While passengers who use the Pittsburgh to Harrisburg Amtrak service-known as the Pennsylvanian-are gleeful over the state's willingness to allocate $3.8 million to keep the train running, it is important for  taxpayers not using the service to know what this means for them. Bear in mind that the total subsidy, including money from Amtrak sources, is $6.5 million to keep the train running in the next fiscal year. Remember too, that the one way fare between Harrisburg and Pittsburgh-and the other way round-is $40.

At a recent Transportation hearing in Harrisburg the deputy secretary of PennDOT told legislators the $3.8 million represents a subsidy per rider of $15 to $16.  Coincidentally, that is the one way fare for a trip between Pittsburgh and Harrisburg on the MegaBus that offers three times a day service and makes the trip in less than four hours instead of the five and a half hours on the train.

Now, with the $3.8 million being just over half of the entire subsidy, then the total per passenger trip subsidy is $30 or more. Isn't that swell; all those folks enjoying the train from Pittsburgh to Harrisburg while taxpayers pick up nearly half of the actual cost of their ride.

To his credit, the secretary did say that it might be time to contemplate higher fares on the service to lower the taxpayer subsidy. But raising the fare to, say $60, to cover two thirds of the subsidy would almost certainly reduce the passenger count as riders seek lower cost transportation. Some might even consider the $16 MegaBus trip. Then the reality would set in. If train riding demand is elastic over the range of the price hike to $60, then the Harrisburg to Pittsburgh service would generate less revenue than currently and the subsidy per passenger could go up rather down (assuming the cost of the operating the train is nearly independent of the number of passengers).  Then too, the amount of the subsidy rises with the length of the trip so that someone going to Altoona from Harrisburg would receive less of a subsidy than a traveler going on to Latrobe. But the secretary was using an average and that is the best way to look at the situation. Without the volume of passengers from Pittsburgh to Harrisburg and vice versa the service would be far too expensive per rider to operate.

What a quandary for politicians. They could do the right thing and stop the heavy subsidization of train rides between Pittsburgh and Harrisburg altogether since there are no appreciable external or societal benefits compared to letting people take a bus that pays fuel taxes and tolls to help maintain the roads it travels. Now that is concept worthy of consideration.

 

Hidden debt, understated pension and health care liabilities, and debt accumulated for special purposes but never approved by voters is the subject of an op-ed and estimated to be $7.3 trillion.  Special authorities, corporations, etc. serve as a vehicle to accomplish such tasks.

 

Does this happen locally?  In plain view taxpayers and inquisitive folks can peruse financial statements to see the clear picture.  Let's start with the city of Pittsburgh: its 2010 CAFR features several tables on debt and debt service: its net general bonded debt that year totaled $629.7 million.  On a per resident basis (using a population of 306k), the result is $2,058.  Our newest Benchmark City report uses the 2011 CAFR and the per capita amount fell to $1,900.  When the related tentacles of City government are examined, the debt level changes: the City is responsible for 63% of URA debt, or $48.4 million; 50% of Auditorium Authority debt, or $1.6 million; and 100% of Parking Authority debt, or $97.4 million.  Overlapping debt that would affect a City of Pittsburgh resident would include 100% of School District debt (though Mt. Oliver Borough would account for a small share) or $487.4 million, and 25% of the County debt (the CAFR estimated by population share) or $163 million.  Together the total rises to $1.4 billion, $4,500 per capita. 

 

How about Allegheny County?  It has direct debt of $771 million, or $630 per capita.  The County's CAFR attributes 100% of the Community College debt to the County, adding $46 million.  If the debt of local governments within the County's 'orders (but not part of the County) are added in, that adds on $2.8 billion from public schools, $677 from cities (Pittsburgh, McKeesport, Clairton, and Duquesne), and $601 million from boroughs and townships.  No authority debt is applicable to the County from the CAFR table, and someone living in Aspinwall would be liable for debt incurred by Pitcarin or Sewickley, but when the Controller's office puts the whole tab together the total almost touches $5 billion, bringing per capita amounts to $4,000. 

 

Pursuing a court case against the University of Pittsburgh Medical Center (UPMC) will tangentially affect the City's institutions of higher education according to the Pittsburgh Council of Higher Education, which in turn will affect the task force working on non-profit issues (such as payments in lieu of taxes) that was created as a condition of the oversight board for approving the 2013 budget.  Sounds like a house of cards or a big city version of the domino theory.

 

Because if the City challenges the medical system's charitable status, as it has made clear it wants to, then the universities will feel threatened, and then any talk of cooperation on the task force will crumble under the specter of a lawsuit. 

 

The universities indicate through a letter to the Mayor that they would prefer to move on to less controversial subjects like "...the city's burgeoning pension obligations and the imposition of a tax on those who commute to the city".  If the universities' focus sounds eerily familiar it should: it was not long after the Mayor floated a variety of taxes and fees to see what would stick that what survived was the "post secondary education privilege tax" on college tuition.  After that was eventually dropped in late 2009, the universities (along with one large Pittsburgh corporation) promised to go to Harrisburg and seek reform for pensions (this was post Act 44, but prior to the garage privatization plan) and possibly spreading the tax burden on to others.  We noted at the time that "the universities should not, and in good conscience cannot, move from celebrating their hard work against the tuition tax to helping the City lobby Harrisburg for some other tax, most likely to be one imposed on people who cannot vote for the City's elected officials." 

 

There is a glimmer of hope four years later: the Council letter did note "The ultimate solution is not to look at another source of funding, but rather looking at the financial stresses of the city...Maybe there are some approaches that would reduce the need for funds".  There's been no shortage of recommendations on that line of thinking. 

 

According to the website of the Pennsylvania Municipal League, whose mission is to "strengthen, empower, and advocate for effective local government", there is scheduled to be a press conference today to unveil municipal pension reforms.  As we have noted in our work, going back to 2007, Pennsylvania has over 3,000 "local" plans-those covering uniformed and non-uniformed employees of counties, cities, boroughs, townships, home rule municipalities, and authorities.  If the state's 500 school districts were not consolidated into one system (PSERS) the share of pension plans concentrated in Pennsylvania as a percentage of all plans across the country would swell.

 

It would be a surprise if the proposed reforms to be outlined for municipal plans were to follow exactly what the Governor proposed for PSERS and the system that covers all state workers (SERS) earlier in 2013.  One wonders how legislation would treat local governments who have placed their employees (almost exclusively non-uniformed) into defined contribution type plans (53 of the 298 plans in Allegheny County are non-defined benefit plans) if the goal is to move away from defined benefit plans.  Age of retirement, length of service, overtime calculations, and many other areas will likely be addressed in one way or another. 

 

So there is joy at the White House. The unemployment rate dropped to 7.6 percent in March from 7.7 percent in February.  That is the headline, but as Paul Harvey would say, "Now the rest of the story."   Incredibly, the unemployment rate went down although the number of people employed fell by 206,000. How is this possible, one might reasonably ask. Very simple. The number of people working or looking for work-the labor force-fell by 496,000 (the number of people not in the labor force jumped by 663,000). By the Labor Department's calculation that brings the number unemployed down by 290,000. Ergo, the ratio of unemployed to the labor force dropped. Just a matter of mathematics.

The labor force participation rate, the ratio of those in the labor force to the civilian non-institutional population, dipped to 63.3 percent from 63.5 percent in February-already one of the lowest in decades.

Meanwhile, the number of people with jobs as measured by the survey of establishment payroll counts rose by a scant 88,000 in March with widespread weakness in goods production-manufacturing was down by 3,000 jobs-and service producing employment.  Retail jobs tumbled by 24,100, finance was lower, leisure and hospitality was down along with transportation and warehousing.  Only the education and health services component and professional and business services demonstrated any significant strength, accounting for over two thirds of all the net increase in payroll employment.

This is clearly a very disturbing jobs report from both the household survey, from which the labor force and unemployment rate data are derived, and the establishment survey that measures the number of paying jobs as opposed to the number of people working or looking for work.

There can be little credence put in claims that the economy is picking up steam, notwithstanding the massive fiscal and monetary stimulus being applied in Washington. There is little doubt that the effects of the tax increase in January and the impacts of the Affordable Care Act along with torrent of regulations emanating from DC are having a chilling effect on the economy.

 

 

Allegheny County's Department of Public Works fielded fewer calls to repair the bane of nature's fury, also known as the pothole, this year, according to a news article.  As to how reliable the science of tracking complaints are (for instance, when a driver hits a pothole, do they know whether to call PennDot, the county, or the municipality and does the recipient of a wrongly-placed call tell the caller to redirect their ire to the proper place, and, if so, does that indeed happen?) but the article says that the County itself took 59 calls this winter, 54 in 2012, and over 100 the two previous years, including 2010 when the blizzard hit.

 

The County's CAFR provides operating indicators and capital assets for Public Works' functions (they are way in the back of the document)  and that data shows that from 2002 to 2011 the County did not add a lot of infrastructure: it had the same amount of lane mileage (818), the same mileage of paved streets (395), the same number of bridges less than 8 feet in length (181), the same number of bridges between 8 and 20 feet in length (149), and added 1 bridge greater than 20 feet in length in 2006, bringing its inventory to 192.  It has 9 fewer vehicles than it did in 2005 (130 now), and added 59 pieces of heavy equipment since 2005, bringing the total to 430. 

 

The operating indicators show that in 2011 the Department spent 298k man hours on winter road maintenance (all activities) and purchased 19k tons of salt to melt snow.  The high water mark (maybe the high snow mark is more apropos) was in 2010 when the man hours for winter road work topped 374k and nearly 27 tons of snow melting salt was purchased (based on the tonnage bought and the price paid by the County a ton averages about $50). 

 

Stockton, CA is similar to Pittsburgh, PA in terms of population (2010 Census showed the former with 291k, the latter with 305k) and land area (61 square miles and 55 square miles) but while Pittsburgh waits to see if its nearly decade long existence under Act 47 recovery status and oversight will be lightened by at least one Stockton has been given permission to declare bankruptcy.  When Act 47 was on the horizon for the Steel City in 2003, many observers felt that the City was indeed entering bankruptcy (see footnotes on page 3 of our 2009 report on municipal bankruptcy) but the reason municipal distress and oversight were put into place was to stave off a Chapter 9 filing.

 

But Stockton has entered, following a filing by Vallejo in 2009 and one newspaper report on the filing notes "At issue will be whether U.S. bankruptcy law trumps California law, which says the pension plan must be funded".  It is interesting to note that a memorandum on the Vallejo filing stated that once in a bankruptcy court-since the municipality cannot be forced there, and the state is free to place as many hoops for the municipality to jump through, even outright prohibiting a filing-"presumably, state constitutional provisions [on the abrogating of contracts, such as pensions for current employees] would yield". 

 

Note that the article points out the City of Stockton has done a considerable amount of action: cutting employees, stopping bond payments, cut employee benefits (presumably other than pensions) and enacted an emergency spending plan but it keeps depositing money into the state pension system.  It is almost the reverse situation of a Pennsylvania municipality that enters Act 47 and then drags its feet on agreeing to a recovery plan: the state will withhold money, but not if it is for pensions (natural disasters and redevelopment projects already underway also qualify). 

 

But it makes the point that we made nearly three years ago to the day that asked what municipalities are to do if they can't get out from under bad pension promises: cut services and tax themselves out of existence in order to pay pensions?  Is that not what appears to be happening in Stockton?

 

The City and County are justifiably working assiduously to assess and collect taxes from large non-profits that actually have for-profit operations or that do not meet the Supreme Court's five part test to qualify as tax exempt.   Too bad both the City and County have long supported and promoted some of the worst examples of tax dodging by for profit enterprises.

 

And what would that be? Think Heinz Field, PNC Park and CONSOL Arena to name three. With combined property value approaching a billion dollars, these structures represent over $25 million in foregone property tax revenues owing to the tax exempt status of the facilities.

 

Ironically, one of the complaints about UPMC has been the high salaries of some of its top officials.  Why ironic? Consider the yearly pay of many of the athletes performing in the three venues.  Several are well above the $5 million mark that has raised so much ire when attached to the head of UPMC.  This is not to justify the UPMC head's compensation. For a tax exempt non-profit, it is does seem out of touch with a prudent approach to pay.

 

But the point is that the teams and the players using the tax exempt facilities are in effect being subsidized by the low rent they pay to utilize them. If a market based rent were being paid, the total for the three facilities could be above $50 million year, some of which would be used to pay taxes if the facilities were not tax exempt.  So, the taxpayers get hit twice. They put up the preponderance of the money needed to build the structures, get no property tax revenue and pittance for rent.

 

Now that is a sweet deal.

The Allegheny County Executive has asked for, and presumably received, undated resignation letters from members of boards of authorities and commissions to which he makes appointments.  Those letters are obviously the cudgel by which the Exec will get his way at the authorities.

 

One might reasonably ask: "What is the point of independent authorities that have all the powers of government, except the power to tax, if the Executive is going to run them as just another means of exerting his will and power"?  That was not the purpose of these authorities which were ostensibly created to carry out certain functions apart from the whims of politicians.

 

Senator Scarnati has already announced his intentions to take away the appointment power of the Allegheny County Executive vis-a-vis the Port Authority because of the reckless and arrogant highhandedness he has shown in dealing with that entity.  Perhaps he might want to look at the other authorities and commissions as well.

 

This desire to exert total and arbitrary control of supposedly independent boards is not only unseemly, it is very dangerous. Very soon only lackeys of the Executive will be willing to take board appointments and the quality of governance will become worthless. This is not to say that some boards haven't been governed poorly in the past. But the opportunities for venality and capriciousness will run amok when only lackeys of a power hungry Executive are serving on the boards.

 

The brazenness of the Executive's call for undated resignations should be a red flag in Harrisburg that authority governance in Allegheny County is jumping off the tracks.  Perhaps it is time to undertake a full reform of the state's authority law that has witnessed abuses in the past. With nearly 3,000 such entities statewide, there is a crying need to begin to rein in the number and power of these agencies.

 

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.