In a moment of economic lucidity, Pittsburgh's Mayor on December 31 vetoed the so called "prevailing wage" bill Council passed in the waning days of 2009. The late veto made it impossible for Council to put together the votes needed to overturn the veto.

 

The legislation, a last minute Christmas gift to labor unions, was passed on December 21. That opened the opportunity for the Mayor to veto the bill on the last day of the year.  One wonders about the Council's rush to pass the bill in the last few days with the very real threat of a last minute veto hanging over the process. Was all this carefully choreographed as a Council sop to the unions that was never meant to be put into effect? We will know if Council revives the bill in 2010 and overturns another veto.

 

The bottom line is the prevailing wage bill was terrible legislation and the Mayor's reasons for vetoing it were extremely logical. It would have made Pittsburgh even less competitive for attracting companies and investment into the City by aggressively interfering in the market's ability to set wages through supply and demand.

 

More devastating, it would have sent yet another signal to the local, national and global business communities that Pittsburgh is slipping deeper into an anti-free market, statist approach to public policy. 

 

We can only hope this poorly thought out and insidious bill never sees the light of day again.

 

Pennsylvania's Governor has insisted on massive increases in education spending, much to the delight of his close allies in the teachers union, hikes that are a major factor in the state's current fiscal crisis. But now we learn there is no money for a cadet class of state police troopers. How derelict in the state's duty to its citizens.

 

The state police are a key and important core function of government. There can be no excuse for the underfunding of these police when more spending is being squeezed out for teacher funding. Teachers have paid no price during the recession and fiscal crisis across Pennsylvania. Raises have continued, health care benefits paid, few if any layoffs have occurred, and the right to strike remains in place.

 

And what have we got in return for the big jumps in education spending in recent years? Flat to lower SAT scores-the gold standard when it comes to measuring educational attainment.  Since Rendell became Governor Pennsylvania's SAT scores have actually declined slightly. North Carolina, where average spending per student is thousands of dollars less per year than Pennsylvania, has marginally higher SAT scores. And the union argument that Pennsylvania has a greater percentage of students taking the test does not hold water. The percentages in North Carolina and Pennsylvania are close (in 2003, 74% in PA, 70% in NC).

 

All this points to an unfortunate reality: to wit, the political power of the unions and the education establishment, who together can so distort government policy to their wants, is nothing short of breathtaking.

 

Will parking rates skyrocket if the City successfully leases its publicly owned garages and lots over to a private operator?  Several members of the Pittsburgh intelligentsia seem to be convinced this is the case.  Officials of the Downtown Partnership feel that there will be an "impact on the affordability of parking Downtown" and this will make "the City even less attractive to developers, shoppers, businesses, etc."  The Mayor even played prognosticator back last January when he first announced his idea to lease the garages in order to fund pensions: he noted that "I've got to protect pensioners.  I've got to protect City taxpayers.  And of course I'd like to protect parkers too, but not at the expense of City taxpayers and pensioners".  And therein lies a clear indicator of the City's real problem, i.e., shift blame and cost to someone who cannot vote you out of office.

 

The implication seems to be that putting parking in private hands with the market determining rates that operators are simply going to gouge people who park. 

 

But the big problem in Pittsburgh is that there is a mismatch between the supply of parking and the demand for it.  This mismatch existed as far back as 2002 when we studied Downtown parking.  And what has been happening to parking demand and supply in recent years? The building of three new sports venues, convention center, residential, retail, cultural and new office buildings over the last decade or so has increased parking demand in Downtown and near-Downtown with relatively few new parking spaces being provided. This desire to have people come into the City has forced existing firms to ration the spaces to an increasing number of users by employing the basic market tool-pricing.

 

The other big problem is the parking tax, a tax that further jacks up the price of parking in the City. The true irony here is that the civic leaders who are now expressing concern about the price of parking in Downtown Pittsburgh did nothing to push City officials to lower the tax dramatically over the last few years, especially since the state legislation in 2004 that mandated a lowering of the parking tax from 50% to 37.5% merely spelled out the maximum rate the tax could be set. 

 

The same City officials who realized the inelastic nature of parking demand and boosted the tax to 50 % in order to increase City revenues substantially now rail against operators who dare to be motivated by profits and a reasonable return on investment.  How hypocritical. How typically Pittsburgh.

 

In a pre-Christmas press conference Pennsylvania's Governor decided to play Santa to the teachers union and the public education establishment.  Notwithstanding the obvious and pressing need to relieve taxpayers of some of the burden of the coming massive deficits in the state budget--as well as the ballooning shortfall in the state employee pension fund and the enormous pending increase in funding the state teachers' pensions will require--the Governor says he will include another increase in state funding for education in the next budget year.

 

It can be concluded from the Governor's intentions that he places public education above every other function of government and far above hard pressed taxpayers. And the dirty and cynical shame of it is that all higher spending does is beget more demands for spending. State taxpayers, paying both property and state taxes,  can be forgiven if they begin to chafe and complain loudly about the generosity government chooses to bestow on public sector employees.  While other states have had to make cuts in education spending in the face of economic reality, in Pennsylvania school employees are awarded special protected status.  Not even a request to voluntarily freeze teacher pay has been uttered by any public official even though tens of thousands of their fellow citizens have lost jobs, are on short hours, or, worse yet, have faced losing their homes.

 

Of course it is of a piece with the situation at the national level where government hiring and pay raises are running rampant.  Tragically, we are witnessing the turning of the vision of the Founding Fathers on its head. Rather than being the servant of the people, government has become the master as the people have become docile and acquiescent in the face of vanishing liberty.  Santa Rendell is simply the local version of the atrocity that is and has been happening to the nation.

 

While we can still say it, Merry Christmas to all. 

 

 Pittsburgh's Rivers Casino received some not so jolly news this holiday season-a credit rating downgrade from Standard and Poor's.  The downgrade from a B- to a CCC amounts to a lump of coal in the casino's stocking.  But the official statement from management is that the reduction "was entirely anticipated".  They rationalize the move as one that is affecting the gambling industry as a whole and not indicative of troubles at the North Shore facility.  In keeping with the cheeriness of the holiday season the statement further comments the "Rivers Casino is posting market share gains and is becoming a destination of choice for gaming in Western Pennsylvania". 

 

Management is correct in one facet-the downgraded was to be anticipated.  As we have been documenting, the slots parlor has not lived up to neither its, nor the gaming board's, revenue expectations.  Through the second week of December the casino is on pace to earn $196 million in annual gross terminal revenues-far below their projection of $427.8 million and the gaming board's projection of $362.4 million annually. 

 

Of course, with the casino at only 45 percent of expected revenue, many people are worried because the City and region have pinned a lot of hopes on the success of the facility.  Not only will the projected community payouts be in doubt-like the $7.5 million per year for the new hockey arena-but the future of the slots parlor itself could be in doubt.  And that brings up a whole new set of questions.  What happens if the Rivers Casino declares bankruptcy?  Remember that one of its owners has already declared bankruptcy. Who takes over the casino and will they be required to pay for the new arena or will a bankruptcy judge relieve them of that obligation?  While this is the season of giving, the Rivers Casino may need more than Santa can fit in his sleigh.

 

As we have pointed out since the slots gaming law was passed and the disbursement of economic development money was codified into law, the language allowing for Allegheny County to receive $80 million for the "construction, development, improvement, and maintenance of infrastructure projects" was overly broad.  The County receives the money in annual installments of $6.6 million and funneled the money through the Redevelopment Authority of Allegheny County to a special entity created within the Authority known as the "Allegheny County Economic Development, Community Infrastructure, and Tourism Board (CITB)".

 

Just this past week Council acted on a measure that would allow the Redevelopment Authority to act as the agent for handling the money since the CITB plans to "dissolve itself, which shall take place on or before March 31, 2010".  The decision to end the CITB must have came quickly as the measure was introduced on December 1^st and approved on the 15^th. 

 

Given the broad statutory language, some of the awards made by the CITB included disbursing $250k to Point Park University for its academic village, $50k to Monroeville for a traffic signal (the money was moved to help research on a site plan for a health club), as well as to construct a parking lot in Lawrenceville, for new housing in Manchester, for a fountain in Allegheny Commons park, for promotional work in Monroeville, and for a retaining wall in Shaler to help prevent flooding along Girty's Run.

 

It is unclear why this change was made and what it will mean when the remainder of the money is handed out in the coming years. 

 

The tuition tax, also known as the "Post-Secondary Education Privilege Tax", also known as the "Fair Share Tax" has been put to rest after weeks of almost coming up for a vote before City Council only to be temporarily shelved time and again.  All along proponents had the necessary five votes and an opinion from an attorney that the tax would stand up to a court challenge.

 

So what comes next?  Obviously the City is determined to obtain $15 million to put toward pension costs.  According to early news reports on the tax being tabled, there is a collation of universities and colleges, along with some of the City's corporate interests, that will work toward getting "significant legislation in Harrisburg".  What could it be?  Certainly an increase in the $52 Local Services Tax-levied on everyone who works in the City-would not help many of the same college students targeted by the tuition tax since many have jobs.  And a boost in that tax would certainly be enabled for all municipalities (except for Philadelphia) since that's what happened just five years ago when the last pieces of "significant legislation" were crafted for Pittsburgh.

 

All of this smacks of the "don't tax me, tax the fellow behind the tree" mentality on the part of the college community-they won't see a tuition tax, but would be perfectly fine with enabling a new or higher tax instead of holding the City accountable for its continued growth in expenditures in recent and coming years. 

 

And what makes this coalition think that legislators would be agreeable to help?  Just a few short months ago the City was a big part of the collapse of the initial plan for municipal pension reform (the City wanted exempted so as to pursue the parking garage lease plan).  Now the "heavy hitters" want to return to the Capitol to pursue a new a pension solution?  Good luck with that.  What other revenue sources can there be?  The City has obtained the RAD sales tax, payroll tax, casino money, etc.  They need to take a much more hard line approach to their costs. 

 

Under a plan proposed by the PA School Boards Association-as part of a larger discussion on what to do about the massive problems looming with the state teachers' retirement system (PSERS)-new school teachers hired after June 30^th would receive a "hybrid" plan that would combine features of defined benefit and defined contribution (401k) plans.

 

According to the National Conference of State Legislatures several states have plans that "provide features of both defined contribution and defined benefit plans...that do not allow an employee to choose between the two elements".  Florida, Georgia, Indiana, Ohio, Oregon, and Washington fall into this category and apply to state employees, teachers, or both.  Others-Alaska, Michigan, and Nebraska-use a defined contribution plan as their primary retirement plan after establishing a phase-in for employees hired on or after a particular date. 

 

Predictably, the statewide teachers' union does not like any proposals for change with the head of the union stating that such a plan would take "a secure retirement promise and erase it for our new members".  It can be taken to the bank that union officials will resist alteration with the same ferocity that police and fire unions fought municipal pension reform. 

 

According to published reports several anonymous foundations have decided to offer $200k over the next five years to the Pittsburgh Public Schools in order to pay taxes on a life insurance benefit to the current Superintendent.  According to the District's Solicitor the Federal tax code "requires the recipient to pay taxes on employer-paid life insurance premiums in the short term, even if the recipient won't receive the benefits for years to come".

 

Consider that this past October, when the District extended a new contract with the Superintendent, a news article pointed out that the agreement included "An increase-from about $12,500 to about $28,700- [in] the district's annual contribution to a life insurance policy of his choosing. As before, the district also will provide him a separate $400,000 term life insurance policy...[and] a one-time payment of $16,150. The agreement doesn't explain that payment, but [the Superintendent] said it, too, is for life insurance". 

 

Rather than extend $200k for taxes on top of what appear to be quite generous benefits, a better use of the money-certainly one that would deliver long term benefits-would be for the foundations to offer scholarships of $10k for four years for five students to attend the private or parochial school of their family's choosing. 

 

This would be a very targeted program and would certainly be criticized as leaving much of the district's enrollment out, but what would be more preferable: giving some students choice, or helping to pay the taxes on a life insurance policy for the District's highest official?   

 

Hard as it may be to fathom now with the City and the college community locking horns over the "Fair Share" tax and "voluntary" contributions to the City's finances, but just a few short years ago the City was flush with cash as represented by its fund balance.  The high point in the last few years came in 2007 when the total (reserved plus unreserved) general fund balance reached $89 million.  That was up from a scant $14 million in 2004, prior to the Act 47/oversight board era, and the rise was due largely to the new taxes created by the state Legislature. 

 

At the time the administration seemed bullish on the size of the surplus (the Finance Director noted in August 2007-just two years ago-that "we are positive that the fund balance is going to continue to grow as is did through 2006 and 2007") while the Controller's office was not so sure (‘this is the high point and then [the City's finances] are going to go down").

 

The Finance Director also noted in the same article that "there are long-term problems out there" referring to the legacy cost problems.  These problems have come much faster than exuberant city officials believed or wanted the public to believe. With the City trying to pay for infrastructure needs without adding to the massive debt load and no strict controls placed on the growth of general fund spending (in 2004 the City spent $375 million and is expected to spend $446 million next year, a 19% increase) the City predictably began looking in other places for additional funding to meet the Act 47 requirement of putting $10-14 million additional money into pensions annually. Thus the turn to the tuition tax, which may be a moot subject very soon. 

 

Going forward the fund balance is projected to be $26 million in 2014-higher than the low point of 2004, but much lower than the high point of 2007.  And of course that is just a forecast, something the City's prognosticators have not been very good at.