Allegheny Institute Blog

Recently the Census Bureau released its annual report on earnings, income, and poverty for American Communities (http://www.census.gov/prod/2008pubs/acs-09.pdf ). One local newspaper’s headline noted “Pittsburgh 5th Poorest Big City” referring to the Census report’s ranking. In 2006, Pittsburgh ranked seventh worst. They then go on to say that “unlike some other poor cities, however, Pittsburgh contains affluent neighborhoods…potentially skewing the results to make the city look wealthier than it truly is.” But the real question the paper needs to ask is simply this: Whose policies have placed Pittsburgh in this situation?

For decades, Pittsburgh has been a city ruled by one party and controlled in large part by the labor unions. These politicians have enacted policies that have shackled economic growth and development and pushed businesses and people across its borders. They have pushed for wage mandates, increased taxes, and sought the implementation of new taxes.

Their idea of economic growth has been to subsidize favored projects like retail stores (Lazarus and Lord and Taylor’s), large scale urban development (Marketplace at Fifth and Forbes), and professional sports teams.

Joining Pittsburgh at the bottom of the list are the rust belt cities of Detroit, Cleveland, and Buffalo. Cross state Philadelphia barely missed being ranked in the bottom ten cities. All these cities share the problem of one-party rule and union dominated policy making.

Command economics, such as being implemented in Pittsburgh and the other cities, are not getting the job done. What Pittsburgh needs is to adopt policies to lower spending, cut taxes, and outsource non-core services. They need to make Pittsburgh a more inviting location for businesses—without the help of taxpayer subsidies. They need to stop raiding taxpayer wallets for the benefit of a few favored groups. Only when this is done will Pittsburgh begin to climb out of the economic doldrums and see household incomes rise toward levels of more prosperous cities.

The statute describing the distribution of tourism and economic development projects funded from gaming states that $20 million will be distributed for “payment of the operating deficit for the operation of a convention center in a city of the second class established pursuant to the Public Auditorium Authorities Law”. That—along with $20 million for indebtedness at the center and $44 million for the hotel next to the center—means gaming will deliver $84 million for the convention center to cover annual losses, pay back debt, and build that elusive hotel supposedly needed to land the really big conventions.

Consider that had local officials not gone “ga-ga” and opt to overbuild the center there would have been enough money from the hotel tax to cover operations. And had the center really been the economic generator claimed by some, several privately financed hotels would be now standing to serve conventioneers.

SEA officials had been expecting to receive $2 million from the state gaming money for the operating deficit, but due to a change in amount and length of agreement, they will get $1.7 million, an amount allowed by the statute. That, along with the fact that the agency determined it needed another $1 million annually for convention center maintenance, repair and replacement beyond what was budgeted, means the RAD board will hear a pitch for giving an additional $2 million to the center. Once again, the SEA is arguing that since the RAD board’s allocation to Mellon Arena is decreasing it can simply shift that money the Lawrence Convention Center. But legislators are raising red flags over the request, noting that the center is not a regional asset and giving it money will crowd out other applicants.

Will the center ever be self-sustaining? Or will it at least reach the point where, once the gaming money has helped build the hotel, the hotel tax proceeds will be enough to cover the operations? It is doubtful—instead, the appeals to the RAD board, the state, or anyone else left will be the norm.

State taxpayers might be made compulsory investors in a western Pennsylvania ski resort that lost $220,000 the last time it was up and operating. The owners of Seven Springs—the same ownership team that thrills and excites the region with the Pittsburgh Pirates baseball club—want improvements to the facilities there (the ski lift and the snow making equipment) and call state assistance in the deal “critical”.

The money is available and can be released at the Governor’s request. That implies that the funding will come from the state’s Redevelopment Capital Assistance Program, a very broad fund that is supposed to eliminate blight and spur redevelopment. We guess a non-operating ski lift or snow making machine can certainly blight an area.

How unfortunate. Even the County of Allegheny is exploring private options for its ski area at Boyce Park in order to make the attraction more attractive. The Seven Springs team is going the other route and seeking out nearly $7 million in direct subsidies and, if it can make the negotiations happen (they need to secure a long term lease with the state Department of Conservation and Natural Resources) and the state releases the money, the ski area will open this winter. Skiers can thank taxpayers for covering the cost of their lift ticket and the fresh powder.

A suit filed by a restaurant owner and a County Councilman against County Council’s shameful “end-around” a petition to put the drink tax on the ballot will hopefully decide once and for all whether or not Council can pass an ordinance to put a non-Charter issue on the ballot. Article XII of the Charter permits voters to petition the Council with 500 signatures to consider legislation; it also permits voters to collect signatures equaling 5 percent of the electorate voting in the most recent gubernatorial election to bypass Council and put an issue on the ballot; and lastly it states that amendments to the Charter can happen by referendum either initiated by an ordinance of the Council or a petition of the voters.

The language is clear: unless the Charter is to be altered, Council is out of the loop in initiating a referendum question. Yet the administration “disagree[s] with…[the] interpretation of the ordinance and referendum”. But there were no legalistic explanations offered, just more of the same hyperbole that proponents of the drink tax repeal referendum just want to raise property taxes, etc.

But it is more than that. What hinges on the decision is whether the electorate of the County has the power to petition its County government or whether Council retains the “trump card” of proposing counter ballot issues whenever it encounters a question it does not like.

The Pittsburgh Public School District is retaining the services of two auction firms to find buyers for at least 18 surplus properties owned by the District. As of this year, the District has 65 buildings divided among high-, middle-, elementary-, and special use schools. A study last year by the PA Association of School Business Officials noted that the Department of Education projects enrollment to fall from about 29k this year to 21.5k in 2015.

So it is clear that the District needs to downsize and it can accomplish a few positive goals by moving idle property. First, it can rid itself of about $2 million in maintenance costs. Second, if the private sector takes the property, the District and the other taxing bodies get the real estate revenues.

There is a lot of exempt property within the City’s boundaries that are in use and owned by a variety of owners for a variety of uses. The District owns a good bit of that active property and should be aggressive in moving the surplus, and it might prod some of the other levels of government to do the same. The City and other governments should hire an auctioneer and move property.

While ground was being broken on the new uptown arena, fans, elected officials, and taxpayers learned they were bluffed by team ownership during the process to secure public subsidies for the facility. Principal owner and former star Mario Lemieux admitted that moving the team “wasn’t a possibility” and that trips to visit other cities were elaborate ruses designed “to put pressure on the city and the state…” No kidding?!

Anyone with an understanding of the world of professional sports knew the team’s threat to move to Kansas City would have been a financial disaster for the team in the long-run. As we wrote a previous Policy Brief (Vol. 7, No.1), Kansas City is a much smaller market than Pittsburgh and had not been able to hold onto its previous NHL franchise the Kansas City Scouts (now the New Jersey Devils). The threat to move lacked credibility, which did not stop officials from caving in to team demands.

On the same day as Mr. Lemieux’s confession, Chicago billionaire Neil Bluhm was chosen by the State Gaming Control Board as the new recipient of Pittsburgh’s casino license. Over the preceding few weeks, Mr. Bluhm threatened that if he wasn’t given the license, the stalled casino project would enter bankruptcy and the cash strapped city and county, as well as the aforementioned arena, would be severely delayed in receiving their share of gaming proceeds.

Credit Suisse, holder of a defaulted bridge loan would not have been served well by taking the project into bankruptcy. Again as we wrote in a previous Policy Brief (Vol. 8, No. 48), “This seems somewhat unlikely since the process of finding a buyer for the property and the semi-completed structure could lead to greater losses for the bank than waiting to collect from new investors who have been thoroughly and completely vetted by the Board.” While Mr. Bluhm has not revealed his bluff just yet, his idle threat was rewarded with a unanimous vote from the gaming board.

Any good gambler will tell you that sometimes you have to bluff to win. But they will also tell you that sometimes you must call a bluff to win. People looking for public subsidies always seem to remember the former, while elected officials never remember the latter. Unfortunately it’s always the taxpayers that pay up.

We know that Pittsburgh’s three pension plans—police, fire, and non-uniformed—are well underfunded. The Controller’s Audit shows that as of January 1, 2007, liabilities exceeded assets by $524 million, resulting in a funded ratio (assets/liabilities) of 42 percent. There are more retired members than working members vested in the system. With 4,500 retired/beneficiaries/terminated but vested employees to 3,200 active working members, the City’s pension system is exhibiting the same trend as the Port Authority. More frequent or early retirements just weighs more on the existing assets.

Now comes word that the pension plans lost $55 million this year, some of it due to market conditions, leaving $330 million in assets. The irony to this is that if the pension system was 100 percent funded, the hit from market conditions would have been more severe in terms of overall dollars, but it is hard to argue that the City’s pensions are better in their current funded form instead of the alternative.

The Mayor opined that “I don't know that the market will ensure success or failure…[since] a great performance still isn't going to get us out of our problem.” Truer words could not have been spoken.

The City will make its minimum municipal contribution to the system and when gaming money does materialize the plan is for the oversight board to direct some or all of it to pensions. In the meantime, there needs to be some game plan toward reforming the current obligations and adjusting for the future. That includes moving to more defined contribution instead of defined benefit plans and bringing City employment numbers down to curtail future liabilities.

Neil Bluhm is at it again—making idle threats to the Gaming Board. Once more he is telling the Board that if they don’t transfer the license to his group, Pittsburgh Gaming Holdings (PGH), Pittsburgh’s in progress casino will go into bankruptcy and doom and gloom will follow.

Mr. Bluhm told lawmakers at the end of July, that if the Gaming Board did not transfer the slots license to PGH, that either Mr. Barden, the current license holder, or Credit Suisse, the holder of a defaulted $200 million bridge loan could take the project into bankruptcy. The problem with that threat is very simple: if either group takes it into bankruptcy, they will not come close to recouping any losses. After all who would buy a semi-completed casino? Credit Suisse knows the project will be completed by someone, so they would be better served to wait it out.

The same thinking holds true for the contractors who are waiting to go back to work.

Mr. Bluhm must be very eager to get his hands on this license, so much so that he has increased PGH’s equity level from $120 million to $200 million. While putting the transfer on the fast track might appease City and County officials, who anxiously await gaming money for their strapped budgets, the Gaming Board must show restraint. The Gaming Board needs to thoroughly and completely vet all parties involved—including the very complicated layout of family trusts Mr. Bluhm has set up to disguise his ownership and control of not only the Pittsburgh casino, but the Philadelphia casino as well. They also need to look at whether or not it would serve the public interests more to rebid the casino and start fresh.

This is a very complicated issue that needs to be handled carefully—regardless of the threats of Mr. Bluhm.

On December 4, 2002, the Steelers unveiled plans for an amphitheater on the North Shore. The Pittsburgh Post-Gazette report from that date stated “The financing for the amphitheater will be private, [Steelers president, then vice president Art] Rooney said, avoiding the type of controversies that accompanied the building of PNC Park and Heinz Field, which involved large amounts of public funding. Rooney expected that naming rights would be sold to help raise funds for the amphitheater, but couldn't say yet how much the rights would cost.”

So how did we get from that concept to this, yesterday, from the developer of the amphitheater: “When the project was conceptualized, it was conceptualized with a subsidy…Nothing has changed.”?

Obviously a lot has changed, except for the ability of some people to arrogantly reorganize the facts to their liking.

The amphitheater deal now smells really bad. Consider that the Steelers and the developer are getting the parcel of land at a deeply discounted rate, and now are making an appeal to get taxpayer help to build the structure. Of course, they argue that the site is idle now and will throw off lots of new revenues for the state when the complex is built. But that’s not a valid argument: lots of idle sites get developed without subsidies and their net return in taxes is much greater because they aren’t getting a handout.

It is likely that the money will be forthcoming if the City agrees to go along and help with the application for the state. Recall that the money was in hand about four years ago when the City and County convinced the Steelers and the developer to move the money to the North Shore parking garage, a project supposedly more important than the amphitheater but behind that structure in getting public money.

A group of state representatives, mostly Democrat, delivered a coup-de-grace to a possible City-County merger any time in the foreseeable future. In their comments, it was clear the Allegheny Institute’s arguments explaining why such a merger is untenable, and would require a constitutional amendment, won the day.

Our analyses and writings have thoroughly discredited the Nordenberg Report, which called for the merger, by documenting the inadequate research, the wrongheaded conclusions and the glossing over of important considerations.

Chief Executive Onorato and Mayor Ravenstahl have been handed a major political defeat. Onorato because he has been shown not to be invincible politically and Ravenstahl for demonstrating a willingness to go against his own better judgment in hopes of currying favor with powerful groups and individuals.

Now the two gentlemen can get back to what they should have been doing all along; putting together plans to have the City contract with the County to provide services such as public works and parks management and maintenance.

What hubris!! The same Council president who is patently in violation of Allegheny County’s Home Rule Charter by placing a referendum question on the ballot that is not related to amending the Charter says he will consult with the county solicitor to see if the drink tax referendum put together by a citizen group can be challenged. A referendum question called for by over 40,000 signatures gathered by a process based on Charter requirements, unlike his own which does not conform to the Charter.

In another comment, the president of Council says that passage of the roll back in the drink tax would violate the Charter because it would create an unbalanced budget. Piffle. The vote will occur in November. The roll back in the tax would leave ten months collections in place for 2008. And by all account the two new taxes will have brought well over the $27.5 million needed for the Port Authority. Thus, the Council and the Executive will have to focus on 2009’s budget. The 2008 budget will not be unbalanced. There is no reasonable argument there—as if Council cared about reasonable argument!

Here’s the cowardly part. Council does not want to make spending reductions and it does not want to have 10 Democrats having to vote for a property tax increase. That is the reason they went after the drink tax in the first place. And two, they do not have confidence in their ability to convince the voters they will raise the property tax or slash spending if the drink tax is rolled back.

And they certainly have not had the courage to ask the Chief Executive to explain how its that a mysterious large budget deficit suddenly appeared in December, about which they were not formally or officially warned, or how just as magically the state jumps in with a last minute transfer of more than $22 million that no in Council had been apprised of in advance—at least not officially. Does the Charter not require that budget deficits be made known as soon as they are obvious and would Council not have to know about receipt of the funds and approve their expenditure? Where was the gnashing of teeth about Charter legal niceties at that point?

The Port Authority has a new problem: absenteeism. A recent newspaper report notes a small percentage of Port Authority’s employees habitually do not come to work on time, if at all. It is estimated this absenteeism could cost the Port Authority up to $500,000 annually.

Despite a large number of sick days, personal days, vacation days, and legitimate days as allowed by the 1994 Family Medical Leave Act (FMLA), there are habitual offenders who show up late or don’t arrive at all.

Because the FMLA ambiguously defines illness worthy of time off as any “serious health condition,” half of the FMLA absences were “intermittent leaves” lasting anywhere from one day to a few weeks for illnesses such as the common cold or earaches—a clear abuse of its original intent. In fact, 560 workers, or 21 percent of the employees, received time off as a result of FMLA—totaling 14,507 days.

The abuse of leave forces the transit agency to pay overtime to those who are on duty. This overtime is not only at a higher rate, but inflates an employee’s annual earnings which could result in higher retirement benefits. So absenteeism not only costs the Port Authority in current payments but has a lasting legacy effect.

Eliminating chronic absenteeism should be easy to do, just terminate the serious repeat offenders. However, it’s not that simple as firing union members is very difficult. In many cases, employees escape punishment. Just another example of the ridiculous stranglehold the transit union has on public transportation in Allegheny County.

“This is the most complex political campaign that the community will ever see”. So sayeth one of the leaders of the Louisville merger campaign in an appearance before the Allegheny Conference of Community Development on what it will take to convince voters that a City-County merger would be a good thing. Education, a lot of cash, and a lockstep unity from corporations and local governments will be required.

Considering that the Louisville merger happened after many referendum attempts failed and that Louisville and Jefferson County had merged a significant number of services during the intervening years, if the measure was complex there it will be doubly or triply complex here. Unlike Louisville, there is no unincorporated area here, there is no Countywide school district here, and there was not the woeful level of pension funding and City debt. These are major obstacles that have to be dealt with. And that simply takes time.

Where’s the heat on the people who studied the issue? The merger committee had twelve months—and took seventeen—to complete a report that was supposed to answer whether the City and County should merge. The product they delivered made no concrete recommendations or identified potential savings. We guess they expected someone else to do the work, most likely a legislative committee. Yet one corporate official said “Harrisburg’s gotta act”. Act on what, exactly? That the idea of a merger is great and the details will be sorted out later? Another community leader noted that “there needs to be a followup commission or report to iron out the excruciating details”. Study, present, repeat.

In the meantime the County Executive and the Mayor could work on merging just one of those functions that they always point out as duplicative. Maybe Parks or Public Works. Then the voters can see something concrete.