Issue Summary (Updated January 2010)

Pittsburgh's Tuition Tax

The Issue:

In order to generate $15 million for Pittsburgh's severely underfunded pension plans, the Mayor proposed levying a 1 percent tax on students attending post-secondary institutions in the City, calling it a taxable privilege permissible under the state's local tax laws. 

What We Know:

It its revised recovery plan, the Act 47 team recommended that the City find more money to meet its annual pension obligations.  One of the possible methods of raising revenue was to levy "legally enforceable charges and fees" on college students, hospital patients, all day parking, and water use by non-profit institutions.  The Mayor embraced the idea of a post-secondary educational privilege tax, dubbed the "Fair Share Tax" as a way of tapping into the college and university community that he and his allies on Council believed consumed City services without paying for those services.  The Mayor and his allies also used the debate over the tax to raise issues about the non-profit sector in the City in general, specifically the level of voluntary contributions made to the City by colleges, hospitals, and other non-profit organizations.

The problems with the tuition tax were numerous.  First was the question of its legality as a privilege subject to taxation under Act 511.  The courts would have heard lengthy arguments over whether the Legislature intended such an activity to be taxed by local government.  Second was the fact that the 1% tax would have affected college students differently based on the cost of tuition paid.  The implication would be that a student attending a high-priced university like Carnegie Mellon placed more of a burden on City services than a student attending Allegheny County Community College.  Third was the fact that the tax would have applied to students attending for-profit trade and vocational institutions which pay property taxes (and build that into tuition) and students that may either live in the City (paying property taxes directly or indirectly) or work in the City (paying the local services tax and possibly the wage tax if they live in the City).  Lastly the tax-and the overall discussion of the non-profit contribution level-ignored the fact that universities and colleges already provide a significant number of services to students or remit payments to the City for such services. 

After many delays and instances where it looked like Council would take a vote on the measure, the tax was tabled on December 21^st in return for voluntary payments by colleges and universities and possibly some large Pittsburgh corporations.  These entities have pledged to work with the City to lobby the Legislature for more revenue for the City.  In the meantime it is possible that the Legislature would move to end the possibility of post-secondary privilege taxes by making a specific prohibition in the local tax law. 

Recommendations:

While the college and university community is to be saluted for its work against the tuition tax it should not be too eager to search for another party to tax.  After all, there is plenty of evidence that more taxes (RAD, payroll, Local Services) or more grants and economic development projects won't cure the City's ills if it cannot control its spending. 

It would also be advisable for the City and the non-profit community to enter into an agreement that would allow for a third-party to undertake a study to find out what type of costs the non-profit community places on the city and the benefits they deliver.  If the costs are greater, then the non-profits would have to make up the difference.  If the benefits are greater, then the annual discussions over non-profits would have to cease. 

And the Legislature ought to think about the local tax law to spell out clearly what can and cannot be taxed.  It might even be preferable to compile an exhaustive list of taxes under which a municipality can select a number (three of five, seven of ten, etc.) to levy taxes upon.