Friday, December 21, 2007

How much in tax savings?

So no one will confirm this to me, and I always mis-trust things that seem to be simple math. Plus we are talking about hypothetical, future dollars that are in fact likely never to be an issue. Still ...

UPMC put a tax agreement related to the Pittsburgh Promise in front of the school board a couple of days ago, which it immediately passed.It is apparently similar to the one currently in front of city council. Of course these agreements give UPMC a dollar for dollar tax credit (on future, hypothetical taxes on non-profits from the state legislature). I do not know of any current dollars UPMC gives to the school system, by the way. Since both the school board and the city have been asked for these (hypothetical, future) tax credits, that means (to me) that UPMC's PP dollars will do double duty, one dollar of donation counting for one dollar of taxes in two places. It's not like the city will lose two dollars of tax (nor the school board), but UPMC is saving itself twice as much tax money.

A couple of observations. I noticed, second hand, that Robert Cindirch, the UPMC lawyer (and former federal judge), claimed not to know anything about the city agreement. Cindrich said something about reducing Pittsburgh Promise donations by the amount of future tax liabilities, the opposite of the written agreement (could we have Judge Cindrich's proposal in writing? I thought not). George Specter said he also knew nothing about the UPMC tax resolution, but that's not as surprising.
And starting next year, the money UPMC donates will be dependent on other donations. If there was a tax on non-profits, UPMC would have no control over how tax it could save.

No matter what, by the way, the city has lost the million and a half UPMC would have donated to the Pittsburgh Service Fund (or whatever it's called). I believe UPMC says the donation to the PP will take the place of the donation to the PSF. (c'mon, you guys could spare another million and a half...please?)

The Post-Gazette thinks that council should agree to the conditions, and I tend to agree. Maybe the agreements won't stand up in court, or (more likely) the state legislature won't try to tax non-profits. In fact, these agreements might influence the legislature, might cause them to set this issue aside in favor of finding more ways to get themselves more bonuses. Or the Act 47/ICA teams will simply nulify the city's agreement with UPMC, say it doesn't have the authority to do it. At the end of the day, I can't help but say more power to UPMC. They took a small risk in trying to avoid some future taxes, and if they can get away with it, I think city council should let them. If taxes on non-profits come down the pike, the city will still have more money than before, anda flagship scholarship program.

I still say ten thousand dollars is not enough for Ethics Board to investigate this Mayor.


Char said...

“They took a small risk in trying to avoid some future taxes, and if they can get away with it, I think city council should let them.”

I disagree.

It’s not “some” future taxes they are trying to avoid. Its not just the $10M per year that they’re trying to exempt either. It’s ALL possible future taxes for a period of 10 years. Because they’re asking council to “promise” not to challenge their tax exempt status for 10 years.

Now some people say this is much to do about nothing because there’s no chance in hell the state will ever mess with Act 55. And normally I’d agree. But a giant like UPMC doesn’t normally waste their time either with legal jockeying over an issue that’s supposedly moot.

So actually, this entire “Midnight Pay Raise” stunt by Luke and UPMC gives me hope regarding the possibility of Act 55 reform.

EdHeath said...

Well, Char, the dynamic of why address taxes on non-profits right now is a fascinating issue. Does UPMC boldly asking for this tax credit mean that they knew something the rest of us didn’t or that they just wanted to make sure to head something off that has been tossed around for some years? Did UPMC think that distressed cities might get additional taxing power temporarily to address long term problems like the under-funded pension funds or the city’ debt? Do they have an “in” at the state legislature? Of course, the irony is that UPMC’s action might force the legislature to take some action. Then all those questions about whether other non-profits could contribute to the Pittsburgh Promise to avoid paying taxes would also need to be addressed.

Would that be the worst thing, if a bunch of non-profits kicked millions of dollars in the Pittsburgh Promise to avoid some taxes, and Pittsburgh ended up with a huge scholarship fund for the ages? People would say,
”Isn’t that Jeffrey Romoff a nice guy?”.