Relevant Document:
Press Release (March 28)
The city of Pittsburgh has challenged property tax exemptions for six parcels owned by UPMC, which is scheduled to sell
$1.37 billion in Series 2023 hospital revenue bonds next week. The city believes that UPMC and the other owners of 26 parcels included in the challenge “do not meet the purely public charity test and/or the propert[ies do] not serve a charitable purpose,” according to a Tuesday, March 28, press release announcing the exemption challenges.
However, the targeted properties might not represent the end of the city’s tax-exemption feuding. Pittsburgh’s Law and Finance Department has only reviewed 10% of exempt properties “that are neither government property nor owned by churches,” and challenges relating to additional properties could result from further reviews over the coming months.
“We wanted to turn them over now to Allegheny County for further progress ahead of [this year’s] March 31st deadline,” said Maria Montaño, press secretary for the city. “The remainder of those assessments we will submit ahead of next year’s deadline.” In addition, added Montaño, the city will be looking for back payment for up to five years, which is the maximum lookback period.
The city’s challenges arrive in the wake of four recent
opinions from Judge Christine Fizzano Cannon of the Commonwealth Court of Pennsylvania holding that four hospitals currently or formerly owned by Tower Health LLC do not qualify for property tax exemptions for “institutions of purely public charity” under the Pennsylvania Constitution, the Institutions of Purely Public Charity Act (known as Act 55) and the Consolidated County Assessment Law.
According to those opinions, institutions of purely public charity must satisfy both the statutory requirements of Act 55 and the constitutional requirements established by the 1985 Pennsylvania Supreme Court case
Hospital Utilization Project v. Commonwealth, including the requirements that the entity “advances a charitable purpose” and “operates entirely free from profit motive.”
Focusing on the latter requirement, the court held that the four hospitals failed to demonstrate that they operated entirely free from profit motive for the relevant tax periods based on, among other things, executive compensation that was substantially tied to financial performance and a lack of evidence that the management fees charged to the hospitals by Tower Health were reasonable. The court also noted that three of the hospitals paid interest as members of the obligated group for $590 million in bonds used to acquire other properties.
Montaño stated that the opinions “strengthen our case and make it clear that more municipalities will look at charitable entities to see if they met the
Hospital Utilization Project, or HUP, test.”
The announcement coincides with UPMC’s planned bond sale next week. UPMC will borrow $1.37 billion of Series 2023 revenue bonds split across four different series, led by three different underwriters.
RBC Capital markets will lead an $800 million Series 2023 taxable bond offering and a $439 million Series 2023A offering, split into two subseries and issued by the Pennsylvania Economic Development Financing Authority, or PEDFA. Barclays will lead the tax-exempt $91 million Series 2023B issued by PEDFA while Cain Brothers will take the lead on the tax-exempt $38 million Series 2023C issued by the Monroeville Finance Authority.
As of publication, the preliminary offering memorandums for the bonds have not been updated to reflect potential challenges to UMC’s property tax exemption. Spokespersons with UPMC, as well as underwriters at RBC Capital Markets, Barclays and Cain Brothers, did not respond to requests for comment.