Like cities across the country, Pittsburgh faces lost revenue because American Rescue Plan dollars run out this year and because of the post-COVID spike in teleworking and plunge in office building occupancy rates and commercial property values. As the city considers its response to this one-two punch, it is critical not to exaggerate its impact and to recognize that Pittsburgh has practical options for increasing revenue that could help sustain its movement towards a “Pittsburgh for all.”
Pittsburgh’s future remains promising. The city need not panic, and need not default to cutting services and raising residential property taxes, which would derail efforts to create a more inclusive city near the starting gate. While one industry in the city has taken a hit, commercial real estate, two other industries, Pittsburgh’s “eds and meds” sectors, continue their robust growth. Simply making those sectors contribute fairly to city revenues, as some other cities already do, could more than make up for lost revenues due to the loss of ARP dollars and the decline in commercial real estate property values.
To be sure, the City cannot ignore its need for revenue. According to City Controller Rachael Heisler, declining property tax values could reduce city revenues by $5.32 million in 2024, 0.7% of city revenues. While it could grow over the next several years, that modest impact is in line with estimates in other cities as highlighted by The Tax Policy Center. In those other cities, as in Pittsburgh, rising residential property values and tax collections have cushioned the decline in commercial property values. As well as falling commercial property taxes, the city could face a loss of $7.2 million in the Pittsburgh budget in ARP dollars in 2024. The city may also lose $4.36 million from a 3% “facility usage fee” – also known as the “jock tax” – charged to out-of-town athletes and performers deemed unconstitutional (with that decision currently being appealed to the Pennsylvania Supreme Court).
A City and County Controllers’ report in 2022 estimated that just getting the “Big 5” tax-exempt non-profits to pay could raise up to $34.5 million in PILOT (Payments in Lieu of Taxes) payments.5 Since that report was released, the Big 5 have continued to complete and break ground in Pittsburgh, increasing the value of their tax exemptions. We estimate based on on-line sources that the value of these projects is greater than $3.4 billion
That controllers’ report also highlighted a positive model – the city of Boston. According to an editorial in The Boston Herald, in fiscal year 2022 collective PILOT payments in Boston equaled $92.4 million.7 This is the equivalent, based on population, of $43 million in Pittsburgh. This $92.4 million, however, was less than a $123.5 million requested by the city, leading The Herald to call for increasing PILOT payments: “The knee-jerk reaction [to declining commercial property tax values] would be to raise taxes on Boston residents. However, the city is sitting on a veritable goldmine of undertapped funding: the city’s tax-exempt colleges and universities…It’s unconscionable that non-profits in Boston continue to underpay the city, especially during these financially trying times. Pay up.”
Providence is another city that relies on PILOT payments, with a recent agreement increasing PILOT payments from $93 million to $223 million over the next 20 years. On a population basis, $223 million over 20 years is equivalent to $17.7 million in Pittsburgh.
As highlighted in our December 2023 brief, the city has other revenue-raising options, including a fair share income tax that taxes currently untaxed income that goes disproportionately to the rich. In one variation of that tax, the city could raise $42 million while reducing average taxes paid by each of the bottom four fifths of the income distribution.
In sum, the city cannot achieve a “Pittsburgh for All” without adequate revenue, fairly collected. The good news is that, even with the loss of ARP funding and commercial property tax revenue, Pittsburgh can raise adequate revenue fairly. To avoid a counterproductive kneejerk response to falling commercial property taxes focused on cutting services and raising tax rates on homeowners, City Council, the Gainey Administration, and the City Controller could jointly evaluate both the impact of falling commercial property values and the full range of options for raising revenue fairly. The Pittsburgh Budget and Policy Center and the Institute on Taxation and Economic Policy in Washington, D.C. would welcome an opportunity to assist with this evaluation.