UPMC Drops City Side Agreement for Pittsburgh Promise

I'm on vacation this week, so I first saw this story online from the AP on Wednesday night. UPMC has dropped its condition that the city council approve a side agreement before it keeps its commitment to contribute to the Pittsburgh Promise.

You can read UPMC's news release on its website, as well as its letter to the Pittsburgh Foundation.

I've still not received a copy of the now-discarded proposed city agreement. The news release indicates that the side agreement approved by the Pittsburgh School Board still stands. The school district says that agreement will:

• "Credit UPMC’s contributions to The Pittsburgh Promise for that year against any
potential real estate tax obligation to the District; or,

• Acknowledge UPMC’s right to reduce its contribution to The Pittsburgh Promise for that year commensurate with the amount of the tax obligation to the District. "

If, in what they describe as "the unlikely event that future State legislation permits the District to levy real estate taxes on UPMC and its affiliates", it UPMC will still get what appears to be a dollar-for-dollar credit for the Pittsburgh Promise against any new school district tax. That would be either a credit against any potential "real estate tax obligation" or a reduction in UPMC's contribution to the Promise.

Previously, some blog readers had questioned whether the now-defunct proposed city side deal combined with the school district agreement would have amounted to a two-for-one credit. I've not heard that question addressed, but it is now moot. The school district's potential one dollar-for-one dollar credit to UPMC still stands.

Here are links to:

• the Pittsburgh Public Schools news release,

• the resolution approved by the school board,

• the formal agreement itself between UPMC and the school district.

The agreement contains a clause that says if such a school district tax credit is determined to be illegal, UPMC will still be able to reduce its contributions to the Pittsburgh Promise, if it's subject to a new tax by the school district.

"9. Legality of this Type of Agreement. In the event that any state or federal court issues a final decision which declares unlawful agreements which are of the nature of this Agreement, this Agreement shall terminate and be unenforceable as of the effective date of said decision, but the Grant Agreement between UPMC and The Pittsburgh Foundation shall not terminate or be unenforceable. "

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Reader Questions on UPMC & Pittsburgh Promise

Two readers posted some interesting questions in response to the last post, Podcast--Q&A: Mayor's UPMC Apology. I decided to try combining them here for some conversation.

edheath said...

Ok, now I am confused in a different way, maybe a more coherent way. If UPMC gets a pass from the school board on future, hypothetical taxes on non-profits, and gets a pass from city council on future, hypothetical taxes on non-profits, does that mean UPMC's donation to the Pittsburgh Promise does double duty? In other words, would UPMC be getting two dollars of tax credit for each dollar of donation, one dollar from the school board and one from the city?
(full disclosure, I sent this question to a reporter at one of America's great newspapers)

Ed,

Your question had occurred to me and my first thought was "no"...but then, one can never presume, so I'll try to check. If this were a deduction and not a credit, the answer would be more clear. You can imagine in your own case getting parallel deductions on, say, federal and state tax returns. A deduction would lower the figure of your taxable income, and then you'd apply the percentage tax rate for each taxing body.

Are you suggesting that if there were to be a tax credit, it should be fifty cents on the dollar for the city, and fifty cents on the dollar for the school district? Or are you suggesting instead that only the school district should give a dollar-for-dollar tax credit, and the city should provide none?

char said...


Bob,


I’m confused. Maybe you can help me out.

- Have you actually read the “side deal”, the proposed legislation or both?

- What exactly is UPMC asking for? A tax credit equal to whatever they put into The Promise or a carte blanche exemption from any/all city taxes which might come their way should Act 55 be changed?

- What about Peduto’s point that council cannot legally exempt UPMC from taxes because of charitable giving without offering that same exemption to every other “non-profit”, for-profit or individual tax payer?

Thanks in advance if you know these things.

Char,

-I have not gotten to read the side agreement yet. I've been asking UPMC for it daily, since Tuesday. This afternoon I got an e-mail back from their public relations spokesman saying that he hadn't received it yet himself. The proposed legislation is here, but Mr. Cindrich himself says that he believes City Council will get to see the agreement before voting on it.


-Yes, one way or another, they are seeking a dollar-for-dollar credit for money to be donated to the Pittsburgh Promise, in the event that UPMC is ever subject to city or school district taxation. UPMC and the administration don't like it when you use the word "credit"-- but as the mayor himself noted, that's the language currently in his legislation. The word "credit" also appears in the Pittsburgh Public Service Fund agreement that the mayor cites as a precedent for this proposal.

Advocates do acknowledge, when asked, this difference: what they describe as a PILOT (Payment in Lieu of Taxes) in the Pittsburgh Public Service Fund was money that went to the city. Money pledged to the Pittsburgh Promise would go to a newly created non-profit fund, not the city government, and not the school district. Those advocates suggest that--in the big picture--the community benefits, so the effect is the same.

Do they "want a carte blanche exemption from any/all city taxes which might come their way"? Not exactly. They want:

1) a dollar for dollar "credit" equal to what they put into the Promise, should they be taxed, and

2) assurance that the city and school district will not challenge their tax exempt status for ten years. That's because there's a possible scenario in which the state could give them taxing power over any non-profit which failed to meet standards X, Y, or Z. Proving the X, Y, and Z issues could still take a legal challenge. No legal challenge, no liability.

- As you note, critics seem to suggest that the above argument about "big picture" benefits is rhetoric which attempts to mask a violation of state law. As to whether they would have to offer the same exemption to every other non-profit, for-profit, or individual taxpayer--that raises some interesting questions. We're discussing a taxing power which the legislature hasn't granted. If the legislature granted ever the power, could it grant the tax credit or exemption too? Even if the legislature did so, could the courts overturn them?

State law says that taxes must be applied uniformly. The administration's bill proposes a tax "credit" (their word in the legislation, not mine). However, the public comments of the mayor, UPMC, and others also speak interchangeably of UPMC simply decreasing its contribution to the Pittsburgh Promise if UPMC becomes subject to a tax. I haven't heard anyone explain yet why a hypothetical choice by UPMC not to honor a promise to a private charity would legally require a vote by City Council.

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Podcast--Q&A: Mayor's UPMC Apology

I've posted a podcast of Mayor Ravenstahl's news conference, including his apology to UPMC and his Q&A with reporters following his opening statement. You listen in here at this link.



Here are some breakout quotes:

Mayor Luke Ravenstahl:

• "I do also want to basically apologize to UPMC for the way they were treated yesterday in City Council. I think it's unfortunate... that somebody is willing to give 100 Million dollars to a program that they believe in and to be treated the way that they were in front of City Council yesterday is, i think is... is a shame. And it takes away from the big picture here and what we're all trying to do."

• "Believe me, I would have loved to have announced this in my election campaign, but I didn't, 'cause it's bigger than me, bigger than council. This is the future of the city. It has nothing to do with me, or my political agenda, ...it shouldn't have anything to do with council's political agenda."

• "The two biggest questions I got asked when I was running for office was, non-profits don't give enough, and you failed on the Pittsburgh Promise. And guess what, I had the answer to those questions in those debates, but I kept my mouth shut. Because I didn't want to jeopardize this program, just like council did yesterday with their actions."

• "UPMC is very upset right now, and i don't blame them."

• "There are wounds to heal, and I'm in the process of trying to heal them right now."

• "I'm willing to have a discussion with anybody about those concerns, but to publicly humiliate an organization that's going to give 100 Million dollars? They could have walked away right now and said we're done."

• "The program is bigger than process. The program is bigger than communication. The program is about the future of so many people's lives, generations to come. It's not about me. It's not about them. It's about the future for the city."

• "You know, sometimes Pittsburgh just has to get out of its own way. And we have to get out of our own way here We've been given a gift of 100- Million dollars. Literally said 'here", to fund education, to fund a rebirth and revitalization of this city. And we're going to pick it apart? Humiliate them? Embarrass them?"

• "The same people that said this would never happen. Now it's happened. Now they're figuring out a way to derail it again. And, boy, that's not why i got in this business."

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Podcast--UPMC on Pittsburgh Promise Tax Credit Controversy

I've posted a podcast of highlights from reporter Q&A with UPMC General Counsel Robert Cindrich. This happened minutes after he stepped away from his appearance before City Council. You can listen in at this link.



It works well with Quicktime and iTunes, but other media players should be fine. Let me know how it works for you. The audio is from my microcassette; its not top sound quality but it's listenable.

Some highlights:

• "Under that agreement, we would have the right--we wouldn't have to do it--but we would have the right to reduce the amount of payment to the Promise by the amount we would now have to pay in taxes."

• Q: So the mayor's office asked for a tax credit for you that you don't want?

A: "I never saw that language until I walked into Council chambers today, and I think it was an improvident use of the words 'tax credit', because we do not ask for a tax credit."

• Q: City Council doesn't need to enact a law for you to make a choice whether or not to live by your charitable commitments, right?

A: "That's true. "

Q: Then why are you asking them to?

A: "Because if they put this in writing, it will be a statement to us that says even if the law changes, we want you to continue to support the Promise, rather than to pay taxes."

• Q: So that the money that you put into the Pittsburgh Public Service Fund--that the city is being told to use to balance its budget--the city will lose that money as a result of the Pittsburgh Promise program?

A: "Yes."

Q: Pushing the city budget further out of balance in the future?

A: "Yes. It could. It depends on whether they find alternate revenue sources, whether other non-profits will step up to the plate, whether the city begins, as it has, its turnaround."

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UPMC Sets The Stage For Promise Debate

My earlier post, UPMC's "Essential Condition" On Pittsburgh Promise, can be found here. You might want to read it first.

This morning, prior to City Council's meeting on the UPMC Pittsburgh Promise tax credit bill, UPMC issued this additional statement:

“While we fully recognize and support the right and responsibility of City Council to deliberate on the resolution by the Mayor, we wish to clarify that these provisions are standard in all agreements with the City for PILOT payments, Pittsburgh Public Service Fund payments etc and are not unique to the Pittsburgh Promise. Language of this nature is routinely included by non-profits in all such agreements.


Moreover, the City does not necessarily give up future tax revenue in the unlikely event that it gets the right to tax nonprofits. The provisions provide that if the City collects tax revenues; UPMC’s voluntary financial commitment to the Pittsburgh Promise will be reduced proportionately. The City retains this choice.


We fully support the deliberations and given the magnitude of UPMC’s commitment of up to $100 million, public transparency and the involvement of City Council is desirable.”

The above version of the new UPMC statement is actually a revision; another version was e-mailed minutes earlier, but then a correction was sent out.
Below you'll find a screenshot comparing the two. The revised language is in boldface, the old language is crossed out. I'm providing this view of the both versions because comparing the two may provide more precise insight into UPMC's framing of the agreement submitted to City Council.

[Click to enlarge.]

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UPMC's "Essential Condition" On Pittsburgh Promise

[The full text of the bill appears at the end of this post]

UPMC made a commitment to help fund the Pittsburgh Promise college scholarship program for city school students. Mayor Luke Ravenstahl wants Pittsburgh taxpayers to make a promise to UPMC in return.

The mayor wants City Council to give UPMC up to $100 million in potential tax credits to be able to write off its Pittsburgh Promise contributions. UPMC would get the tax credits should the state ever give Pittsburgh the power to tax large nonprofit corporations.




UPMC spokesman Frank Raczkiewicz e-mailed this statement in response to my questions:

"The side agreement, which in fact is an essential condition of our agreement to provide $100 million, provides that

1. The City and School will continue to recognize UPMC’s exempt status during the 10 year period. The City and School are not prevented from seeking taxes for any properties of UPMC that are not used in activities related to UPMC’s charitable mission.

2. If there is a change in tax law the effect of which is to treat UPMC as taxable for City or School District purposes, then UPMC will get an offset with respect to its donation to the Pittsburgh Promise. We are willing to donate $100 million, but we don’t want to pay $100 million and also have new taxes of $100 million.

3. The side agreement does not give us new tax breaks and it doesn’t reduce any taxes we may currently pay."

Mayor Ravenstahl was not available for comment. His spokeswoman Alecia Sirk says that "in event of changes in tax law or city leadership" the agreement is intended to "make sure the Pittsburgh Promise remains a top priority".

Some city Council members expressed surprise when the mayor's office submitted the bill Tuesday and asked that it be put on a fast track for action with just days left before its current lame duck session ends. The legislation comes up for discussion and a possible vote Tuesday.

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The Pittsburgh Foundation & The Pittsburgh Promise

Both The Post-Gazette and The Tribune-Review are reporting William Trueheart's retirement from his post as President and CEO of The Pittsburgh Foundation.

It brings to mind that The Pittsburgh Foundation did respond to my request for a comment on The Pittsburgh Promise, though the answer didn't arrive until the day after my story aired.

Here's what spokesman John Ellis wrote via e-mail on August 30th:

Bob:

Regarding our conversation about the Pittsburgh Promise, The Pittsburgh Foundation’s position is that we look forward to seeing the detailed plans for this initiative that are currently being formulated by Pittsburgh Public Schools and the Mayor and that we would consider any funding opportunities at that time. I would just add that The Pittsburgh Foundation has been a consistently strong supporter of the School District, and of Supt Mark Roosevelt’s reform agenda.

Please let me know if you need anything more.

Kindest regards,

John


The Pittsburgh Foundation response strikes me as similar to that from The Heinz Endowments, though without the underlying cautious tone of the latter. See my last blog post to compare.

A question that comes to mind is whether the transition in the leadership at The Pittsburgh Foundation will delay its consideration of support for the Pittsburgh Promise.

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The Pittsburgh Promise: Notes & Quotes

This blog post provides some key quotes from Superintendent Roosevelt's and Mayor Ravenstahl's informal Q&A with reporters about the status of the Pittsburgh Promise.
You can also watch my Channel 4 Action News report at this link.

After they spoke with reporters, I sought comment from several Pittsburgh area foundations about the Pittsburgh Promise. Only The Heinz Endowments replied. Here's what it has to say:

"The Heinz Endowments and some other members of the foundation community are aware of the public statements made by Pittsburgh Schools Superintendent Mark Roosevelt and Mayor Luke Ravenstahl about a plan to create a Pittsburgh Promise program, and their hopes that foundations would be contributors. We are awaiting a detailed proposal and possibly a formal meeting involving foundations, school district and city government officials."

"We at the Endowments look forward to getting details on the proposal as soon as possible, since the amount of money required to properly fund the program will be significant. It is important for the public to know that in the past several years, the Endowments and many other foundations have made significant increases in grants to the Pittsburgh Public Schools, with much of the funding going to help Superintendent Roosevelt implement his Excellence for All academic reform plan. We need to consider those commitments as we explore requests for funding new programs."


Now, to see the quotes from the superintendent and the mayor, click the "Read More..." link below .

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Superintendent Mark Roosevelt :

•"Neither the mayor nor I have backed off this one iota. Why not just hear me clearly: we will have the money in place to serve the kids this year. I mean it's been stated categorically by members of the media that we will not. I wonder where that information comes from."

•"It's been stated that we expect the foundations to contribute all this money. We never said that. That was never our intention."

•"We are in very significant talks with folks about getting the promise funded."

•"It is naive to expect us to be here with everything in the bank and everything done."

•"When Pittsburgh gets this done--and Pittsburgh will get it done--we'll be only the second community in the country to have achieved that, and we'll be by far the largest to have achieved that."

•"When this happens, it will happen because some major players step up in major ways. That doesn't happen overnight."

•On whether they are lining up corporations as well as foundations in support of the promise:
"I'm not going to say-- and it would be unfaithful to discussions for me to talk about who is in line to fund it."

•On whether--without naming names--he can confirm if corporations in line as potential supporters:
"I would not use the expression 'in line'. Again, I would say we're in discussions with a great many people about what is possible here."

•On reporter questions about Pittsburgh Promise funding:
"I don't think asking the question is at all inappropriate. I don't think remarking that it's a big task in front of us is at all inappropriate. I have no problem with that whatsoever."


Mayor Luke Ravenstahl:

•"Failure is to not think big, and that's what we're doing. We're committed to the Pittsburgh Promise and the concept of providing opportunities for our children and I'm not going to give up on that."

•On what specific actions they have taken to fulfill the promise:
"Working with the superintendent to have discussions with a variety of different stakeholders in Pittsburgh--corporations, non-profits, foundations, and we'll continue to do so."

•"The fact that nothing has been formally announced at this point should not suggest that we're not working hard toward fulfilling our goal and we'll continue to do so."

•On whether the class of 2008 will benefit as planned:
"When we made our announcement that was our goal--to provide education for individuals that graduated in the class of this year. Which obviously will take place in may or june of 2008. We're committed to doing everything we can to fulfill that. That's the pledge that we've made, and going to continue to work tirelessly to do our best to meet that goal."

•"At this point, obviously without funds raised, we would not be able to fulfill it right now. But it's our goal to meet the pledge that we made, to fund it for the students graduating this year and we're going to continue to work to try to meet that goal."

•Q: "How many foundations are you talking to?" A: "We're talking to all stakeholders in the the city of pittsburgh." Q: "How many are receptive?" A:"They're all receptive of the concept."

•"The future of our city is our children and we're all committed to that. It's an effort that's going to take time, it's going to take dialog. We made the announcement because we believed in the concept, and now we're establishing what that means, and how we raise funds, and getting folks to buy in throughout the community."

•"This isn't something that government can fund, this isn't something that one foundation can fund, or one non profit can fund. It's going to take Pittsburgh as a whole to get behind this concept, and that's really what we're trying to do right now."

•"We remain committed to it and we remain optimistic that the future of our children will be put first, and that the leaders of Pittsburgh will join us in that endeavor."

•"I don't know that there's any hold up. I think that we're continuing to have discussion and nobody said that we're going to be standing here at the end of August with all the money in the bank. We've never made that commitment. We still have time to raise the funds before the end of next year and we remain committed to doing so."

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