With $220M off the tax roll, Scranton officials move to verify tax-exempt status of nonprofit- and government-owned properties

Jeff Horvath, The Times-Tribune, Scranton, Pa.
·4 min read

May 31—With almost 6% of Scranton's 27,000-plus parcels off the tax rolls, city officials want to hire a firm to verify the tax-exempt status of nonprofit- and government-owned properties.

The roughly 1,622 tax-exempt parcels account for nearly 37%, or about $220 million, of Scranton's $598 million total assessed property value.

"Fundamentally, it's about fairness," Mayor Paige Gebhardt Cognetti said. "Whether it's real estate taxes in this case ... or any type of tax or fee, we want to do everything we can to make sure that we're assessing taxes and fees as fairly as possible in the city."

Scranton recently issued a request for proposals seeking the review of nontaxable properties, with responses due back June 8. The move is a first for the municipality with the highest tax burden in Lackawanna County.

Proposals should detail how firms will verify the appropriateness of a property's nontaxable status and review if agreements exist where for-profit entities may be operating on tax-exempt properties. Firms are also asked to describe how they will resolve issues of questionable tax exemptions, including potential challenges, litigation and appeals.

"It's been something that we've been wanting to do for quite some time," Cognetti said. "It is a really big undertaking to go back and look at all those tax-exempt properties and run a robust process that assesses whether the list is correct. Then, of course, that big next step of analyzing it and then the biggest step of all, which is to make those changes. I'm sure there will be some entities that no longer qualify for tax-exempt status."

The review could result in more property tax revenue to a city that's seen its total assessed valuation decline in recent years, as well as to the Scranton School District and Lackawanna County.

Scranton lost about $8.3 million of assessed value between 2019 and 2022, resulting in a 2022 loss of almost $590,000 in property tax revenue. The city raised taxes 2% this year partly to address the valuation decline.

The review must comply with all federal and state constitutional and statutory requirements, as well as applicable case law, the city's RFP notes.

Officials anticipate the review will include the five-prong "HUP test" to verify the tax-exempt status of property owned by nonprofits. The test gets its name from a landmark 1985 state Supreme Court decision in Hospital Utilization Project v. Commonwealth, which established the criteria an organization must meet to qualify as a tax-exempt charity under the state Constitution.

The state Legislature then passed in 1997, the Purely Public Charities Act, commonly known as Act 55, which incorporated the HUP test but defined what constituted each criteria. An organization must satisfy the HUP test to be eligible for a tax exemption under Act 55.

The tax-exempt verification process is an example of the city doing its due diligence on behalf of its taxpayers, Scranton Finance Director Matthew Domines said. He provided a list of the few nonprofit entities that make voluntary payments in lieu of taxes, or PILOTs, to the city.

Scranton collected just $283,003 in PILOT payments last year and this year received $164,312 in PILOTs as of May 24.

Cognetti said she expects Scranton to be more successful in requesting PILOTs after "we have proven that we've done the work to show that the tax-exempt entities are really tax-exempt."

The city will join Pittsburgh, which is undertaking a similar review process of its tax-exempt properties.

Pittsburgh Mayor Ed Gainey announced in late March that the Steel City would challenge the tax-exempt status of 26 properties amid its ongoing review, including houses, office space and parking and vacant lots. The owners don't meet the purely public charity test and/or the properties don't serve a charitable purpose, Pittsburgh officials said.

The list includes property owned by UPMC, the University of Pittsburgh, Carnegie Mellon University and Allegheny General Hospital.

"You don't hope that there are people out there skirting taxes," Cognetti said. "But you also do hope that we will be in a position to gain real estate tax revenue."

Contact the writer:

jhorvath@timesshamrock.com; 570-348-9141;

@jhorvathTT on Twitter.