{"id":63,"date":"2013-05-13T09:09:01","date_gmt":"2013-05-13T14:09:01","guid":{"rendered":"http:\/\/sites.law.duq.edu\/juris\/?p=63"},"modified":"2017-11-20T20:05:49","modified_gmt":"2017-11-21T01:05:49","slug":"upmc-and-institutions-of-purely-public-charity","status":"publish","type":"post","link":"https:\/\/sites.law.duq.edu\/juris\/2013\/05\/13\/upmc-and-institutions-of-purely-public-charity\/","title":{"rendered":"UPMC and “Institutions of Purely Public Charity”"},"content":{"rendered":"

\"20_UPMC_H_RGB\"<\/a><\/p>\n

by Eric Donato, Executive Editor<\/p>\n

Pittsburgh Mayor Luke Ravenstahl announced on March 20 that the city would challenge the University of Pittsburgh Medical Center\u2019s status as an \u201cinstitution of purely public charity,\u201d which renders much of the $10 billion global health system\u2019s properties tax exempt under state law.<\/p>\n

UPMC\u2019s tax savings as a result of its \u201cpurely public charity\u201d status amount to $42 million annually, according to the Pittsburgh Post-Gazette<\/i>.<\/p>\n

The city\u2019s move is more than a policy decision concerning what UPMC\u2019s \u201cfair share\u201d of the tax burden should be. The litigation raises an issue of constitutional dimensions that has troubled Pennsylvania for decades, and has raised the question: can UPMC be taxed at all?<\/p>\n

The Pennsylvania Constitution and \u201cInstitutions of Purely Public Charity\u201d<\/b><\/p>\n

Article VIII, Section 1 of the Pennsylvania Constitution, known as the \u201cUniformity Clause,\u201d typically requires that properties located within the same territorial limits be subject to the same tax burden. The Uniformity Clause makes it difficult for state, county, and local governments to tax properties at different rates, or to provide special tax exemptions for some institutions and not others.<\/p>\n

However, Article VIII, Section 2 permits the General Assembly to exempt \u201cinstitutions of purely public charity\u201d from taxation. UPMC is currently considered an institution of purely public charity, so the properties that it uses for charitable activities are permitted to be (and are) tax-free.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The criteria by which an organization is judged to be a purely public charity was created by the Pennsylvania Supreme Court in the 1985 case Hospital Utilization Project <\/i>(HUP) v. Commonwealth<\/i>. In that case, the court crafted the 5-part \u201cHUP\u201d test, which demands that the institution in question:<\/p>\n

1) advance a charitable purpose,<\/p>\n

2) donate or render gratuitously a substantial portion of its services,<\/p>\n

3) benefit a substantial and indefinite class of persons who are legitimate subjects of charity,<\/p>\n

4) relieve the government of some of its burden, and<\/p>\n

5) operate entirely free from private profit motive.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 An institution must meet all five prongs of the HUP test to qualify as a purely public charity under the Pennsylvania Constitution.<\/p>\n

The question of whether UPMC actually meets the HUP test, however, remains an open question.<\/p>\n

Litigation<\/b><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u201cIt depends on how the courts decide to apply the test,\u201d said Nicholas Cafardi, professor at Duquesne Law School and an expert on nonprofit organizations. \u201cIf they apply the test strictly, its a very difficult test to meet.\u201d<\/p>\n

This is particularly true with regard to the fifth prong of the test, the requirement that UPMC \u201coperate entirely free from private profit motive.\u201d<\/p>\n

UPMC\u2019s tax exempt status has drawn heavy criticism because many of the organization\u2019s executives receive 7-figure salaries.<\/p>\n

Cafardi said that while \u201cgenerous executive salaries\u201d by themselves may not be evidence of a private profit motive, \u201cif there\u2019s a bonus tied to performance, well, then you\u2019re starting to look like a private business, aren\u2019t you?\u201d<\/p>\n

According to IRS filings, UPMC\u2019s CEO Jeffrey Romoff received almost $6 million in compensation for the calendar year of 2010, including bonuses tied to performance.<\/p>\n

UPMC\u2019s closure of its struggling Braddock facility and opening of a new facility in the wealthier Monroeville area has added fuel to claims that the organization is profit-driven, rather than charitable, in nature.<\/p>\n

Nonetheless, UPMC is \u201cpolitically powerful\u201d Cafardi explained. \u201cCould they convince a court that hitting them with a property tax . . . would do more harm than good? That\u2019s not the same thing as applying the test as written. That\u2019s just saying . . . you\u2019re going to do this to the area, and you\u2019re not going to do good.\u201d<\/p>\n

UPMC has over 55,000 employees, and is western Pennsylvania\u2019s largest healthcare system and employer.<\/p>\n

Cafardi suggested that the court may be swayed to \u201cadapt legal standards\u201d for public policy reasons, and that perhaps this was \u201can area where policy is a perfect reason for applying standards less than rigidly.\u201d<\/p>\n

A Push Toward the Bargaining Table<\/b><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Cafardi said that it is possible the litigation is intended to extract an agreement from UPMC to voluntarily pay a portion of what it would otherwise owe in property taxes if the organization lost the case.<\/p>\n

\u201cWould this be the first time a lawsuit was filed in order to get big parties to talk to each other?\u201d said Cafardi.<\/p>\n

UPMC has similar PILOT (payment in lieu of taxes) agreements with Erie county and South Fayette township.<\/p>\n

\u201cIf they can do that in Erie and they can do that in Fayette, why can\u2019t they do that in Allegheny County?\u201d said Cafardi.<\/p>\n

Amending the Pennsylvania Constitution<\/b><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The General Assembly has not been content to leave the issue to the courts.<\/p>\n

Legislation known as Senate Bill 4, which was recently approved by the Senate and sent to the House for consideration, would amend the Pennsylvania Constitution to give the legislature the exclusive power to determine what constitutes a purely public charity.<\/p>\n

The state constitution may only be amended after approval by the General Assembly in two consecutive sessions and a vote by the electorate in a referendum.<\/p>\n

In 1997, the General Assembly attempted to wrest control over the definition of \u201cpurely public charity\u201d from the state\u2019s highest court by passing Act 55. The legislation provided guidance on the HUP test\u2019s five prongs, and deliberately weakened the test to make it easier for organizations to meet the definition of a purely public charity. However, because it is the job of the judiciary (not the General Assembly) to interpret the constitution, and because the HUP test is an interpretation of the state constitution\u2019s provision on purely public charities, a narrow majority on the high court ruled that the legislation could not weaken or otherwise redefine the test.<\/p>\n

Amending the Pennsylvania Constitution through Senate Bill 4 would surmount the obstacle presented by the separation of powers. Should voters approve the measure, the criteria needed to reach tax-exempt status would rest squarely with the General Assembly. The resulting definition would likely be less stringent than the current HUP test, and could potentially shield organizations like UPMC from litigtion of the sort it faces now.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

by Eric Donato, Executive Editor Pittsburgh Mayor Luke Ravenstahl announced on March 20 that the city would challenge the University of Pittsburgh Medical Center\u2019s status as an \u201cinstitution of purely public charity,\u201d which renders much of the $10 billion global health system\u2019s properties tax exempt under state law. UPMC\u2019s tax [\u2026] <\/p>\n

<\/div>\n

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