Pittsburgh cleared a major roadblock to negotiating yearly contributions from nonprofits by dropping a lawsuit against UPMC, but it also shed what promised to be costly, time-consuming litigation, experts said.
Mayor Bill Peduto on Tuesday said the city took a “leap of good faith” in dropping its legal challenge of UPMC’s tax-exempt status. The health care giant responded on Monday by dropping a federal countersuit. UPMC did not respond to a request for comment.
Peduto, who has said he wants $20 million collectively from nonprofits to help pay for services such as fire and police protection, and smooth streets, said the legal peace treaty paves the way for successful negotiations.
“(UPMC is) the largest employer in the state of Pennsylvania, and they have an opportunity, and in some cases a responsibility, to be able to provide more than just their basic services and to be a good community partner in creating opportunities, whether it’s for job training or if it’s programming for youth or even if it’s housing,” Peduto said.
Pittsburgh avoided a budget-busting lawsuit, one legal expert said. City officials could not immediately provide how much they’ve spent to date on the legal costs.
“It’s hard to say whether or not the city or UPMC could have won the lawsuit and won the inevitable appeal,” said John Burkoff, a University of Pittsburgh law professor. “One thing that everyone would agree on is it would take years, and it would take a lot of money to fight a lawsuit like this. This certainly seems like a sensible strategic decision to me.”
Peduto and Pittsburgh’s state-appointed financial overseers have said an agreement with nonprofits is critical for the city to close a $60 million gap between its revenue and its capital needs.
City officials are trying to cut costs, including a wage freeze for city employees, while finding new revenue sources such as advertising on city property.
Former Mayor Luke Ravenstahl, who had minimal contact with nonprofits, filed the suit last year in an attempt to squeeze them for more cash. UPMC posted $10.2 billion in revenue and $10.1 billion in expenses for the fiscal year ending in June 2013.
Nonprofit experts predicted the icy relations will thaw.
“I would imagine that seeing the city extending an olive branch and saying we really want to work with you rather than fight with you would be an encouraging thing in most relationships,” said Peggy Morrison Outon, director of the Bayer Center for Nonprofit Management at Robert Morris University.
Peduto said even though the lawsuit against UPMC is over, Pittsburgh has the option to return to court and sue “UPMC and any nonprofit if we feel they are running a for-profit operation” that doesn’t deserve tax-exempt status.
He doesn’t expect an agreement in time to aid the 2015 budget.
Pittsburgh must submit annual budgets by late September for approval of the Intergovernmental Cooperation Authority, one of its two state-appointed financial overseers.
This year the city budgeted $2.1 million in agreed-upon nonprofit contributions. That contribution drops to $830,000 each year starting in 2015, according to Pittsburgh’s five-year financial plan.
Outon said most nonprofits — 90 percent have 10 or fewer employees — can’t afford to give, adding that the core mission of all charities is to provide community services that help lessen costs of government.
“This idea that there’s money to pay taxes is ludicrous for most nonprofit organizations,” she said. “They don’t have it.”
Peduto said he and Chief of Staff Kevin Acklin have met regularly with UPMC and leaders from other large nonprofits. He said they’ve indicated a willingness to contribute more. He identified UPMC, Highmark, the University of Pittsburgh and Carnegie Mellon University as the top four.
“All four realize there’s more that can be done, but it has to be structured in a way that they agree on, and that’s where the conversations have been headed,” Peduto said.
Highmark and CMU did not respond to requests for comment.
Reynolds Clark, chief of staff for the University of Pittsburgh’s Office of Chancellor, said the city cleared a “major hurdle” by dropping the suit.
Clark also chaired a collaboration of nonprofits known as the Pittsburgh Public Service Fund, established to distribute payments in lieu of taxes to the city. The group, which disbanded this year after its agreement expired, gave Pittsburgh about $5.2 million total in 2012 and 2013.
Clark said he was unaware of any negotiations between the city and university or service fund members.
“If they dropped the lawsuit, I’m sure discussions will be taking place,” he said.
Acklin told the Tribune-Review on Thursday that the city and UPMC were hoping to establish a fund for nonprofits to invest in city neighborhoods and housing. Peduto said that’s one of several possibilities but did not offer details.
The city on Friday declined to appeal an Allegheny County judge’s ruling that would have forced it to sue each of UPMC’s 37 subsidiaries, rather than a single entity, to challenge the tax-exempt status of the health care giant.
UPMC responded by dropping its federal countersuit claiming the city, former Mayor Luke Ravenstahl and a union group conspired to violate UPMC’s constitutional rights by challenging its tax status.
With the tax-status dispute over, UPMC must return the digital copy of Ravenstahl’s computer hard drive to the city, U.S. District Judge Joy Flowers Conti said on Tuesday.
Her order gives UPMC an Aug. 8 deadline to turn over the sealed package containing a mirror image of the hard drive.
The judge allowed UPMC to hire an expert to make the copy of the hard drive to preserve it as potential evidence in the medical giant’s lawsuit.
Bob Bauder is a staff writer for Trib Total Media. He can be reached at 412-765-2312 or [email protected].