Allegheny Institute Blog

Forbes Magazine regularly compiles lists on the best places to do business, best states for taxes, etc. A new list examines physical activity: it finds that Pittsburgh ranks 14th as the most sedentary city based on measurements of body mass index, television watching habits, and levels of exercise. Only one other northern city, Detroit, ranked higher on the list.

As with most lists looking at a broad collection of cities, the data can be collected fairly easily, but applying a broad solution is far more elusive. The magazine recommends combating the sedentary epidemic by “by encouraging people to exercise more, and by spending more on parks and running, hiking and bike trails”.

It is doubtful that Forbes knows that Allegheny County has a dedicated revenue source from the 1 percent sales tax that has been used since 1994 to fund parks and outdoor activity. Before the usual suspects in the region weigh in with admonitions for government to do more, know the following. Since that year, a combined $240 million has gone to City and County parks (27% of total allocations) from the sales tax. In addition, the region boasts of an impressive network of trails and there are numerous municipal and state parks in the area, much of them funded by tax dollars.

In short, there is an ample supply of outdoor amenities in the Pittsburgh region.

As was predicted in an entry earlier this week, the Steelers have issued a response to the City Controller’s report that the sports teams should contribute to a payment in lieu of taxes the City because as for-profit enterprises operating in facilities owned by an authority, they are exempt from property taxes. The Steelers stated that they are already paying enough in taxes—they claim $40 million since 2001—and they deliver spin-off benefits to the region’s economy.

But look a bit closer and it is clear that the Steelers as an organization aren’t really paying a lot of the taxes they include in their count. The amusement tax is collected from patrons when they purchase tickets; the non-resident usage fee is paid by the athletes; the parking tax is likewise collected from customers and remitted to the City.

It is fairer to state that the team is paying the payroll tax and the business privilege tax, the latter being reduced under the state’s reform package.

“When all of these taxes and fees are taken into account, we believe we are one of the highest taxed sports franchises in the country”. Other local firms in the private sector ought to be furious, especially since many of them are paying taxes on payroll, business privilege, as well as property taxes to the City, County, and school district. The sports teams got a nice subsidy when regional and state leaders, in their zeal to keep the teams here, opted to place ownership of the venues under the tax-exempt status of the Sports and Exhibition Authority.

The Steelers should recognize that favorable treatment and be grateful rather than reacting with bogus claims of tax payments.

The City Controller’s office has issued a new report that asks the Steelers, Pirates, and Penguins to extend payments in lieu of taxes to the City as a way of helping Pittsburgh’s finances and maybe connecting them with their tax-exempt brethren in the City’s Public Service Fund.

If anything else, this report might help the public understand that when an official makes the claim that “33 percent of the City’s land is tax-exempt” that person (knowingly or unknowingly) is taking into account a lot more than just the non-profit community, more than just hospitals and universities. In the case of the sports teams, they are for-profit entities who happen to play in facilities that are tax-exempt due to ownership by the Sports and Exhibition Authority, a government agency that does not pay property taxes.

And that’s the case with this debate: it is more than just the non-profits, it is various levels of government and their instrumentalities, from authorities like the SEA to Parking, Housing, etc.

No doubt that if this suggestion becomes a near reality that the teams will be quick to point out the numerous economic benefits they deliver and their contributions to the City’s taxes on amusements and parking. Those aren’t small amounts. But if City officials accept their line of reasoning, aren’t they also obligated to accept the spin-off benefits of the universities and hospitals, as well as the other non-profits?

One week after the Mayor correctly vetoed the Council ordinance that would have frozen the parking tax in violation of state law mandating a rollback of the tax, the state is now engaging in a bit of pre-hatched chicken counting as they move the machinery to fund transportation under Act 44.

Now, not every state official who gave the City and the Mayor the tough talk on the parking tax is in favor of tolling I-80, but there are likely a few. That’s why we wonder how PennDot, the Turnpike Commission, and members of the Administration are acting as though the Federal government is going to approve their application, slam dunk, no questions asked.

All of Act 44 hinges on tolling I-80. The tolls go on, and the revenue from that and the existing turnpike in turn provide funding for the state’s highway, bridge, and mass transit needs.

“As should be clear, FHWA has not granted Pennsylvania the authority to toll I-80.” The Feds are just now beginning to review the application, and has requests from Virginia and Missouri in the pipeline, both of which have been sitting since 2003 and 2005, respectively.

The state put a lot of work into reforming Pittsburgh’s taxes, and they were right to note that a freeze to the parking tax violated the spirit and intent of the law. Council members incorrectly tried to make a case that they would do “good things” with the money. Isn’t the state basically doing the same thing with the Federal government on this issue?

Yesterday’s entry noted that the Mayor should veto the proposed parking tax freeze. The oversight board’s passage of the 2008 budget certainly helped the decision, and it is likely that the proposal got a very chilly reception in Harrisburg. And here’s why: the parking tax reductions are part of an overall tax reform package for Pittsburgh. It is not as though the parking tax is the only change going on. Recall that in 2005 the City was able to levy a new payroll tax and the $10 tax on workers jumped to $52. In return, the business privilege tax was cut and the mercantile tax was eliminated. These changes netted the City $17 million.

In addition, the City is getting a share of the school district’s wage tax, which is netting them money. They also don’t have to send the school district the $4 million they did when the RAD tax was created.

The parking tax reductions are part and parcel of this overall reform plan. It was not just supposed to force garages and lots to cut their rates. In fact, with many facilities holding their rates steady, they are absorbing a lot of the increased costs coming in the past few years.

In all, based on the City’s five-year financial forecast and actual collections from Controller’s data, revenue from directly-levied City taxes will stand at $320 million in 2012, up $60 million from 2000.

The state oversight board has approved the City’s proposed 2008 budget and five-year financial forecast. That budget encompasses the state-mandated reduction in the parking tax, which will fall from 45 percent this year to 40 percent in 2008. We should be hearing this morning of the Mayor’s intention as to whether he will veto City Council’s ordinance that would have froze the parking tax at 45 percent.

If Council holds on the freeze, and they include it in their budget review which will begin November 13th, they clearly will be a standoff. They can craft their own budget and submit it as a revision to the ICA, but it would likely not withstand scrutiny and would certainly jeopardize other revenue streams upon which the City is counting.

While the City is to be commended for holding spending to a 1 percent increase next year, they and the ICA have to get working on the future years, where spending is projected to increase from the $420 million next year to $470 million by 2012, a 12 percent jump. That’s definitely not the direction in which spending should be headed, and the state’s overseers need to steer the City toward a more sustainable path.

Striking teachers in the Seneca Valley School District have illuminated the priorities of Pennsylvanians: education and strikes take a backseat to football. The District’s football coach, also the tenth grade English teacher, has decided to cross the picket line to coach the team because “we have an opportunity this year to go to the playoffs.”

Never mind the longer than long odds of any of these players playing professional football or even attending a major college program on scholarship, football trumps academics. What will happen when these students do not have sufficient skills to do well on SATs or college entrance essays? While the district is required by state law (Act 88) to get in 180 days of school in by June 15th, college entrance exams and essays are due long before then and the delay caused by the strike could be detrimental to those relying on their academics to get into good schools or earn scholarships. With the competitive environment of college admissions and limited scholarship money, time is valuable. Crossing the picket line to coach football does them no good.

Coaches from other sports are expected to cross the picket line as well. But this does more to serve the teachers’/coach’s image more than the academic well being of the students. The students get to enjoy the extra curricular activities while not having to worry about school work—a situation which will make most of them happy. When the students are happy they will convey this to their parents who will end up supporting the teachers.

If these teachers are willing to cross the line to coach, they should be required to teach class as well. Academics should not be second to football—otherwise it’s a terrible lesson for these students to learn.

According to the Urban Land Institute, there is an over-supply of retail space in Downtown Pittsburgh in relation to current demand from customers. That’s not too amazing given the fact that the City just wound up years of trying to make the Golden Triangle a shopping mecca, including the construction of two new department stores, one of which is now being transformed into residential units but will include space for retail. As will the PNC tower and the rehab of the G.C. Murphy Building.

Some observers characterize it simply as “too much space” while others give it a “not too much, just the wrong kind” slant. This latter group would like to see some of the existing retail replaced with higher-end and unique to Downtown shopping.

Sound familiar? It should, because this echoes the late 1990s plan to create a Marketplace at Fifth and Forbes by leveling a swath of buildings to create a Downtown mall. While it might have been unique, it would have also contained, among other features, a Downtown movie theatre that would have been in competition with suburban locales.

Guess we can breathe a collective sigh of relief knowing that one did not go through—who knows what type of over-supply—and at what cost to the taxpayers—the City would now have on its hands. It is also interesting to note that one of ULI’s current “so-called leading experts” is the former Mayor of Pittsburgh who put together plans for the Marketplace. One must wonder if he had any input into this study. It is clear that the laws of supply and demand were not part of the thinking when that path was nearly taken.

Are the City’s sanitation workers better than their counterparts in the private sector hauling business? The Mayor certainly thinks so. Because, according to him, not only did the City best private bidders to pickup garbage in the City, they have extended their reach to the neighboring borough of Wilkinsburg.

There is some truth to the Mayor’s statement: the City’s in-house proposal did beat out two private sector proposals. But it was not the kind of even-handed competition one might expect. Under Act 47, there was supposed to be a two-step evaluation. In stage one, private haulers only were allowed to bid, followed by a wide-open competition with public and private proposals. The first step was to allow for “an opportunity to evaluate contracted services”. But this plan did not come to pass. Instead, there was a combined bid that, by no surprise, the City won. The bid required the winning bidder to try and hire as many City employees as possible: think that drove any prospective bidders away?

On the Wilkinsburg issue, it is true that after being served by Waste Management that the borough instead opted to go with then City, saving about $250,000. But as the City’s public works director pointed out, the City’s refuse division does not pay taxes or worry about making a profit. Add to that the fact that a private hauler is still handling dwellings over 5 units, commercial pickup, and the borough is handling recycling and it is not the all-encompassing picture the Mayor paints.

Sure, the City refuse division has had some recent wins. But this is the same division that almost went on strike during the 2006 All-Star game, too. They possess some clout that other haulers do not. Maybe these successes will lead to an all-out, Citywide bid someday.

Faced with the prospect of having to approve new taxes to fund mass transit, some members of County Council are holding firm and insisting on cuts to County spending. The administration has fired back at those members, noting that declines in personnel have exceeded the declines in County population, so the calls for cuts or restraint on spending are unfounded.

Perhaps those members were interested in cutting things other than personnel, but that’s the line the Administration took and ran with.

The Executive’s spokesman noted that “there was a decline of 22 percent in county government employees while the population decreased by 9 percent” since 1995. This is close to 1,500 jobs. But it fails to take into account two very important points. First, in 1999 the County’s Aviation Division and its 500 employees were transferred to the newly-created Airport Authority. Second, there have been substantial declines in the Kane Hospitals owing to the need to align capacity and costs with other nursing homes.

It sounds like one of those commercials promising a “buy now, pay later” option. The County Executive’s budget message calls for enactment of new taxes on drinks and car rentals for mass transit, yet the Port Authority isn’t supposed to get the money until fundamental changes are made.

“If the drink tax [and car rental tax] passes we will not give a penny of it to Port Authority until they get rid of their outrageous benefits”. That’s akin to buying a bright new shiny toy for a toddler, letting him know that the toy is in the closet within reach, but not giving it to him until he changes his behavior. It would be better to leave the toy on the shelf in the store.

Let’s face it—this plan does not work. Why not get the changes from the Port Authority, either when the contract is negotiated in June or before that if there is a reopener, see the results, and then decide whether there is even a need for new taxes? Perhaps getting rid of benefits, retirement after 25 years, and a freeze on hiring and wages will eliminate the need for making it more expensive to drink or rent a car in the County.

And how will the union guarantee they won’t go on strike when the contract is up? By shutting down the system and crippling transit, that puts pressure on the PAT board for a settlement and an even quicker disbursement of the stockpiled funds. Let’s face it: the egregious benefits and behavior at the Port Authority has yet to jeopardize the County’s annual $25 million check written from property tax receipts, so why would this be any different?

Pittsburgh Public Schools’ enrollment continues its free fall. In 1998 enrollment stood at 39,600 but by 2006 was down to 29,445—a 25 percent drop. Official enrollment in 2007 slid a further 1,100 students to stand at 28,265. Losses are projected to continue unabated at least through the end of the decade.

Amazingly, one school board member, instead of seeing this as alarming, didn’t seem fazed. He said “the same way you did not lose them overnight, you’re not going to get them back overnight.” The point the member has obviously missed is that the losses keep coming. Indeed, there is no sign the hemorrhaging will end any time soon. Folks are not coming back despite the new programs and the cosmetic revamping of the district—the equivalent of putting new paint on a crumbling house.

One major reason for the decline is the poor academic achievement in the district—only 52 percent of the students scored proficient in reading while only 55 scored proficient in math. The district’s best high school did not meet federal achievement benchmarks for the past academic year. Parents wanting success for their children are choosing alternatives by either moving out of the City or choosing private or charter schools.

Despite the decline in enrollment, costs will not decrease as general fund outlays this academic year stands at $18,680 per student. Without question the high cost of the district and the accompanying high taxes are driving residents out of the City and deterring new ones from moving in.

Turning the fortunes of the district around will take a major overhaul. But given the lack of will to engage in meaningful reform owing to political correctness, institutional resistance and labor pressure, we can only watch as the district continues to deteriorate.

The Pittsburgh Penguins are proposing to put a practice rink into their new arena. The arena, being constructed primarily with the tax from slots machines as well as other assistance from taxpayers, should have been privately constructed. This new practice rink idea illustrates the point.

The arena could have been built with revenue bonds—bonds that would have been repaid with a percentage of revenues from things like concessions, tickets, luxury boxes, etc.—as had been done in Denver and Miami. The onus should have been on the team to make the facility profitable by aggressively marketing it to other events and adding restaurants and shops. But why take responsibility for something when politicians (through taxpayers) are willing to do it for you?

The practice rink is just another example on how this new facility could have paid for itself. As noticed by an expert in sports marketing, “ice sheets are in high demand, especially in urban areas around the country…hav(ing) an ice sheet where the professional team plays, it adds a lot to the cache to the venue, and you can charge a premium price.” The rink can be another money maker at the new arena. Instead of using this money to help pay for the facility, it will go into the team’s pockets—courtesy of the taxpayers of Pennsylvania.

The team will tout it as a “giving back” to the community and are willing to pay the extra cost of adding the rink to the new arena. If they really wanted to give back to the community, they can start by building their arena privately.

The City Council took a preliminary vote today on freezing the parking tax rate at 45 percent and eschewing the state’s tax rollback under the 2004 reform package. In so doing, Council wants to take the money it would have lost from the rollback over the next three years and use it for non-operational purposes of pensions and debt.

Whether this holds (the vote was 8-0 with one abstention) is debatable, but Council’s stand of solidarity is likely to backfire.

Consider what could happen: the state could nix the shift of 1/10 of a percent of the wage tax that was supposed to come from the school district, a move that will result in millions of additional dollars for the City without an increase in the total rate.

Or it could trigger the ICA to withhold gaming money when it materializes, or the non-profit community could void its contribution through the Pittsburgh Public Service Fund.

In other words, there is no upside for the City in this standoff. Even if they did succeed, the contribution of money from the parking tax freeze will make a minimal dent in the pension and debt funds at which proponents have targeted the funds.

Parents in the Duquesne school district have had to deal with a number of distractions over the past few years. Their failing school district had been taken over by a state board of control and their high school shuttered with students split between two nearby districts. Now they may have to contend with striking teachers.

But unlike the typical teacher strike, for which Pennsylvania leads the nation, this one pits the teachers against a management team and not a school board. The teachers’ claim they have worked with three different management boards (the first in-house, the second from Pittsburgh Public Schools, and the current from the Allegheny Intermediate Unit) without successfully agreeing to a new contract. But who are they striking against? Even though the district is being managed by a team from outside the district, they are still under the control of the state Department of Education.

The strike should not be over money as the District spent more than $17,000 per student with state and federal taxpayers picking up 66 percent of that amount. This per pupil amount is one of the highest in the state. Furthermore the return on investment has been substandard as Duquesne is one of the worst performing districts in the state—so much so that the high school has been closed. Thus these teachers operate a district that ranks near the bottom of the state academically but near the top in per pupil expenditures—if anything taxpayers should strike against the teachers.

Striking against the state may prove detrimental in the long-run. Unlike a traditional school board where members live in the community and can be pressured by parents, this may not the case with either the management team or the state control board. They could be immune from community pressure. Since state law (Act 88) mandates the length of strikes so that the full 180 day school calendar is completed by the end of June, the board of control could choose to ignore the strike. The parents, who would have to find care for their children who would otherwise be in school, may then apply pressures to the teachers themselves to end the strike.

Finally a strike may force the closure of the middle and elementary schools—putting the teachers out of work. Since it appears that the closing of the high school has been successful, the state may follow suit with the other schools and lay off the remaining teaching staff.

This may be one strike where the power does not lie with the union, but rather the state control board. The control board can force the teachers to the bargaining table and require them to live within the District’s financial means. It should be able to ask for and receive concessions on salaries and other perquisites such as health care. This could be a turning point in bringing the District back to fiscal solvency. Or it could be the end for the Duquesne School District.

Tax that fellow behind the tree”. In almost predictable fashion, the menu of funding sources for the County’s share of mass transit is growing exponentially.

On the table now, and the subject of a public hearing tonight, are the optional taxes on car rentals and poured alcohol. Of course, those industries are rightly opposing being targeted by those taxes. One industry official has now suggested hitting the non-profit organizations who have a lot of employees who use mass transit to fund the system. (One might think that would simply be a fare increase instead of another tax, but that is not what was proposed). It has also been suggested that a city-county consolidation might do the trick.

Clearly, these folks have taken their eyes off of the prize. The key is to make the common sense reforms at the Port Authority in the way of a contract re-opener that demands wage and benefit concessions, permission to move to smaller buses, and the other numerous reforms we have previously suggested. This would avoid new taxes that would be disastrous for the County.