Pittsburgh’s Transformation Sparks Criticism About ‘Nonprofit Industrial Complex’

The growth of nonprofits including hospitals, universities, philanthropic foundations and environmental groups, has long garnered its share of criticism. Activists, according to one author, “Traded in grand visions of social change for salaries and stationery . . . and ceded control of their movements to business executives in boardrooms.”

One city in which this debate over the “nonprofit industrial complex” is currently raging is Pittsburgh, which has long been touted as an example of a Rust Belt city that has done just about everything right to become one of America’s leading twenty-first century “smart cities.” The city of 303,000 has become a leading green building hub; thanks to its leading universities, it is now a living next-gen laboratory for technologies such as self-driving cars; and its local leadership has long been proactive on issues such as climate change.

Much of Pittsburgh’s success and quality of life is due to local NGOs and foundations, which of course showcase names such as Mellon, Carnegie and Heinz.

Furthermore, in Pittsburgh (and in many cities), these nonprofits also dominate the local economy, especially as many are within healthcare and education – and in turn, they rank amongst the city’s and surrounding county’s largest employers. As a result, these nonprofit institutions, according to a Pittsburgh Post-Gazette investigation, employ roughly 20 percent of local workers, control 10 percent of real estate and own assets at a level that would have made the Gilded Age barons who once dominated Pittsburgh blush.

The result, says Post-Gazette reporter Rich Lord, is that these nonprofits dominate Western Pennsylvania’s government, economy and development. And because of tax regulations, they are also exempt from property tax – while they receive hundreds of millions of dollars in government grants and many are led by executives who receive salaries on par with those who head private or publicly-owned corporations.

But it is the property tax issue that riles up critics of these nonprofits’ influence across the greater Pittsburgh region. The Post-Gazette tallied up the revenues of the 64 largest non-profits within 50 miles of downtown Pittsburgh, and found their revenues are approximately $29 billion – not far behind Pennsylvania’s state government total revenues of $31 billion.

Allegheny County, however, forgoes about $48 million in taxes annually – funds that could be spent on schools, on infrastructure, or allow for a 12 percent reduction in every Pittsburgh resident's property taxes.

Nonprofits and their supporters, including Pittsburgh’s mayor Bill Peduto, counter that the economic benefits these nonprofits provide, from jobs to payroll taxes to research and development, far outweigh any breaks they may receive come tax season. “They’re the major employers in this town. They are the economic engine, and in some ways, within the city, the economic rudder as well,” Peduto explained to Lord in an interview.

The often-murky details that surround these nonprofits’ real estate transactions, however, brings up the argument that many of these organizations are not being transparent about the deals they arranged to build new university campus facilities, housing or research centers – even if they are being done in the name of sustainable development. Lord’s article covers several questionable case studies, including a private-public partnership that build affordable housing units at a questionable cost of $400,000 each. A charter school formed a non-profit for the space in which it rents, scoring subsidies it would not receive if it owned those buildings. And a coalition of nonprofits has taken 15 years to redevelop a former industrial site, when a private developer arguably could have done the work much more quickly.

Meanwhile, an understaffed IRS has done little to ensure nonprofits-at-large are actually holding these organizations accountable – and when they do investigate, as was the case in 2014, 31 percent of them have been penalized, lost their tax exemption or had their status revoked.

The result, says Steve Dubb of Nonprofit Quarterly, is that these organizations must be more forthcoming about their financials and dealings. “More fundamentally, though, it is critical that nonprofits show leadership in stepping up to use their increased economic power responsibly,” said Dubb in calling for these organizations to be clearer about their anchor mission – in other words, demonstrate to stakeholders how they will leverage their economic clout fairly and responsibly.

Pittsburgh is still struggling with a high poverty rate, almost 10 percent higher than the national average. The social good these nonprofits insist is part of their mission has still excluded many residents from the city’s renaissance. But with once-mighty U.S. Steel not even within the top 10 leading employers in Pittsburgh, these nonprofit medical and educational organizations (or “meds and eds”) have nonetheless filled in the gap left by the city’s declining manufacturing base.

“Although some parts of the nonprofit industrial complex may have room for improvement, on balance the collaboration has helped, and continues to assist, the Pittsburgh region with transitioning from an economy based on heavy manufacturing to a more diversified one in every sense of the term,” said a spokesperson for a green building nonprofit during an email exchange with TriplePundit.

Image credit: Brook Ward/Flickr