Wednesday, March 20, 2013

Ravenstahl challenges UPMC's tax-exempt status

Posted By on Wed, Mar 20, 2013 at 3:19 PM

Let no one accuse Mayor Luke Ravenstahl of going out with a whimper: In the waning months of his administration, he has launched a lawsuit challenging the tax-exempt status of UPMC, the region's largest employer.

"After a thorough and exhaustive review," Ravenstahl told reporters this morning, "It's very clear to me that the University of Pittsburgh Medical Center is not a purely public charity, and therefore the city of Pittsburgh will take action to challenge that claim." That action will include a lawsuit, being filed today in Common Pleas -- which will demand UPMC being paying city payroll tax -- and a challenge of its property-tax breaks to county property assessors.

The lawsuit -- a copy of which is here -- takes advantage of a window of opportunity opened by the state Supreme Court last April. In a case involving a religiously-affiliated summer camp, the court ruled that in order to qualify for tax exemption, a nonprofit must meet a five-part "HUP test." That test -- which is more stringent than a previous standard in state law -- requires an organization to: advance a charitable purpose; donate a substantial portion of its services; benefit people who are legitimate subjects of charity, relieve the government of some burden; and operate entirely free from private-profit motive.

Working from guidance provided by the city's legal counsel on the issue, the law firm of Strassburger McKenna Gutnick & Gefsky, Ravenstahl said that UPMC failed at least three of those tests.

"UPMC donated less than 2 percent, and perhaps less than 1 percent, of net patient revenues to patients eligible for financial assistance," said Ravenstahl, who called that "unacceptable."

Ravenstahl also faulted UPMC for "participat[ing] in massive advertising campaigns" and for shuttering hospitals in the South Side and Braddock, while opening or acquiring facilities in the suburbs. "They've closed facilities in underserved areas and moved to more affluent areas," said Ravenstahl, who said that proved UPMC's actions "do have a for-profit motive."

UPMC has not yet responded to the suit, but the hospital giant did have harsh words for the city in a Tribune-Review story previewing Ravenstahl's action this morning. A spokesman told the paper that the challenge "appears to be based on the mistaken impression that a nonprofit organization must conduct its affairs in a way that pleases certain labor unions, certain favored businesses or particular political constituencies -- in other words, the way that some local governments are also run." UPMC also noted that it does pay tax on nearly half the property it owns.

Still, a Strassburger McKenna legal opinion, which the city handed out to reporters, argued that UPMC ran afoul of several legal tests to see whether a charity was operating with a profit motive. Among them was whether the organization deliberately structures operations to generate substantial profit, whether it fails to dedicate surplus revenue to charitable purposes, whether it engages in anti-competitive practices, or pays excesses compensation to execs. "Every one of these circumstances appears to be present in UPMC's operations," the opinion argues.

Indeed, a leitmotif of the suit, and of today's press conference, was the accusation that UPMC execs are 1-percenters. The lawsuit charges that UPMC CEO Jeffrey Romoff "occupies among the most expensive office space in the City of Pittsburgh, enjoys a private chef and dining room, chauffeur, and private jet." UPMC's foes, including longtime critic state Sen. Jim Ferlo, also faulted Romoff's salary, and that of other high-ranking execs. Ferlo charged that 20 UPMC execs made over $1 million last year, while Romoff himself made $6 million, while fighting union drives. "I think it's important that we care for the people who care," Ferlo said.

Ravenstahl stressed that he would not be pressing similar lawsuits against other nonprofits, because UPMC was in a class of its own. For one thing, "They're ... the largest recipient of charitable tax exemptions." Ravenstahl estimated that UPMC receives $200 million annually in tax breaks from federal state and local governments -- including about $20 million in exemptions from city property and payroll taxes. Later, he added that while the city had reviewed the status of numerous nonprofits, UPMC was "the only entity that is operating outside [its nonprofit] mission."

In many ways, today's events mark a remarkable turnaround for Ravenstahl's relationship with the healthcare giant. His brother, Adam, worked for UPMC's health plan before he became a state representative. And one of Ravenstahl's signal achievements -- his early advocacy of the Pittsburgh Promise scholarship program -- was boosted by a multi-million-dollar contribution from UPMC. Even today, Ravenstahl praised that contribution, which he said he was "very thankful for." (When asked about the possibility that UPMC would respond to his suit by yanking Promise funding, Ravenstahl said "I can't concern myself with that," and added "nothing would be less charitable than that." Threatening such a move, he said, would "make our case even stronger.")

Ravenstahl recently dropped a reelection bid, and while at the time he said that doing so might free him up to take some larger battles, he said today that his decision to drop out played no role in his decision to take on UPMC. (He also joked that a job there was probably now "not on the list" of career choices for him.) Still there was a political subtext to the event.

Ravenstahl was joined by several public officials, not all of whom spoke. Among them were county controller Chelsa Wagner, Pennsylvania Democratic Chairman Jim Burn, several city councilors, and one mayoral candidate ... Michael Lamb. Absent from the event was City Councilor Bill Peduto, who is seeking to replace Ravenstahl as mayor. Peduto later told reporters that he was not invited to the press conference, but supported the lawsuit as a "good first step." He said that as mayor, he would continue challenging UPMC in court, but added that he thought that the city should apply the "same measuring" stick to other nonprofits. "It's a matter of tax fairness," he said.

Also absent from the event was Peduto's political ally -- and frequent Ravenstahl foe -- Allegheny County Executive Rich Fitzgerald. Fitzgerald has raised his own concerns about the propriety of some UPMC tax exemptions; his office issued a statement saying "it would be inappropriate for us to comment" on the lawsuit, as the county is conducting its own review of 2,800 parcels of tax-exempt land. "We will make decisions on these exemptions based on the facts presented to us and the law that governs tax exempt status," the statement adds.

Lamb did not speak at the press conference, though he later issued a press release focused mostly on unionization efforts at some UPMC hospitals, as well as UPMC's alleged violations of labor law. "I stand with our City in holding UPMC accountable to Pittsburgh and the working families who call it home."

Another mayoral candidate, Jack Wagner, said that while he couldn't comment directly on the lawsuit's merits -- "I would first like to study it, and to have my lawyers review it" -- the mayor "has every right to challenge UPMC's status if in his opinion they are not meeting the legal qualifications." Wagner noted that concerns about UPMC dated back to his own 1980s-era stint on city council.

SEIU Healthcare, which is at the heart of the current unionization drive, has not endorsed a candidate in the mayor's race. Yet.



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