Wednesday, December 26, 2007

Kalamazoo Results: Can Pittsburgh Expect Same?

Local Wage Tax Might Be Achilles’ Heel

The Kalamazoo Promise was announced just about two years ago. The program is in its infancy and data regarding its performance is just starting to be compiled. Some say the early data shows mixed results. Others are delighted with indicators they say are far more positive than expected. But good, bad or mediocre, most everyone in Pittsburgh is looking to Kalamazoo as a barometer of what we can expect here. As usual, our expectations are high.

At first glance both cities and their Promise programs look similar enough to anticipate similar results. Unfortunately, it turns out there are a couple of itty-bitty differences between the two that might not bode well for Pittsburgh.

Specifically, Kalamazoo’s Deputy Treasurer, Wayne Nelson, confirmed to the Pist-Gazette that neither Kalamazoo nor any of its surrounding municipalities has a local wage tax. More important than whether a wage tax exists is the fact that there is not a wage tax differential between Kalamazoo and its neighbors. Pittsburgh, on the other hand, has a wage tax of 3% and is surrounded by townships who tax at a rate of only 1%. This 2% difference will immediately diminish the monetary incentive put forth by Pittsburgh’s Promise.

Mr. Nelson went on to say that the sales tax rate is uniform throughout Michigan and (very important) “the Kalamazoo Public School District encompasses an area substantially beyond the boundaries of the City of Kalamazoo, so a significant part of the district lies in a developing suburban area west and southwest of the city.”

Well that’s an eye-opener. Kalamazoo suburbanites do not have to move to city center to take advantage of their Promise because their Promise applies to schools in the suburbs! Additionally, any person or business relocating to Kalamazoo from outside the area to take advantage of The Promise can either move within the city limits or out in the “developing suburban area west and southwest of the city” that Mr. Nelson speaks of.

Mayor Luke “Big Picture” Ravenstahl cites Kalamazoo’s success as he stumps the city in support of tax credits for UPMC. The health care giant presently pays $1.5 million per year to the city and it now wishes to re-direct those monies to The Promise. Ravenstahl is steadfastly unconcerned by the budget hole this diversion will leave because he says new taxes from new people moving to the city because of The Promise will offset the $1.5 million loss in the short run. And in the long run? Well, he believes this may just be the economic catalyst this city needs to turn itself around.

Wow. Could this possibly be? Has Kalamazoo done that well?

Bob Jorth, executive director of the Kalamazoo Promise says, “Kalamazoo has welcomed 400 new families because of the Promise.” Even though his comment does not make it clear, and even though he was probably talking about the gain realized by the entire Promise area, let’s assume Mr. Jorth is speaking of a gain to the city of Kalamazoo alone. Let’s also further assume this gain was realized in just one year, not the two their Promise has been active.

Would 400 new families to Pittsburgh make up the “short term” loss of UPMC’s $1.5 million? Well, a little basic arithmetic tells us we’d need 1000 NEW families earning $50,000 per year paying 3% wage tax to make up for the UPMC loss. In other words, we'd need 1000 new families just to bring us back to where we were before UPMC diverted their monies. Family 1001 would be the start of our economic revitalization.

Can Pittsburgh lure over 1000 new families to Kalamazoo’s 400 when we’re handicapped by higher wage taxes than our surrounding neighbors? Handicapped by a school district which stops at our city limits instead of reaching into a “developing suburban area west and southwest of the city” like Kalamazoo enjoys? Has Luke or anyone in his administration run numbers such as these? Does Luke or anyone in his administration have a game plan or does he just defer these types of decisions to his campaign contributors?

From the onset, the Pittsburgh Promise debate has been framed in terms of adages. Rather than fight the trend, I’ll embrace the format as I conclude my thoughts.

This may not just be a case of looking a gift horse in the mouth. Or not appreciating who butters which side of what bread. It’s not even a matter of deriding a half-full glass for its half-empty portion. It may instead all come down to our ability to not only lead that gift horse to water, but also force him to drink as well. In the meantime, we’re going to have to cook the books so well done that apples and oranges will appear to be one and the same. As for Peter and Paul? Neither will know if they’ve been robbed, neither will know if they’ve been paid. Hopefully a few kids will actually get a college education out of the whole confusing mess. I'm no longer certain, but I think that’s what inspired the $100 million "gift" in the first place.


Anonymous said...

UPMC drops tax credit bid
Goes forward with pledge of $100 million to Promise
Thursday, December 27, 2007
By Matthew P. Smith, Pittsburgh Post-Gazette
Citing the controversy that has embroiled its $100 million pledge for a city high school scholarship program, the University of Pittsburgh Medical Center yesterday said it was dropping its request for a possible tax credit in exchange for its commitment to the Pittsburgh Promise.

On Dec. 5, UPMC said it would give $100 million over 10 years to fund the Pittsburgh Promise, an effort by the city and the Pittsburgh Public Schools to ensure that city high school graduates have the money needed to go to college.

Several days after the much ballyhooed announcement, Mayor Luke Ravenstahl on Dec. 17 asked City Council to ensure that if UPMC was ever required to make payments to the city, it would get what a proposed resolution calls a "tax credit equal to certain payments which may be made by UPMC to the Pittsburgh Promise."

His request generated controversy and drew immediate criticism from City Council members who balked at the idea of giving the medical giant a tax break. There was no mention of a tax credit or tax break at the time UPMC made its pledge to the Pittsburgh Promise.

Last week, the city school board voted to give UPMC possible tax credits in exchange for its commitment. But City Council members have balked at passage and called for a public hearing on the matter.

In a statement yesterday, however, UPMC said it was waiving the tax-break condition and would make its initial $10 million contribution and $90 million in matching donations to the Pittsburgh Promise.

Jeffrey Romoff, UPMC president and CEO, said UPMC was waiving the provisions of its commitment that would have required City Council approval.

"The initial outpouring of enthusiastic support for The Pittsburgh Promise speaks to its immense value to the community and our children," Mr. Romoff said. "With our decision to move forward without requiring City Council approval, we ask that everyone refocus attention on what is truly important -- building and sustaining widespread and financially significant public support for The Pittsburgh Promise, which is essential for the program's success."

City and school officials said the tax credit agreement would be invoked only if the state Legislature or courts took the unlikely step of taxing nonprofit organizations such as UPMC or required them to make payments in lieu of taxes.

By removing its requirement for Council approval, UPMC believes it has eliminated the source of controversy surrounding its commitment, UPMC's statement said.

"We believe it is more important to move forward with the program than to worry about a hypothetical situation, which is highly unlikely to arise," UPMC general counsel Robert Cindrich said in a statement.

Pittsburgh Public Schools Superintendent Mark Roosevelt said last night he was pleased to hear that UPMC had moved to end the controversy surrounding its pledge.

"It certainly should put it (controversy) to rest but I didn't think there was anything to put to rest in the first place," Mr. Roosevelt said. "There was a slim chance of them being taxed anyway.

"I think their comittment to the promise is very real and I think it got labeled as something else."

Mr. Ravenstahl could not be reached for comment last night.

UPMC said it would continue contributing to the Pittsburgh Public Service Fund, which the city established to seek money from nonprofits to bolster its finances. UPMC has voluntarily given around $25 million to the city since the mid-1980s, including $1.5 million a year the last three years. The nonprofit will give another $1.5 million in 2008, according to Mr. Cindrich.

UPMC said it could withhold its contribution to Pittsburgh Promise if the hospital system encounters a deficit in any year. UPMC earned a record $618 million in fiscal 2007.

"We encourage business leaders, foundations and individuals to join us in attaining the dual objectives of The Pittsburgh Promise: making higher education achievable for Pittsburgh's public school students and their parents, and enhancing the growth, stability and economic development of the City by providing a substantial incentive for families with school-aged children to reside in the City," said Mr. Romoff.

Matthew P. Smith can be reached at or 412-263-1738.
First published on December 27, 2007 at 12:07 am

Anonymous said...

Nice to see this controversy come to the end. Looks like the Council still has some juice left in it. The promise is funded. The city get's its $1.5 Million. Kids get to go to college. I am sending my check to the promise today. Results? Well, that takes a commitment on everyone's part to make sure it produces results. Shovels don't dig by themselves, they need people to empower them.

Char you in too?

Schultz said...

I would like to see the city drop the wage tax one percentage point to around 2%, and, institute a commuter tax that would amount the the difference between the commuter's local tax (usually around 1% or slightly higher) and the city's 2% tax. This makes it a little less inticing to choose communities such as Dormont over a city neighborhood such as Brookline or Beechview.

Until a change like this happens I'm not counting on the promise to be a huge hit due to the cost of moving into the city, the lack of quality public high schools in the city, and the lack of affordable housing throughout the city.

While most suburanites and their representatives would be against this plan, I say to them to suck it up and take one for the team. This commuter tax is a chance for all of us "Pittsburghers" to join forces in rebuilding the flywheel of the region - the city of Pittsburgh.

Who's with me on this?

Char said...

I'm sure you know, Schultz, that Pgh does not have the power to enact a commuter tax. That was one of the Act 47 controversies.

And as for shovels that dig themselves..... Yes I am happy to give to this worthy cause. Because The Promise really is a worthy cause.

But while UPMCs gift is a generous one (it really really is), and so is Anon's contribution, and anyone else who follows ......I'm just disappointed that the program's structure will do nothing to revitalize the city's economy. No suburbanite will move here until the Promise is a Guarantee (like Kalamzoo's is)and until the amount they receive is worth the extra taxes and aggravation they're going to be hit with just for moving here.

City dwellers out there ....Would you move here now with the hope that you *may* receive something more than what you paid in extra taxes, 13 years from now, when there is NO guarantee that the program will even be around at that time?

Suburbanites out there ... Have you been enticed?

Ron said...

Don't forget that the road was paved by the Kalamazoo Compact, which created a tax sharing district to level the delevopment and governing playing field in the Kalamazoo area. It is comprised of Kalamzoo, the older town that bears the burdens of regional infrastructure and institutions, and Portage, which is in the new sprawling area that creates the lion's share of new tax revenue.

That sets the stage for a cooperative effort to raise the water under both boats. Why couldn't the Pittsburgh Promise apply to all transitional communities? Come on, Highmark, US Steel, Heinz, BONY/Mellon, et al!

Char said...

Great points Schultz, Anon & Ron. Maybe we need to form a band of "respectful" citizens to prod/work with some government official(s) or big-wigs who are interested in maximizining an opportunity such as this to its fullest potential for the betterment of the city and region.

I say "respectful" because I don't think this is the time or the place to beat UPMC over the head about health care costs. Nor do I think we should approach this in a manner which would take any thunder away from Ravenstahl, Roosevelt, UPMC .... whoever deserves the credit for getting this thing going.

Its just such an amazing opportunity to help this city on so many fronts and it obviously needs to be tweeked and modified so as to live up to its fullest Promise.

Who do you think would be receptive to this AND have the gravitas/respect of Heinz/Mellon/etc AND also not immediately derail the process by their very presence due to political wars? Many of our local politicos are so childish and petty they'd just torpedo any effort that didn't come from their office. And they're not too good at "sharing" either. Who could be an advocate as well as a uniter?

Peduto? Sheilds? Ravenstahl? Roddy? Onorato? DeSantis?

Who could "we" approach should "we" decide to do so?