Tuition Tax Off the Table

December 22, 2009

Pittsburgh Mayor Luke Ravenstahl put his proposal to impose the nation’s first college tuition tax on hold indefinitely Monday as two universities and a nonprofit health insurer committed to make new financial contributions to the city.

In exchange for dropping the 1 percent “Fair Share Tax,” the nonprofits have agreed to donate to the city and be part of a broad-based effort to revitalize Pittsburgh’s economy and solve its longstanding fiscal challenges. They will also work to lobby Pennsylvania lawmakers on issues of concern to the city.

Both sides gave a bit in a dispute that was closely watched by higher education leaders nationwide, many of whom were worried that the tuition tax idea might spread to their municipalities. The leaders of the city's colleges and universities, who had vowed not to negotiate any deal to kick in new contributions to the city while the tax plan was in play, appear to have become engaged in those the discussions. As state legislators moved to ban taxes on tuition, the mayor, who vowed to keep pushing for it, backed down just as his opportunity to leverage the situation was disappearing

“This is a leap of faith for us all -- the future of our city and of our citizens is riding on it,” Ravenstahl said at a Monday morning press conference, hours before the City Council could have voted on the tax plan. “But it is a leap of faith that, if successful, will result in the revenue … that Pittsburgh needs to solve our legacy cost problem,” the $15 million the city needs each year to keep its once-mismanaged pension fund alive.

Three of the city’s largest nonprofits -- Carnegie Mellon University, the University of Pittsburgh and insurer Highmark -- have committed to give “their largest individual contributions to the city of Pittsburgh,” Ravenstahl said, and other gifts may may follow from some of the city’s other nonprofits. No specific pledges were made by the other 8 universities in the city.

The Pittsburgh Council on Higher Education (PCHE) had vowed it would not agree to new voluntary contributions to get the threat of a tuition tax off the table and, said Jared L. Cohon, Carnegie Mellon’s president, the city’s 10 colleges and universities had not given in to that threat. “It has to be understood, we’re not pledging a contribution in order to get rid of the tax, we are prepared to pledge a contribution because the tax has been gotten rid of,” he said Monday.

With the dropping of the tax plan and the committed donations, Ravenstahl said, "for the first time in my memory, we stand united as one city in a new Pittsburgh collaborative that recognizes Pittsburgh's needs and is committed to working together to finding solutions.”

Mary Hines, president of PCHE and Carlow University, said in an interview that the resolution is “very good for us and for the city of Pittsburgh.” The contributions, she said, are “transitional and short-term” as the city moves from expecting voluntary infusions from nonprofits to some other model of support.

But the magnitude of the offerings is unclear. Neither the universities nor the city would say how much would be contributed. When asked how much they had offered, Hines replied: “I truly do not know the numbers.”

The contributions given by the city’s umbrella foundation, the Pittsburgh Public Service Fund, totaled $14 million in that period. About $10 million of that total came from the University of Pittsburgh Medical Center, which shifted its most recent gift to Ravenstahl’s Pittsburgh Promise college scholarship program. Education and health care nonprofits had offered a $5.5 million contribution in March that the city never accepted. All that’s known is that these are each institution’s largest-ever contributions.

A resolution to the conflict, not a one-time contribution, Hines stressed, was what Ravenstahl truly needed. Facing dismay from students and college leaders and a bill in the state House of Representatives that would have banned localities from taxing college tuition, “the mayor recognized that this tax wasn’t going to work,” she said. “He realized that he needed to put together a coalition of people from a variety of segments of the community to help him craft long-term solutions for the city.”

The details of the coalition are still to be determined, but Hines said she thinks it will “examine structural changes that would help the city of Pittsburgh meet its financial goals.” Ravenstahl framed it as solving the city’s current wave of fiscal problems “once and for all.”

Both Ravenstahl and higher education leaders have committed “to a renewed effort to using the strengths of our students and our schools to rebuild and to grow our city,” he said. “We will embark on a reinvigorated strategy to make sure that the students who go to our schools stay here, buy homes here, start families and businesses here.”

Robert M. Berdahl, president of the Association of American Universities and former chancellor of the University of California at Berkeley, said he thought Pittsburgh’s colleges and universities had already “made great contributions to the city – Pittsburgh wouldn’t be Pittsburgh if it weren’t for these universities … and the enormous revenues they bring to the city” in various forms.

Cohon, Carnegie Mellon’s president, said in an e-mail message to students, faculty and staff that the university had “pledged increased financial support to Pittsburgh and a willingness to assist the city in seeking help from other organizations.” He added: “While times are difficult financially here and elsewhere, we are doing this because of the city's great need and our belief that the city's progress over the past 25 years has been built on partnership.”

Kim Griffo, director of the International Town and Gown Association at Clemson University, said she thought both sides would begin to pay closer attention to the monetary value of the contributions they made to each other.

“You’re going to see more higher education institutions communicating their contributions outwardly,” she said; for example, making it known how many hours faculty had spent serving on city planning commissions or school boards. “And cities need to do it as well, making it clear what services they contribute to colleges and universities that they aren’t being directly compensated for.”

Pittsburgh, Griffo added, “took the lead on facing a tough issue and has begun to resolve it.” The rest of the country “is going to look to them, see how they worked it out and come to their own resolutions.”

For some municipalities, that might mean a tuition tax, she said, “and in a place where there isn’t such a strong group of nonprofits, it may pass.”

Though Pittsburgh avoided actually setting precedent for a tuition tax, it has set the precedent for municipalities to take actions that challenging higher education’s traditional contributions in order to squeeze a little more out in a tough economic climate.

“Because the universities were in a sense coerced into giving contributions to the city they hadn’t anticipated or planned for,” Berdahl said, “copycatting could still happen in terms of pressure, in the best sense of the word, or in the worst sense it would be extortion.”

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