UPMC Pinnacle has agreed to make voluntary contributions in lieu of property tax payments to the South Middleton School District at least through the year 2022-23.

The school board Nov. 20 approved a five-year education contribution agreement with the health care system regarding the tax-exempt status of its Pinnacle Health Carlisle Regional Medical Center property at 361 Alexander Spring Road, South Middleton Township.

Under the agreement, UPMC will pay the district $500,000 on or before July 1 for the 2018-19 year. The annual contribution will decrease to $400,000 on or before July 1, 2019, for 2019-20. Following that, the contribution will decrease to and stay at $225,000 for the years 2020-21, 2021-22 and 2022-23.

The five-year term runs from July 1, 2018, to June 30, 2023. From that point, the annual contribution will remain at $225,000 and the agreement will automatically renew for successive one-year terms unless the school district or UPMC Pinnacle provides a notice of their intention not to renew six months prior to the latest expiration date.

In recent years the district received about $700,000 in tax revenue from the hospital, which was the single largest taxpayer in South Middleton Township. The township and school district share a common geography.

The district was advised this year of the pending merger between Pinnacle Health and the University of Pittsburgh Medical Center. In October, UPMC Pinnacle made its case before a tax appeals board for nonprofit status for the hospital, which would make it exempt from having to pay property taxes to Cumberland County and the district.

Rather than wait for this outcome, South Middleton school officials reached out to Pinnacle to negotiate a PILOT or payment in lieu of taxes agreement.

“We were the first school district of those affected to step up and proactively meet with Pinnacle,” said Michael Berk, South Middleton School Board president. “We wanted them to understand the concerns of the school district and what impact the loss of tax revenue was going to have on students and the educational program.”

It has been the consistent practice of the health care system to negotiate with school districts impacted by efforts to seek tax exempt status for its hospitals and other buildings, Berk said. “We knew they would be at least willing to sit and discuss terms with us.”

“We have a strong history of entering into community contribution agreements with local municipalities and school districts to support education, needed infrastructure and safety improvements in the community,” said Kelly McCall, public relations director for UPMC Pinnacle. “This agreement with South Middleton School District supports those important services and reflects our ongoing investment in building healthier communities through our support of community wellness and preventive programs, public health education, charitable care and other outreach programs.”

Talks began this summer between the senior vice president of administration for UPMC Pinnacle and the school district solicitor and top administrators. Negotiations ended in October and the school board approved the agreement on Nov. 20.

“None of us were happy by the loss of the revenue,” Berk said. “I think the agreement was probably the best we could have hoped for. Everybody was resigned to that fact.”

At the very least, the negotiations resulted in a gradual reduction in revenue from the Carlisle Regional Medical Center rather than a rapid reduction in just a year or two, he said.

“We were able to spread it out over a five-year period,” Berk said. “It’s going to have an impact on the district. That is something the board is really going to have to study and work with the administration to deal with the loss of revenue.”

The agreement calls for each voluntary contribution to be paid in one payment directly to the district business manager. The district has the right to accrue a late charge on any unpaid balance.

Under the terms, the district agrees the Carlisle Regional Medical Center should be exempt from the property tax. By signing it, school officials affirm the district will not contest the determination that the hospital is entitled to an exemption under the state constitution and the Pennsylvania Institutions of Purely Public Charity Act.

As of Wednesday, Nov. 29, UPMC Pinnacle officials have approved the agreement, but have yet to sign the pact. “It should be in the coming weeks,” McCall said.

Email Joseph Cress at jcress@cumberlink.com.