The city of Pittsburgh is preparing to take on what could be a massive legal fight, as it begins to review whether all charities that own tax-exempt property in city limits are indeed charitable organizations, and whether they have earned all of their tax exemptions.

Nearly a third of all city property is exempt from property taxes, and the review could potentially result in millions of dollars in new revenue to the city, Allegheny County and Pittsburgh Public Schools. It also could have far-reaching ramifications for the region’s major nonprofits — including UPMC, Allegheny Health Network, the University of Pittsburgh, and Carnegie Mellon and Duquesne universities — that have powered the local economy’s new focus on “eds and meds.”

Krysia Kubiak, the city’s top lawyer, said she feels the monumental task could be compared to the federal government’s litigation against large tobacco companies nearly 20 years ago.

“We have incredibly talented federal litigators and state litigators, who have years and years of experience amongst them,” she told the Union Progress. “The federal government faced a similar problem when they fought against Big Tobacco and, even though they were vastly outspent, they still ended up succeeding. So I do think being on the right side of an issue is very helpful.”

The city has two main legal avenues that it can pursue when reviewing a tax-exempt property.

It could challenge the tax-exempt status on the grounds that the property’s supposedly charitable owner is actually not a charity at all. The city would have to show the owner does not meet the definition of a “purely public charity,” as described in state law and a five-part test established by the state Supreme Court.

It could also argue that while the owner is indeed a charity, all or part of a given property is not used to “advance” the owner’s “charitable purpose,” as required by state law. There is a history of court rulings to place golf courses, parking lots and vacant land owned by charities back on the tax rolls.

Kubiak said the city plans to move “expeditiously” through its review and will file challenges on a rolling basis against charities and properties. Several staff members in the city’s law and finance departments are assigned to the project on a part-time basis. The county tried at one point to conduct its own review but had to drop it in 2019 due to a lack of resources.

“Hopefully our cases are clear and compelling, and the property owner realizes soon that their tax-exempt status they can’t defend, and therefore we’ll be able to complete it quickly,” she said. “But we’ll continue to follow whichever that case is, for as long as it takes. But we’re not stopping … we’re not waiting to start the second one waiting for the first one to finish.”

The region’s nonprofits responded to the review’s announcement by noting their commitment to charitable works, including millions of dollars donated over the years to neighborhood programs and citywide initiatives such as the Pittsburgh Promise.

UPMC, the state’s largest nongovernmental employer, has often been specifically targeted by local progressives. A company spokesperson said officials can “count on our full participation in programs that are fair and equitable and include the region’s other major nonprofits.”

Robert Field, a professor of health management and law at Drexel University in Philadelphia, told the Union Progress that nonprofits often occupy prime real estate in big cities and the potential to tax these properties is like “red meat” for cash-strapped governments.

“It’s easily accessible; there’s a lot there. It will satisfy a lot of their appetite — not all of it, but a lot of it,” he said. “The temptation is too hard to resist.”

Any paperwork for the 2023 tax year must be sent to the county’s property assessments office by March 31, giving the city about two months to fire its opening salvos. Filings will then be reviewed by the county’s Board of Property Assessment Appeals and Review, and the board’s decision can be appealed.

City seeks additional revenue

The city’s review comes as it faces a possible budget crunch in the next few years, and a joint report issued last year by the city and county controllers argued the “current financial relationship between the region’s local governments and large nonprofits is untenable.”

Kubiak said at a Tuesday news conference that Pittsburgh is facing a long-term shortfall of tax revenue, especially once federal COVID-19 relief money runs out.  More money is needed “in order to properly run the city,” she said.

The review joins other attempts over the years by Pittsburgh politicians to extract more revenue from the region’s powerful nonprofits.

As opposed to the new strategy of reviewing all charities and properties, then-Mayor Luke Ravenstahl filed a lawsuit in 2013 seeking to specifically strip UPMC of its charitable status, but the suit was ultimately dismissed on technical grounds.

Ravenstahl’s successor as mayor, Bill Peduto, chose to drop the lawsuit and instead talked privately with the nonprofits about potential solutions. He ultimately helped create the OnePGH Fund, a separate entity that would gather voluntary payments and fund specific projects, with some city oversight. Peduto was able to collect commitments for an average of $23 million per year to be paid over five years.

But a new mayor again chose to take a different approach, and Ed Gainey had the city sever ties with OnePGH a few months after taking office last year. Gainey promised on the campaign trail in 2021 to make the big nonprofits “pay their fair share, on our terms.”

Charities must be ‘pulling their weight’

Field cautioned that officials will face a tangle of rules governing tax exemption. He said legislators and judges have tried over the years to describe characteristics of an “ideal charitable organization that is unquestionably entitled” to a tax exemption, and use that as the basis for granting such exemptions.

“We, as the people, give them an indirect subsidy by not requiring payment of taxes and, in return, they’re giving something of value — education, health care, cultural amenities, help for the poor, for the homeless,” he said. “It’s really hard to quantify whether the public is getting a good deal. But we can get a general sense of whether they are coming close to pulling their weight.”

The state Supreme Court in 1985 set out five requirements, known as the “HUP test,” which organizations must meet to be considered charities: advancing a charitable purpose, donating or rendering gratuitously a substantial portion of its services, benefiting a substantial and indefinite class of persons who are legitimate subjects of charity, relieving the government of some of its burden and operating entirely free from private profit motive.

The “toughest nut to crack” for nonprofit hospitals, Field said, can often be showing they operate without a private profit motive.

“Technically, they don’t seek profit — they don’t have shareholders, they don’t have dividends, there’s no return on investment,” he said. “But they do compensate their executives well enough and lavishly. And they do sometimes operate with high margins, although those margins fluctuate.”

Whether that adds up to seeking profit is “sort of an open question” and can vary on a case-by-case basis, Field said.

Liam Migdail, a spokesperson for the Hospital and Healthsystem Association of Pennsylvania, said the “core mission” of nonprofit hospitals and health systems is to serve the needs of community members.

“Absent a system of public hospitals in Pennsylvania, hospitals take on the vital responsibility of providing 24/7 emergency care and caring for all patients, regardless of their health care needs or ability to pay,” he said. “Pennsylvania hospitals delivered $866 million in uncompensated care during fiscal year 2021 and are increasingly absorbing the cost of underpayments by Medicare and Medicaid.”

Properties must advance ‘charitable purpose’

Many different kinds of properties could face challenges, from parking lots to cafeterias to vacant land, with the city potentially alleging they don’t advance their owner’s “charitable purpose” and thus must return the tax rolls.

One local elected official — O’Hara auditor Darwin Leuba, who is active in progressive political organizing — has argued that UPMC should pay property taxes on all of its parking lots and garages. He claimed in a report issued last year that the company is only taxed right now on 13 of its 23 lots, and the other 10 also should be on the tax rolls.

In response, UPMC said the properties qualify for an exemption because they are used “in support” of its charitable mission, with parking fees used to “help offset maintenance and operating expenses to ensure safe and available parking.”

Field said parts of a nonprofit that are “comparable to a commercial enterprise” often see challenges, such as cafeterias, gift shops, parking lots and pharmacies.

Kubiak said the city will look at all publicly available information about a given property’s use and its owner, including websites and federal tax filings, as part of the review. Officials will likely not visit the properties in person, as she said, “Google Maps is really good these days.”

‘Ancient framework’ for determining an organization’s charitable status

Lawsuits challenging a charity’s tax-exempt status require highly detailed readings of expert testimony, financial statements, state laws, past court rulings and other documents. And a case from southeastern Pennsylvania, which is currently winding its way through the state court system, could potentially lead to the rules changing yet again.

Jeffrey Sommer, a judge on the Chester County Court of Common Pleas, handled a tax dispute involving several hospitals owned by Tower Health, a small health care network based in the Philadelphia suburbs. He ultimately ruled in 2021 that the hospitals did not meet the requirements for several reasons, including that they didn’t donate enough services nor operate free of a profit motive due to how executive compensation was structured.

Sommer lamented in his dense, 42-page ruling that tax exemption rules have not kept pace with changes in the health care industry, and said he and other judges are stuck trying to “match a modern analysis to an ancient framework” currently on the books.

“The fact that the existing laws are flawed and do not reflect the vast change in the American healthcare landscape from community-based charity-oriented hospitals to massive conglomerations of healthcare networks, doctor providers, surgical suites, and insurance plans, does not make this task any easier,” Sommer wrote.

A higher court now has the opportunity to review the criteria — Tower Health appealed to the statewide Commonwealth Court, with oral arguments held last November. Field said a decision could provide the city with a signal as to whether certain types of challenges are likely to succeed.

When considering a challenge to tax exemptions, Field said government officials must juggle many different issues, including trying to stay financially healthy against the risk of trying to break new legal ground and losing; and also what he described as a dynamic where the health care industry is becoming more like big business, setting it up for more challenges of its perks as a nonprofit.

“Maybe they feel like they’re in the red zone,” Field said of Pittsburgh officials, “and if they just have enough plays, they can finally get over the goal line.”

Jon, a copy editor and reporter at the Pittsburgh Post-Gazette, is currently on strike and working as a co-editor of the Pittsburgh Union Progress. Reach him at

Jon Moss

Jon, a copy editor and reporter at the Pittsburgh Post-Gazette, is currently on strike and working as a co-editor of the Pittsburgh Union Progress. Reach him at