With the predictable certainty of robins returning in spring, public sector unions in Pennsylvania have thrown down the litigious gauntlet, promising lawsuits against Governor Corbett's plans to head off a financial crisis stemming from massive unfunded pension obligations.

The unions are opposed to the idea of having new employees being placed in defined contribution pension plans but they are hopping mad over the prospect of having the formula for calculating retirement benefits changed on the future earnings of current employees.   The reform plan calls for the current workers to retain the benefits accrued to date but will lower the rate of payout on earnings from when the law becomes effective through retirement.   Obviously, for workers close to retirement the impact will be small but for those with 10 or more years left to go to retirement there will be a significant effect. The longer the time to retirement the greater the reduction in benefits will be.

But what choice does the Governor have? The pension systems for state employees and teachers are woefully underfunded and the state government is facing the prospect of having to allocate additional billions a year of state funds to return the pension funds to a financially responsible condition.  These additional payments are money the state does not have unless it raises taxes substantially.

There is another option of course. The state could cut education and other funding as well as its own employment levels sufficiently to cover the pension payments. Or it could renegotiate contracts to lower dramatically current compensation including health care, vacations, salaries, sick leave, etc. And it could urge school districts to do the same. Absent any meaningful concessions, the layoffs should begin.

The proposition must be that the excessively generous pension and other benefits promised by irresponsible governments and school districts in the past must not be allowed to wreck the current economy by forcing ever higher taxes to sustain the promises.  There must be some willingness on the part of the unions to recognize the plight taxpayers are facing.  If they persist in their unwillingness to make any concessions, then there is little choice but to slash the size of payrolls to compensate.  If they decide to play hardball, the state and school districts must be ready to throw down their own gauntlets.

Proponents of all things paid for by someone else are effusive in their praise of the Governor's agreement to pay $3.8 million to keep the once a day Pittsburgh to Harrisburg service operating.  One editorialist was atwitter about how the $40 one way price is such bargain compared to the cost of driving a car and paying turnpike tolls.  Never mind that almost $40 in taxpayer funds are required to subsidize that trip.  Also ignored is the fact that the MegaBus service which take two hours less for the journey and offers three trips a day costs only $16 for a one way ticket.  And guess what. No taxpayer subsidy is required.

The Governor's deal sounds great to those who prefer riding trains. So why not ask the riders on the train to pay higher ticket prices to cover the true cost? Why can we not let go of the notion that just because some people like being subsidized, it is not mandatory that taxpayers have their pockets picked endlessly to accommodate their wishes?

Here's a reasonable challenge for all the pundits who have pushed for the state subsidy and are now gleeful that the Governor has acquiesced. Push and cajole to get more passengers to use the Pennsylvanian in order to lower the per rider subsidy. If the decades' long trend in declining passenger count continues, this move by the Governor will look foolish as the per passenger subsidy increases. 

Maybe the big supporters of subsidized passenger service would be willing to buy up blocks of tickets to help defray the cost to taxpayers.  Probably when pigs fly. 

An article over the weekend about the possible extension of light rail in the future noted that the number of annual trips on the light rail system stood at 7.7 million in 2012, which is an increase of 15% over 2011 totals (6.7 million according to APTA data).  At 7.7 million, 2012 ridership would be the highest light rail total back to 1996 (as far as APTA data goes back) besting the previous high during that time frame (7.5 million in 1997).

Of course, we don't know how much the extension of "free" rides between the North Shore Connector stations and Downtown have boosted totals or the newness of the Connector itself had an effect.  APTA does not provide a breakout of the light rail mode's expenses, revenue, or employees as does the PAT budget: we noted last year the baseline data.  There is not yet a modal comparison available for the 12-13 fiscal year nor the 13-14 fiscal year for the Authority.  We did calculate the "expense per rider" by dividing total expenses of the light rail system by ridership at $7.08 in 2011.  With the boost in ridership in 2012 to 7.7 million if the cost per rider was to stay roughly the same the Authority's light rail expenses could have risen to no more than $54.8 million. 

The APTA data does however separate by quarter; the biggest boost over 2011 ridership came in the second quarter (April, May, and June) when there were 2.0 million unlinked trips.  The previous year there were 1.67 million in that quarter.   

Pennsylvania saw its month to month payroll job count stall in February with a mere 600 net gain from January. What's more, the year over change since January of 2012 was a paltry 0.3 percent. In something of a twist, widespread losses across a number of service sectors led to a drop in private service employment while goods producing jobs led by manufacturing rose just enough to offset the services job losses.

Interestingly, the Professional and Business Services category continued to show strong gains statewide similar to the pattern in the Pittsburgh MSA. From January to February the sector accounted for over half of the growth of the service sectors managing an increase at 3,600 jobs. And over the past year the Professional and Business Services component posted a net job increase of 11,900, accounting for over 70 percent of the growth in nonfarm employment. Moreover, with the 6,300 loss of government jobs, private sector employment rose 22,800 of which over half are attributable to this category.

Three areas of weakness have arisen that were previously producing rapid employment growth rates.  In February, private Education and Health Services saw a decline of 5,200 jobs from January and have slowed to a growth rate of less than one percent compared to February of 2012.  Similarly, the once near boom- like employment gains in Leisure and Hospitality have been replaced by losses. In February, the sector experienced a drop of 4,000 jobs from January and was down 5,600 jobs from 12 months earlier.  Lastly, Mining and Logging jobs were unchanged in February for the January level and have fallen by 1,100 since February of 2012.

Thus, it appears that for the time being at least the state is witnessing a shift in economic leadership from Eds and Meds, Leisure and Hospitality and Mining to the professional and business services component. What this might portend is not clear but it is dramatic nonetheless. One must expect that the very fast gains in the sector cannot be sustained for long unless there is a return to faster growth in other major economic sectors.

Earlier this week the Board of Commissioners in Washington County, a county where a reassessment has not been conducted since 1981 (their base year, but they adjusted their predetermined ratio of assessed to market value in 1985) and enacted a 16% millage hike in 2010, reached back to 2009 to the vendors who said they would be interested in conducting a countywide reassessment should that ever happen.  Based on articles (here, here, and here) that may be coming soon, albeit with a state level change.

Under a bill pending in the General Assembly the state's Equalization Board would be housed inside of the Department of Community and Economic Development (DCED).  The hope is that by making this move there will be more professionalism and sharing of expertise.  The powers and duties of a shifted Board would include notifying county assessors when there is a change in a county's common level ratio of plus or minus 10%, informing school districts of certified market values, etc.  The key points that might affect a reassessment in Washington County or other counties conducting assessments after the legislation (should it become law) are these:

• 1. "Create an operations manual in consultation with the County Commissioners Association of PA and the Assessors' Association of PA for counties to utilize when completing a countywide reassessment or when valuating property".
• 2. "Create and maintain a centralized and standardized statewide database for counties to utilize and report all property values and data to the Board."
• 3. "Develop and maintain statewide basic and detailed training programs for all persons involved in the valuation of property within all counties. The programs shall be completed and passed by any person that is employed to collect, compile, compute or handle data for purposes of reassessment valuation within the State."
• 4. "Develop standards on contracting for assessment services in consultation with the County Commissioners Association of PA and the International Association of Assessing Officers."

Our 2007 report on improving the property assessment system in PA included a recommendation that the Department of Revenue or STEB be involved as an overseer of the assessment process, including bringing some standardization to the process.  We argued for a three year time line on reassessments, zero windfalls, and voter approval of all millage hikes. 

Washington County Commissioners, while holding their nose after much delay, hope to be guided by this legislation.  Taxpayers should also be aware that the County has to abide by Act 93 of 2010, which prescribes what has to happen to millage rates following a reassessment.  Much like Allegheny County's Act 71, the taxing body (county and municipalities) have to roll millage rates back to be revenue neutral, then, in a separate vote, can get 10% more than the amount the revenue neutral rate would bring in revenue.  Taxpayers, knowing that it is possible for their assessment to go up but their taxes could go down with revenue neutral rates, would know that they could gauge their increase against the increase in the community as a whole. 

A letter to the editor today from a resident of Mechanicsburg who still owns property in Allegheny County who just received his 2013 County tax bill expresses outrage over a 60% tax increase in his taxes.  The letter does not divulge the location of the property (only that the writer "still own[s] property back in the Pittsburgh area, but had to move to Mechanicsburg for employment 25 years ago") or its type (if it is residential, commercial, industrial, land, etc.) 

Let's assume for simplicity sake that the writer owns a single family home in Penn Hills that was assessed at $50,000 in 2012.  He could not take the homestead exemption as that is not his primary residence, so at the 2012 tax rate of 5.69 (following the millage rate hike), his Allegheny County tax bill would have been $284.  If his 2013 County bill is 60% higher, or $454, that means the value of the structure would have risen to around $95,000 (almost doubling) based on the 4.78 millage rate that was printed on the County tax bill.  That increase in value would be far in excess of the percentage changes for the County and all municipalities based on December assessment data. 

The writer is angered as well because someone unspecified said he "...should not worry about my taxes going up quickly as there is a clause in the tax code that limits the increase to 5 percent".  This is incorrect in that the state law applying to Allegheny County says after a reassessment tax rates must be rolled back to be revenue neutral and then, if the taxing body so wishes, they can raise tax rates so that they can get an additional 5% from the prior year's revenue and then if more is desired, a petition to the courts can be undertaken.  What someone at the County in person or through public pronouncements should have done is to explain that an increase in one's property value has to be gauged against the increase of the taxing body to determine if taxes go up, down, or remain unchanged.  

What is perhaps most amazing is that the letter writer, presumably as a real property owner in Mechanicsburg, which is located in Cumberland County, somehow forgot that his home county just reassessed in 2010.  Maybe the reassessment did not result in a significant jump in his county taxes, which is entirely possible, or it did, which is also possible.  Cumberland County, which assesses property at 100% of market value just like Allegheny County, just increased taxes in 2013 (from 2.045 mills to 2.274 mills), which meant a tax increase for him and all other taxpayers in the County. 

If the letter writer really wants to get steamed he might calculate what his assumed $95,000 home in Allegheny County would pay in county real estate taxes vs. his assumed $95,000 home in Cumberland County would pay-it's a $236 difference.  There might be a lesson about the cost of county government in there.

The Pennsylvania School Boards Association collects and publishes data on labor impasses that tend to occur from time to time in one (or more) of the state's 500 school districts.  Last year we noted that the 2012-13 school year was nearly the first year without a strike in nearly forty years, only to be spoiled by the Neshaminy School District, where teachers walked off the job twice. 

Thus far in the 2012-13 school year there has not been a strike...unless you ask the school board of the Old Forge School District in Lackawanna County.  Because they definitely feel teachers went on strike in December.  However, the union representatives insist that the teachers were locked out.  A strike means no unemployment compensation, a lockout means employees can collect. 

Teachers went back to the classroom on January 2^nd, but the issue is not resolved.  When the board met to act on the 2013-14 budget (which contains a property tax increase) and union grievances the language referred to a lockout, which prompted one board member to ask that by accepting that language the board would be creating a problem for itself.  The solicitor for the District stated "They can word it however they want, we are just denying it".  PSBA officials don't yet know how to categorize the issue as that decision comes from the PA Labor Relations Board.  

Hard on the heels of a report that half of Detroit property owners are not paying property taxes comes the story out of Philadelphia that delinquencies in that city are depressing home values and costing the government hundreds of millions in lost revenue.  A Philadelphia Inquirer investigation found that home values are being depressed by over 20 percent because of the failure of 15 percent of properties to pay real estate taxes.  Overall, this has lowered the total assessed value by nearly $10 billion in the City. 

What's worse, 59 percent of the unpaid tax bills are accounted for by landlords, speculators and investors who do not live on site.  In Detroit the motivation not to pay taxes is driven in part by the failure of the City to provide adequate, if any, services to property owners.  Of course, Philadelphia is generally in somewhat better shape financially than Detroit but unchecked, the rising trend of unpaid taxes will lead to chaos as those who pay higher and higher taxes on declining property values join the ranks of those who refuse to pay taxes.

Philadelphia needs to get a tight rein on its spending. The school system which is funded in part by City taxes already has to borrow money to pay its bills-never a good sign. Philadelphia benefits from being able to tax commuters, something it alone in Pennsylvania is allowed to do.  But that is a two edged sword in that it has undoubtedly driven many jobs out of the City.

Philadelphia has a ring of protection in the form of wealthy surrounding counties that help support its economy. However, profligacy and poor financial management and a desire to make suburbanites pay for its inabilities to manage its affairs prudently will inevitably lead to a severe crisis.  Look at Detroit, Oakland and other cities for proof of what happens when lack of discipline and political correctness take over the government.

The website 24/7 Wall Street took a report done by Washington, DC's Office of Revenue Analysis that examined the property, sales, and automobile taxes paid by a hypothetical family of three earning one of two levels of income ($25,000 or $150,000) to see which city had the highest tax burden.  To be clear, the data does not look at all cities, only the largest city in each state.  So for Pennsylvania only the City of Philadelphia is examined (it ranked second highest for both hypothetical earning levels, taking 13.3% of income for the higher earning family, 18% for the lower earning family).

The highest taxes city was Bridgeport, CT.  Its high property taxes add to that distinction, and New York, Los Angeles, Detroit, and Baltimore fill out the top ten.  One surprise would be the city that came in fourth, taking $18k from a family earing $150k and $3.5k for the $25k earning family, was Louisville.  Readers of our work will recall that Louisville was the last major city to merge city and county functions (in January of 2003), and was the shining star of merger advocates in the southwestern Pennsylvania region (they ignored the example of Philly, which has been a merged government for a very long time) and many officials from Louisville took junkets here to trumpet their successes.  A September 2003 article noted "Of particular interest to Pittsburgh, the Louisville merger allows the metro city to be more efficient...Instead of two information-technology departments, there is one. Instead of two human resources offices, there's one. By eliminating redundant offices, the city will eventually save money not only on personnel, but also on rent, once leases on county office buildings expire."  Though not sold as a money saver and rather as an image booster, one would expect that there would be some tax savings through consolidation. 

Looking at the statistical section of two of Louisville's financial audits-the 2003 one and the 2012 one-gives a perspective on the ten years leading up to the merger and the ten years since shows the rates levied on real and personal property by the City of Louisville (now known as the "urban services district") and Jefferson County (now known as the "metro government") shows that from 1993 to 2002 combined real and personal property tax rates fell 7% from 1.325 to 1.236.  From 2003 through 2012, the combined rates on those taxes still fell, but by 0.8%, a rate much lower than pre-merger.  But who's in the position to complain about a tax cut of any shape or form these days?  Especially when one notes that the combined real, inventory, and personal rates of the long consolidated school district (not part of the 2003 merger) went up 18% since the merger? 

While the closing and reuse of Schenley High School has grabbed attention, the school district across the state is going to vote tonight on closing 27 public schools, an action that, if taken, is being described as one of the largest school closing plans in recent history. 

Proponents of the action, including the District's Superintendent, say that if it does not happen there might be issues with payroll or opening the District as a whole after the summer.  We noted last fall how the Philadelphia School District borrowed $300 million to keep things afloat. 

The District's CAFR shows that it had 249 elementary, junior/middle, and senior public schools in FY 2003.  There were 228 in FY 2011, a decline of 8% (the rate of closure in Pittsburgh has been much greater, with 88 schools in 2003 and 56 in 2011, a decrease of 36%).  Twenty seven more would be a 12% decline from where the District stands now.  Interestingly in both Philadelphia and Pittsburgh senior schools have stayed relatively constant; the biggest percentage drops in both districts occurred in the junior/middle school level.