely a case of “enlightened self-interest.” The success of Pittsburgh’s universities and health care institutions hinges in a thriving city – one with a budget sufficient to ensure public safety, affordable housing, quality education, and attractive parks, cultural, and other amenities.
Let me close with an offer. In partnership with Keystone Research Center, ITEP has already been able to provide Pittsburgh with analysis of the promising revenue potential and highly desirable equity features of a fairer Pittsburgh income tax (link to the December 2023 report that could be put in the chat: https://keystoneresearch.org/wp-content/uploads/Pittsburgh-Fair-Taxation-Brief-Final.pdf). Looking forward, we would welcome the opportunity to work further with the city and KRC to help Pittsburgh raise revenue equitably and continue its progress towards a “Pittsburgh for all.”