Hotels Want a Tax Hike on Customers to Fund More Tourism

Summary: Legislation to increase the Allegheny County hotel tax from its current 7 percent rate has been introduced in the General Assembly. The legislation describes distribution of the revenue and the creation of a Sports Commission. Arguments for another tax increase on hotel stays are unpersuasive. In any case, there are provisions in the bill that need clarification before proceeding.

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Increasing the hotel tax in Allegheny County has been touted as a painless undertaking. In fact, the most recent proposed increase is not even being called a tax—rather a “tourism promotion fee”—and though backers are asking the General Assembly to authorize a 2 percent fee, they say they won’t even take that much, only 1.25 percent. The General Assembly, in this time of vehement opposition against tax increases for the state budget, is not being asked to levy or raise a tax (or fee). They are just giving permission to a county of the second class (Allegheny County) to impose a new levy. Besides, they just authorized other classes of counties to increase their hotel taxes in a similar manner in the past few years.

And while much of the news coverage has focused on the fact that the increased tax revenue will be directed toward the creation of a Sports Commission that will try to attract sporting events, including a Super Bowl, money will also be designated for other recipients. In addition to the Sports Commission, Visit Monroeville, the Pittsburgh Film Office, Visit Pittsburgh, Allegheny County and the Sports and Exhibition Authority (SEA) would get a share of the new tax dollars.

Backers say the tax will not noticeably affect the bill for a hotel stay (an additional $1.45 per day on average, more at pricier hotels) and it will fall primarily on out-of-towners. And, importantly, the hoteliers are in favor of it. Proponents’ arguments for boosting the tax rate are basically a rehash of the same arguments made for creating the Regional Asset District (RAD) tax, for the new stadiums and convention center, and when gaming money was set aside for tourism and at one point to subsidize a convention center hotel. In short, produce more and better things to do and places to visit for out of town folks who will need hotel rooms while visiting.

With $34.4 million in existing hotel tax revenues last year according to audited figures (just over $4.9 million per point from the current 7 percent tax) a 1.25 percent add on levy would have raised around $6.1 million. The money is to be held in a Tourism Promotion Fund in the County Treasury.

How will the proposed legislation allocate the new tax money? First, the Sports Commission is to create its own reserve fund to hold 10 percent ($610,000) of the revenue. The proposal states that the reserve fund cannot hold more than $3 million, to be adjusted upward by the inflation rate (perhaps coincidentally, a July 2015 article on the hotel tax noted that a bid fee for a NCAA tournament was $3 million).

After that reserve fund is opened and, assuming the first year’s collection is $6.1 million, the County Treasurer would be authorized to distribute the remainder ($5.5 million) as follows: to Visit Monroeville for tourism activities (2%, or $109,800), the Film Office for attracting film and television productions (10%, or $549,000), the SEA (18%, or $988,200), to Visit Pittsburgh to establish the Sports Commission (22%, or $1,207,800) to Visit Pittsburgh for other uses (25%, or $1,372,500), to the County Treasurer for collecting and distributing the tax (5%, or $274,500) and to the Sports Commission for carrying out specific functions (18%, or $988,200).

It is worth pointing out that the legislation does not spell out what happens if the Commission reserve fund should reach $3 million (with allowable inflation adjustment ) from the 10 percent annual allocation. Note that other recipients are to put any of their unused money into a separate reserve account in the County treasury. Nor does the proposed legislation indicate whether the money allocated to Visit Pittsburgh to establish the Sports Commission is a one-time allocation or is recurring. These provisions need to be clarified. Surely, it will not require more than $1.2 million to establish the Sports Commission.

The functions of the proposed Sports Commission deserve attention since it would be a new entity. The law specifies the composition of its 21 members as a mixture of local and state political appointees, hotel and tourism officials, and designees representing professional and collegiate sports. The Commission is to carry out three duties (not including what would be done with the reserve account, which is not specified in the proposed legislation):

1. Construction, upgrades, and maintenance of amateur sports-related tournament locations in parks throughout a county of the second class to a standard which would attract regional, state, and national sporting tournaments
2. Swimming pool upgrades for competitive tournament-level events in parks owned by a county of the second class
3. Enhancing the marketability of sports-related events in parks owned by a county of the second class to a standard which would attract hosting of regional, state, and national sporting tournaments.

Note that the RAD sales tax since 1995 has directed $464 million toward Allegheny County parks and City of Pittsburgh regional parks as contractual assets. The County’s capital budget allocation for its parks topped $5 million per year in the past three, it has allocated some of the overage of the existing hotel tax to the parks, all of which would seem to address Commission duties two and three, and the City and the many municipalities have used the funds to undertake upgrades and projects at their parks. Bear in mind too there are available locations at public schools, YMCA facilities, colleges, etc.

Then we must look at the intended purposes of the money directed to tourism agencies and the Sports and Exhibition Authority (SEA). Visit Pittsburgh received $9.8 million from the existing hotel tax in 2016 for tourism promotion (up 55 percent in the last ten years) and Visit Monroeville received $547,000 in 2016 from a portion of the hotel tax generated in Monroeville. The funds allocated from the additional levy for Visit Pittsburgh would be used for “securing future meetings and conventions for a convention center or exhibition hall in a city of the second class that provides for the use of multiple hotels” as well as transportation and operating costs associated with said meetings. Visit Monroeville will get additional funding for “marketing and advertising the area” for convention, leisure travel, and business travel. Again, this speaks to the massive efforts to build the center as a destination attraction to go along with the other cultural and recreational amenities that have been funded by state and local dollars and how those were to be a draw for tourists.

Furthermore, the share of the money directed to the SEA is the most bewildering. The law does not mention any SEA facility except for the David Lawrence Convention Center (the definition of “convention center or exhibition hall” is narrow) and the money is to be directed toward “capital cosmetic improvements to enhance the convention and sports experience for clients”. Marquees, signage, electronic information boards, and upgraded technology are part of it. So too are “stadium style seating, multiuse sports courts, and related assets to include NCAA-quality, tournament-ready equipment for various sports, including, but not limited to, basketball, volleyball, soccer, lacrosse, and other sports assets and equipment that would attract additional events”. Does this mean the convention center will become another multi-sport venue? If it is what impact will that have on its existing facilities and what does it imply for center’s intended use as a facility to host conventions, trade shows, etc.?

As our July 2015 op-ed noted, the overwhelming majority of jobs in the tourism industry are low wage jobs compared to finance, manufacturing, professional services, transportation, etc. One wonder why the City and region would focus so intensely on growing a sector that has already received so much public money for the purpose of attracting visitors to the City and County.

Wouldn’t it be refreshing if the hotel association would ask its members to establish a fund in which each member would commit an annual contribution to create a Sports Commission? If the tax is only 1.25 percent, why not just boost room rates one percent and use that for the Sports Commission. If, as the tax proponents claim, the increased tax is not going to be noticed by customers, why would they notice a tiny room rate increase? Why ask for another tax? More work for the County and Legislature and more strings and government oversight. A new tax should not be the first option in this scheme to get more sports events.

School Strike in the South Hills?

The Keystone Oaks School District has put parents on notice that there could be a work stoppage this week unless last minute negotiations are successful.  As defined by Act 88 of 1992, a strike is defined as “… a concerted action in failing to report for duty, the willful absence from one’s position, the stoppage of work, slowdown or the abstinence in whole or in part from the full, faithful, and proper performance of the duties of employment for the purposes of inducing, influencing or coercing a change in the conditions or compensation or the rights, privileges, or obligations of employment”.

A report we wrote in 2013 identified the total number of school strikes in Pennsylvania from 1997-98 to 2012-13 and measured the strike impact by students days out of class (the enrollment multiplied by the number of days out of class).In southwestern PA in that time frame the impact from 44 strikes was 1.4 million “student days out of class”.

Based on Keystone Oaks’ enrollment (2,005 in 2014-15 average daily membership) if the teachers were to go on strike a similar measurement could be calculated by taking that enrollment against the days of a strike should one occur.  Based on the data in our report Keystone Oaks did not have a strike in the time period 1997-98 to 2012-13, and has not had one in the interim.

Notes on the state of things

Here’s an unflattering portrait of government red tape:

An industry analysis of government data shows that the Pennsylvania Department of Environmental Protection’s Pittsburgh regional office takes more than 200 days to process erosion control permits for shale gas drillers.

That happens to be up from the average of 139 days in 2015.

DEP blames staff turnover, staffing shortages and greater scrutiny of permit applications, reports The Associated Press.

No matter the rationale — real or an excuse — government should facilitate growth, not retard it.

The Trump administration’s executive order relaxing Obama administration regulations on coal-fired power plants is being billed in some quarters as the way to revive the region’s coal mining industry, if not the economy itself.

But while reversing any government regulation that seeks to command the economy in pursuit of social goals is laudable, the simple fact remains that market forces likely will preclude any rush to return to coal as the power-generating source of choice.

The bottom line is that natural gas-fired power plants are more economical, for operators and consumers. You can thank the nation’s shale gas fracking revolution for the shift and the glut of product, one that has become both a boon and a bane to the shale gas industry.

Some question whether it was the Obama administration’s quest to kill King Coal that set the stage for the rise of natural gas. Most assuredly, it played some role. Energy providers had to satisfy shareholders as government regulations changed the landscape.

But the simple fact of the matter is that the shale gas revolution would have precipitated marketplace changes anyway. And if the yoke of government can be loosened, that revolution has an ever better chance of continuing.

For, indeed, and as social commentator Herbert Spencer reminded in the 19th century:

“Liberty … is to be measured, not by the nature of the governmental machinery he lives under … but by the relative paucity of the restraints it imposes on him.”

PublicSource offers some interesting salary and employment statistics about Allegheny County, based on county statistics. To wit:

Total 2016 compensation to Allegheny County’s 6,928 government employees was $301.9 million.

That included $25.2 million in overtime, paced by employees of the county police and of the sheriff’s department.

It also included more than $697,000 in bonuses.

Factoring in overtime, 471 people were paid more money than county Chief Executive Rich Fitzgerald, who was paid $90,124 last year.

While Allegheny County’s median household income is just over $53,000, the median salary of all county workers (meaning half earn more and half earn less) was just over $42,000.

Fifty-one percent of county employees are women. Forty-nine percent are men.

Eighty percent are white. Twenty percent are minorities.

Finally, and considering Greater Pittsburgh’s population malaise, as reported by the U.S. Census Bureau, this most apropos quote from the Jane Jacobs classic “The Economy of Cities”:

“Artificial symptoms of prosperity, or a ‘good image’ do not revitalize a city, but only explicit economic growth processes for which there are no substitutes.”

Read that thrice. And recall it the next time, and the times after that, you are expected to believe otherwise.

Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org

Update on Erie’s Decision on School Funding Case

Updating a blog from earlier this month, which was on the subject of the William Penn case we detailed in an October 2016 Policy Brief, the board opted to vote and join the lawsuit.  The case was appealed from Commonwealth Court in May of 2015 and the most recent action in the case was last week on matters unrelated to Erie’s decision.

The resolution approving the District’s joining of the lawsuit notes that the District has closed three schools, eliminated 200 positions and halved administrative staff and asked the Department of Education for $31 million in funding, a request that was rejected.  The resolution states that if the Supreme Court allows the case to go forward (which would send it back down to Commonwealth Court) then the District would authorize its solicitors would join the lawsuit.

 

Details on State Police Staffing

A new report on the PA State Police by the PA Legislative and Budget Finance Committee provides a nice follow up to a 2014 report on municipal police, the debate over whether to charge municipalities that do not have their own police force and rely on state police, and the issue of funding of state roads and bridges.

It is this third area that the report is most focused upon, especially the study’s finding of what is appropriate for “direct costs related to safety on the public highways and bridges”.  The main finding, as reported in a news article and on page 60 of the study, is that

Expressed in terms of highway and bridge work, if the PSP had been allocated only $532.8 million from the Motor License Fund, rather than $755 million, it would have increased the amount available in the Motor License Fund by $222.2 million. This would have been sufficient to resurface about 1,111 lane miles of urban arterial roadway or design, replace, and maintain 138 bridges for the next 25 years.

The police gets funding from multiple funds beyond the motor license fund (general, federal, state stores, and others) bringing the total to just over $1.1 billion.  The enlisted and civilian component of the state police was authorized for 6,655 positions and had 6,093 filled as of the fall of last year.

Wolf’s mixed signals on shale gas

A strange dichotomy has emerged within the administration of Pennsylvania Gov. Tom Wolf regarding the shale gas industry. And it’s increasingly difficult for thinking people to bridge the practical and intellectual chasm.

Much attention is being given to a new study — by IHS Markit — that suggests Pennsylvania has enough raw feedstock in its Marcellus and Utica shale plays to support up to four additional ethane “cracker” plants in the commonwealth. That’s in addition to the one under construction in Beaver County’s Potter Township.

That’s pretty exciting news.

Details of the study were released on March 21 by the governor and his Team Pennsylvania Foundation. The study predicts there could be additional investment of between $2.7 billion and $3.7 billion in natural gas liquid assets in Penn’s Wood.

“Pennsylvania has a once-in-a-generation opportunity to develop and implement a strategy that will cultivate a manufacturing renaissance and transform our economy across the commonwealth,” said Wolf in a news release.

He says Shell’s cracker plant laid the foundation for “a diverse and robust petrochemical and plastics industry … and we must ensure that we make the most of this chance to create good-paying jobs for Pennsylvanians.”

OK, sounds promising, reasonable and as if the administration is on top of things. With a major caveat.

In the same news release, Dennis Davin, secretary of the state Department of Community and Economic Development (DCED), set up a long list of “key priorities” to capitalize on the burgeoning opportunities of shale gas.

Among them, “proactively engaging shareholders to bring the right decision-makers and resources to the table; attracting additional infrastructure investments in petrochemical and plastics manufacturers, as well as retaining and growing Pennsylvania’s existing industry; developing pad-ready sites throughout the state to encourage investment opportunities; streamlining the development timeline and addressing potential critical infrastructure bottlenecks; and training a workforce with the right skill sets to fill future jobs created by the industry.”

But as one of the wags with whom I regularly confer reminds:

“Policies are important if we want to get the economic equation right for Pennsylvania and create an environment to attract capital,” the wag said.

But, “While it is easy to tout natural gas development through reports such as this, let’s not forget the policies on the table obstructing our ability to achieve this ‘generational opportunity’ outlined in the report.”

Among those are the proposed severance tax and onerous and/or cumbersome regulations, including the time it takes to secure permits.

But another thought comes to mind as well:

Shell’s cracker plant is billed as something of a great pump primer — replete with heavy taxpayer incentives — that will, we are told, serve as a great catalyst for economic development, not only in the shale gas industry but for ancillary industries and, thus, the Keystone State’s economy at large.

Could be. Hope so; the early report card already shows that to be happening.

But how many additional public “incentives” will be “required” to capitalize on this “once-in-a-generation opportunity”? For how long will taxpayers be asked (forced, really) to “prime” this “pump”?

If the shale gas industry truly is the be-all and end-all to economic Nirvana — and make no mistake, its possibilities truly are exciting — why should taxpayers continue to be tapped for costs, capital or otherwise, that the industry alone should bear?

As but one example, is it really, as DCED’s Davin appears to suggest, a taxpayer function (other than, say, at existing brownfield sites) to develop “pad-ready sites throughout the state to encourage investment opportunities”?

It is not. That should be the exclusive purview of the shale gas industry and private property owners with whom respective companies negotiate land and royalty deals.

Government should be a facilitator, not a developer. And Pennsylvania’s history is replete with tales of well-meaning (one would assume) but misguided (one can confirm) government officials mistaking the latter for the former.

Indeed, Pennsylvania is at the epicenter of the shale gas revolution. Fortunes will be made. And, as is the case in a free market system, some fortunes will be lost; the marketplace will reward and it will punish. That’s the nature of our economic system. (And those who fail today are free to regroup and attempt to prosper another day.)

The shale gas industry — just as any industry — must stand on its own. But it can’t do that if government sends mixed signals — one day dismissing the import of the industry and regulating it to its knees, then, the next day talking of despoiling the public of its wealth to help the industry in the guise of “economic development.”

Government that governs least truly is the best government. “Beneficent” government that overplays its hand on either side of the equation will do neither the shale gas industry nor taxpayers any favors.

Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).

PWSA Infrastructure Problems are Getting Worse

Summary: The Pittsburgh Water and Sewer Authority (PWSA) has a host of problems that will require large amounts of capital—both monetary and political—to solve.  The century old system is in dire need of replacement but the PWSA is deeply in debt and will have great difficulty raising the revenue and capital necessary to complete such a large project.

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The PWSA has been beset by problems this year continuing a trend dating back several years. This year alone the PWSA issued a boil water advisory, had a problem at a pumping station, and then a break in a water main that leaked 10,000 gallons a minute before it was diagnosed and stopped.  Repairing the break will cost an estimated $1.7 million.  This break is very worrisome as it may just be the beginning for a water system with pipes dating to the early twentieth century.

Pittsburgh’s Mayor has suggested looking to outside sources for help and has convened a panel to look into the issue.  The plan would be for the City to retain ownership of the system and have an outside firm come in that would not only manage the system, but foot the bill for replacing it.  In return this firm would be allowed to keep any revenues.  However, there are four major obstacles to this plan being successful. First, the cost of replacing the entire system (water and sewers) has been estimated to be above $2.5 billion.  Second, the system is very old—well past its design life—and as such is subject to an unknowable failure rate (and unpredictable future year capital and repair costs). Third, the PWSA has a very heavy debt load—$763 million according to their 2015 audited financial statements.  Fourth, the PWSA has had negative net income with operating costs and debt service payments exceeding revenue in both 2015 and 2016. Not exactly a resume that will have suitors beating down the door.  Who would contemplate pouring billions into an economic entity that is losing money and whose maintenance and repair costs could swell losses for years to come and long before the infrastructure replacement can be completed?

Bear in mind that the system’s oldest reservoir, Highland Park #1, was constructed in 1879 and that the system’s oldest pipes and valves date back to 1887.  It has been estimated, by an engineering firm who completed a study of the system that most of the cast iron pipes are over 70 years old—about the life expectancy of such pipes.  The water system’s inventory includes four in-ground reservoirs, twelve above ground storage tanks, the Aspinwall filtration plant, a membrane filtration plant (Highland Park # 1) and 1,012 miles of water lines ranging from one to 120 inches in diameter.  There are also 25,330 valves and 7,558 hydrants.  This inventory was compiled as part of the engineering firm report’s 40-year plan released by the PWSA in 2012.  The estimated cost to replace the entire water system (at 2011 prices) was $1.25 billion.

The engineering firm recommended a timeline at which the work would be accomplished in eight, five year periods.  Their report also recommended the PWSA embark on a program to spend $14.8 million per year to rehabilitate and replace medium to high risk mains over the next 40 years. PWSA plans $60 million in capital spending for 2017. To date however, the 40 year plan has not been implemented, with PWSA staff telling the City Controller that the 40 year plan was just a “wish list” and was not adopted as an actual plan.

While the PWSA does not process sewage, it does have conveyance lines to the ALCOSAN system.  The sewage system comprises 1,211 miles of sewer lines, 29,084 manhole covers, 24,143 catch basins, 99 diversion structures, and four sewage pump stations.  The cost of replacement for this system is another $1.26 billion.  The total bill for replacing the entire water and sewer system, as estimated in the 40-year plan, was pegged at about $2.51 billion—again at 2011 prices.

The average age of the pipes and the recent pattern of large and expensive breaks cast doubt on the 2015 audit’s $583 million estimate of the value of PWSA’s depreciated capital assets.  To be blunt, with the rapidly deteriorating, very old pipe system, it is hard to believe that the PWSA’s capital assets are worth $583 million dollars and that the net negative balance sheet position is only $36 million. The repair and replacement costs are likely to soar in the coming years making the system worth only what net income would justify and net income will likely be negative for a long time as spending rises sharply

Here is the key question: Would a water company (or any other firm) be interested in entering into an agreement to lease the PWSA with the requirement to replace the very old infrastructure in return for the right to operating revenues?

A prospective bidder would look at recent performance data as well as long term financial information. To wit, data from the PWSA’s 2017 budget shows 2015 actual operating expense ($122 million) and receipts ($172 million) for net operating income of $49.8 million. However, when debt service of $52.6 million is included (principal and interest payments) it brings total expenses to $174.8 million.  Thus the net income for 2015 was a loss of $2.8 million.  The revised 2016 budget called for a decrease in operating costs ($182.4 million, down from $185.7 million) combined with a small revenue increase ($184 million, up from $180.8 million) that would reverse the loss and produce net income of $1.65 million.

Even though small changes to costs and receipts made 2016 look better than 2015, the amount of debt service remains very high at $53.7 million.  The audited financial statements for 2015 show the PWSA with total debt (bonds and loans) of $763.3 million.

The 2017 budget is even more optimistic about revenue thanks to an approved rate increase of 30 percent for water used and sewage conveyance. The flat rate charge for the first 1,000 gallons was raised only 15 percent to $18.42 and the sewer flat rate was raised 34 percent to $6.09. Significant further increases in both water and sewage conveyance rates are slated for 2018. Meanwhile, ALCOSAN has boosted its charge for sewage treatment by 11 percent in 2017, the fourth consecutive hike that has boosted the rate to $6.90 per 1000 gallons of usage. A total monthly bill from PWSA for a residential customer using 3,000 gals of water per month and including Alcosan charges will exceed $70, up about $11 from 2016.

Total receipts are expected to increase to $218.8 million in 2017 while expenses are scheduled to increase to $151.4 million.  Thus net operating income is forecast to be $67.4 million.  With debt service budgeted at $53 million, net income will be about $14.4 million. The PWSA plans to borrow $60 million to spend on capital projects.

Projected net income at this level might be enough to entice bids to take over the PWSA, assuming the numbers come in close to budget projections and can be sustained in the face of greater expenditures in the future.  Bear in mind however, that the company would pay taxes on any profits—the authority does not have to pay income taxes. And depending on the terms of the lease, the company might have to pay property taxes as well. Then too the new operator would have to pour in huge amounts of capital to rebuild the system and having already taken responsibility for nearly $800 million in authority debt, might find borrowing more money difficult or expensive unless it has deep pockets and considerable income from other holdings.

Unless a firm is given the authority to enhance future revenue numbers substantially as needed and has the power to cut operating expenses through personnel and other changes, it is unlikely there will be serious bidders.  Even a modest 20 year plan for completion will require outlays of  $125 million per year (not including inflation and/or major cost overruns) and no significant rise in other operating costs. If borrowed in tranches and paid for over 40 years, the full $125 million per year would not have to be generated immediately but rates would have to rise sharply for several years to make the program viable wherein borrowing could occur and residential bills could double with comparable increases in commercial and industrial users’ bills. And that is before the firm makes any profit.

The City Controller in his recent performance audit echoed the engineering firm’s findings that the fix will be very costly and take many years.  He also recommended the PWSA “establish a realistic and comprehensive line replacement plan of action for both the water and sewer lines.”

In light of the severe problems and the probability of significant failures increasing with every passing year, dramatic actions are needed to keep Pittsburgh’s crucial water and sewer systems capable of supplying the City’s requirements.

One, the PWSA needs to complete interior inspection of all large pipes and then catalog the most likely to fail pipes and valves for immediate attention. They then need to create and implement a plan for replacement or upgrade for all system infrastructure and equipment older than 70 years (the average life span of cast iron pipes) or with a high probability of failure in the next 15 years.

Two, to fund these capital projects, the PWSA should put in place scheduled water and sewer rate increases to build sufficient capital reserves to complete the necessary upgrades.  Once those rate hikes has been authorized, they should look for large water and sewer firm (or other suitable management firm) to take over the PWSA.

By way of comparison, for a residential customer the Pittsburgh monthly charge for water and sewer for 4,000 gallons per month will be $90. In Philadelphia that volume will cost just over $59—with an add-on $14 storm water fee.  Seattle, DC, San Francisco are $100 per month or higher, while Cincinnati, Cleveland, Charlotte and many other cities are at $70 or lower.  In sum, PWSA is not the highest cost among the bigger cities but is moving closer to that group. And that means the needed push to raise prices and revenues will be exceedingly difficult politically.

Given the current multitude of problems at the PWSA, it is unlikely a buyer or potential partner can be found who would be willing to absorb the risks posed by the aging system and the high water and sewer charges already in place. A new management firm, without the authority to make substantial personnel and operational changes and with no ability to increase revenues significantly through rate hikes will be unable to correct the major infrastructure problems at the PWSA.

In the worst case scenario wherein a firm to take over cannot be found, the City might have to take back ownership of the water and sewer system and find new sources of revenue or divert existing city funds to supplement usage charge revenue in order to have the funds necessary to begin the badly needed replacement.

Pension Problems Hit School District

Though the title is apropos for many school districts across PA, since they are all a part of PSERS where contribution rates to the pension system have been and are climbing (see page 23 of this report), but the Norwin School District in Westmoreland (and part of Allegheny) County is possibly looking to furlough employees due to what the president of the school board of directors stated is “… ‘mismanagement’ of the Pennsylvania State Employees Retirement System years ago”.  With those contribution rates as described in the report above, Norwin’s expense for PSERS doubled from $3.0 million to $6.3 million from 2012-13 to 2014-15 based on its audit ending the 2014-15 school year.

That audit pointed out the shortcomings with Act 1 of 2006, the state’s funding scheme for K-12 districts, and PSERS funding.  It noted in its section on “major financial issues” that

Further complicating the above situation is a projected substantial increase required for the funding of the state-wide school employees retirement system (PSERS). The defined benefit plan is projecting an increase in the employer contribution rate of approximately 63% by 2016-17. For the 15-16 fiscal year the rate is 26.84%. The impact of this type of increase on the District’s budget is approximately $1.9 million over the next three years.
The District will meet this challenge by reviewing its current staffing levels, future hiring needs, and spending practices to ensure we are maximizing resources and driving efficiencies when decisions are made. We will also look at increasing our current revenues and explore alternative funding sources.

Based on the District’s real estate tax rates, the millages for both the Allegheny and Westmoreland portions have increased from where they stood in 2014-15.  Norwin is a low spender when compared to other districts on total expenditures per-pupil, with $11,867 in total expenditures compared to the state average of $15,854 that year.  It is not clear where pension reform fits in as the state deliberates its 2017-18 fiscal year budget.

Longest Tenured Act 47 Town Contemplates Future

Farrell, a city in Mercer County, was declared distressed under Act 47 in the year the statute was passed, 1987.  This coming November will mark the two decade anniversary for the declaration.  The City Manager described financial recovery as less than comprehensive “The problem with Act 47 is that they give you Band-Aids, but they do not stop the bleeding”. 

The City is tackling blighted abandoned properties and presumably will have to make a decision in the coming year on where it goes in regards to Act 47.  As we wrote in 2014, changes were made to Act 47 in order to eventually move distressed municipalities out of Act 47 status within some set time frame.  As such, “for municipalities in distressed status as of the effective date of the section, the five year period [to exit distressed status] will begin to run from the effective date of the most recent recovery plan or amendment”.   Based on an ordinance from June of 2013, the City adopted its most recent amendment to its recovery plan, meaning June 2018 would be when that decision would have to be made.  Farrell could get an extension if the coordinator recommends it, and then there is the very limited option of dis-incorporation, which would rely upon pre-conditions.

Intellectual malpractice writ large

Mt. Lebanon native and billionaire Mark Cuban says the Constitution of the United States should be amended to make “healthcare a right.”

Oh dear.

Said Cuban, the entrepreneur of some repute at a forum hosted by Axios, a new media company (as reported by PJMedia.com):

“I think healthcare should be a right. If there’s a legitimate way to modify the Constitution, I literally think there should be an amendment to the Constitution for health care for chronic illnesses and serious injury. We all play the genetic lottery.”

Cuban favors a single-payer system — government (i.e. taxpayers) pay — but “just for chronic illnesses and for life-threatening illnesses.”

As PJMedia.com tells it, “Cuban said the government-paid catastrophic coverage could lower health-care costs for insurance companies and help consumers.”

There’s a highly technical term for that assertion — “Daft.”

Cuban could see the same goal achieved — that is, coverage for catastrophic health events — by advocating for allowing health insurance to become insurance again. For insurance that pays for virtually everything is not insurance at all but a risk pool-destroying form of government welfare.

That said, real health insurance should cover only catastrophic events.

But, but, but, “How can patients ever dream of paying for their other health costs?,” critics ask.

Without insurance as “cover,” which has helped to fuel health-care inflation — think of what federal aid has done “for” higher education — competition would return to the medical marketplace and prices would drop, in many cases dramatically.

And with insurance premiums covering only those catastrophic events, premiums would drop as well. There would be no need for Cuban’s government–paid catastrophic coverage.

In seemingly the same breath, Cuban, a self-described libertarian, also says he would like to see the the size of government reduced — but use the savings to provide more government services to Americans.

Oh boy.

Here’s the full quote, in context:

“As a libertarian, I think we can reduce employment in government by at least a third, reduce the overhead and administration by that much or more so that we can offer more services for our citizens.”

So far, so good. But then Cuban said this:

“When it comes down to it, where I tend to disagree with everybody, and this is the libertarian in me, I’m happy to push down the size of government and make government more efficient because more money can pass through the government and help the people who need it.”

That’s hardly libertarianism (and it’s certainly not conservatism). Talk about intellectual malpractice writ large.

How about returning the money whence it came, Mr. Cuban, and allowing taxpayers to make their own decisions about how best to use their own money? Say perhaps for medical savings accounts?

As President Grover Cleveland once reminded, “The government is not an almoner of gifts among the people.”

Government, in all its forms, should promote and facilitate independence of the populace, not dependence.

If a government’s default position is to become the enterprise, so to speak, instead of facilitating private enterprise and personal industry by governing and regulating the least, we all are poorer.

Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org