Allegheny Institute Blog

The Regional Asset District (RAD) Board is happy. Their revenue from the County’s local option sales tax is expected to reach $76.5 million--$1.2 million higher than the 2005 level. As a result, the County’s parks, libraries, and other cultural and recreational venues will be funded and some new recipients—including the Convention Center—will partake of the bounty. And a big part of the reason the Center is getting some money is that the RAD Board’s funding for debt service at Mellon Arena has dropped from last year.

But a quick review of the RAD’s historical numbers reveal that the 2007 projected sales tax amount is only $3 million higher than where it stood in 2000, when it was $73.5 million, the previous record year. Consider what we have had in the intervening years: several Steeler playoff games, an All-Star baseball game, conventions and trade shows, the Bass Master competition, a plethora of new retail and eating establishments, including mega-malls like Pittsburgh Mills, South Side Works, Mt. Nebo Pointe, the Point at North Fayette, etc.

All those new venues and all that activity and all we have to show for it is a 4 percent boost over 2000 levels. Far from a strong showing. If sales tax receipts had matched the growth in the Consumer Price Index for the Pittsburgh area since 2000 (16% through the first half of 2006), then the RAD board would be distributing closer to $85 million this year. Instead, receipts are well below that and, if the present trend holds, will show paltry growth next year. And with no boost from an All-Star game, no Steeler playoff games, and no new big mall opening to give a temporary boost to sales, 2007 could see flat revenue numbers.

Thus, the RAD Board’s jubilation is very premature.

Count the PG editorial board as the latest voice in a chorus demanding that parking lot and garage operators roll back their rates to coincide with the phase down of the parking tax from its present 50 percent rate to 45 percent on January 1, 2007. It is the first step of a state mandated multi-year reduction that will end in 2010 when the rate reaches 35 percent.

We noted in a recent report on the City’s budget that we would not expect the five percent reduction to reap any savings for those who park in the City. And those that are pushing for the rate rollback are failing to note that the costs of lot and garage operators have gone up since 2004, meaning that they are not unfairly pocketing the dollars as opponents believe.

There are two methods of recourse for the City. One was pointed out in the editorial: the City’s Public Parking Authority controls a good deal of parking in the City. The board of directors are appointed by the Mayor and serve at will. If they do not agree to lower the rates, the Mayor can ask for their resignations and appoint people who will lower the rates. That seems unlikely and the executive director of the Authority has already stated that “as of now, we don't anticipate lowering rates”.

Second, the law creating the payroll tax and fixing the rates of the parking tax and its phase down states that in 2007 the “rate of the tax shall not exceed 45%” (italics added). The same holds for 2008 through 2010. If City Council and the Mayor are really interested in helping those who park, why don’t they bite the bullet and lower the rate to 35 percent next year? The City is budgeting $47 million from the 45 percent tax next year, and $38 million in 2010 when the rate will be 35 percent, meaning the reduction will cost $9 million over the next three years.

After all, who needs the parking tax revenues more, the City or the folks parking in the City? According to the logic of the PG, the parkers deserve it. So let’s see if the City can save $9 million from its $420 million budget and return it to the parking customers.

While the Port Authority (PAT) boasted of increased ridership of bus, incline, and light rail of 2.6 percent from 2005 to 2006, the latest monthly breakout suggests that weekday ridership on the light rail is starting to decline. News reports note that the amount of weekday riders using the light rail in October 2006 were 8 percent lower than in October 2005. The official explanation was construction that may have made increased the length of a trip, thus dissuading riders.

That explanation may account for a small decrease but it would not fully rationalize why more than 2,100 riders stopped using light rail. The construction only delayed the trip by detouring the train, adding on a few extra minutes—it did not increase the time of the trip substantially. Since most weekday riders use light rail to commute to work, more than likely they would adjust their boarding times to compensate, not abandon the system altogether.

A more likely explanation is the fall in gas prices. In October 2005, the nation was reeling from a spate of hurricanes and the rising price of gasoline. This more than anything forced people to mass transit and the Port Authority benefited.

However, until FY2006, the longer term trend pointed to a decline in ridership. From 2002, PAT fare paying passengers on the bus, incline, and light rail services fell 2.1 percent from 52.8 to 51.7 million in 2005. But in 2006 the number of riders had climbed to just over 53 million for a one year increase of 2.6 percent—but a four year increase of only 0.4 percent. As gas prices stabilize, will more riders abandon light rail and prove this one-year increase to be anomaly in a declining trend?

Despite the decline in riders, the Port Authority continues to pour money down the rails. First it was the Overbrook line, with a cost of $386 million, the South Hills station parking garage ($24 million), and now the North Shore Connector boondoggle—with expected costs of $435 million. That’s nearly a billion dollars being spend on light rail riders—who become fewer and fewer every year.

However, the true outrage is that despite the declining trend in ridership and escalating costs, the Port Authority continues to go hat-in-hand to taxpayers asking for more subsidies. Their pleas have found a sympathetic ear in the Governor whose task force has recommended increasing a variety of taxes—including an 11.5 cent increase to the gas tax. Enough is enough. Until the Port Authority begins to cut expenses, privatize functions, and abandon the North Shore Connector, they should not receive another nickel.

The County Executive is prepared to ask County Council for a May referendum question that, if approved, would make the Sheriff an appointed position. It would likely pass, especially given the allegations of malfeasance facing the office and the criminal convictions of its leadership. And history shows that the voters want to eliminate the row offices. In 2004, voters overwhelmingly went for a ballot measure that eliminated the election of six row offices, including coroner, recorder of deeds, and jury commissioner. Those positions have since been folded into the administration.

If the Sheriff’s office was made an appointed position, that would leave three row offices—district attorney, controller, and treasurer. We wonder what the arguments are for leaving the treasurer’s office as an elected position. If there needs to be a guardian for the public’s dollars, the controller can certainly fill that position. There are also outside auditors that perform these duties. There is not a real justification to keep an elected office described in the County’s audited financial statement as “responsible for all receipts and disbursements of County monies…[and] is the principal investment officer for the County”.

Whereas we could make a reasoned argument for keeping the D.A. and controller separate from the administration, the same does not hold for the treasurer. If it is an office for housing patronage jobs, then all the more reason its elimination should be supported by good government crusaders and those wanting cost-effective County government. In sum, the Executive ought to include the elimination of the elected Treasurer’s office on the May ballot.

The Pittsburgh Gaming Task Force is calling for at least $290 million from the winning applicant for Pittsburgh’s stand alone slots license. They say that since the Isle of Capri has offered that amount to build a new arena, the winning applicant, if it is not Isle of Capri, should pay at least that much to the community.

In addition to the Isle of Capri’s offer for a new arena they have pledged another $400 million to redevelop the lower Hill. PITG gaming has also offered $350 million to develop the lower Hill District, and Harrah’s has offered $500 million to develop around the Station Square area.

But would the City prefer to have hundreds of millions in new development or in cash? A $400 million development would begin to pay property taxes, but at the current City millage rate of 10.8, it would only bring $4.3 million to City coffers annually. Assuming a 30-year life span, the development would realize $129 million in property tax revenues. A City in Act 47 distress would be much better off if it had the $400 million up front.

If they wanted to be useful and help the City, they would pressure the state Gaming Control Board to auction the license off to the highest bidder. Since the $50 million license fee has not yet been paid, it is not too late to hold an auction. The bidding could start at $300 million. Since the Isle of Capri has offered a package of nearly $700 million a bidding process could result in a nice windfall for the City.

Having this money up front to cut taxes, pay off debt, or to fund pensions would provide a greater benefit to Pittsburgh and its citizens than any development could. If the Pittsburgh Gaming Task Force wants to serve the best interest of the City, this is the tack it should pursue.

Beginning January 1, 2007 the City of Pittsburgh will begin to haul refuse for the Borough of Wilkinsburg, its neighbor in the eastern suburbs. Wilkinsburg is switching from a private hauler (the contract has expired) and will move to the City after having conversations with City officials going back 4 or 5 months. The deal is expected to save money for Wilkinsburg, while the City plans to hire 8 additional workers to handle pickup.

It is not unheard of that when public services are opened to managed competition between private and public providers that the public provider can innovate, lower its costs, and win the bid. It happened in Indianapolis, a city which was on the forefront of managed competition, when its refuse division won several of the bids the City requested. As a result, as documented in former mayor Stephen Goldsmith’s book The 21st Century City, “the cost per household for trash pickup dropped…[public] crew productivity [escalated]…absenteeism and workers’ compensation claims also decreased”. We have detailed the savings from contracting achieved in Denver’s public transit system.

So it can work. But leave it to Pittsburgh’s refuse union to make claims that go too far. “If the private sector can compete against public employees, why shouldn't we be able to compete with them?” were the words of the head of the union. If only that was the case. The City has long resisted opening up trash collection (and most other City functions) to competition. And, when the Act 47 plan mandated it, the competition was very limited in scope.

The Recovery Plan outlined a two-step “Managed Competition of Municipal Solid Waste Services”. In step one, the City was to issue an RFP for 10 percent of the City’s households and, in order “to provide an opportunity to evaluate contracted services, the City workforce shall not compete for this initial pilot service area”. In step two, the “City workforce shall be included among the bidders in competition with private contractors”.

Good in theory, but that is not how it worked out. Instead, there was no private pilot program and bidders were instructed to submit bids for both phases, reducing the interest of outside vendors. With little surprise, the City refuse union ended up winning the entire bid. Why the original Act 47 plan was altered is anyone’s guess, but it is quite probable that the union and its allies on City Council shuttled the two-step process. As such, there was no way to evaluate whether an honest, open process was ever really attempted.

So what’s the story? The City is adding to its labor costs and potential workers’ compensation liability. Not the way to go for a City in recovery and under oversight.

Magna Entertainment sold the Meadows Racetrack for $200 million to a Las Vegas based company, Cannery Casino Resorts. What makes this deal stand out is not the nearly $150 million profit Magna earned over five years, but how the state gave away money by selling casino licenses for a flat fee of $50 million instead of auctioning them off to the highest bidder.

The 277 percent profit earned by Magna, who bought the track in 2001 for $53 million, does not reflect any major improvements made to the facility itself, or by any resurrection in the harness racing industry, but by the fact that the racetrack was guaranteed to get a slots license. The value of the license was set by the state for a flat fee. However, as we have argued before, the value is much greater and should have been captured by the state through an auction process.

Admittedly, each casino license would have been valued differently depending upon location of the parlor, but by offering each license for $50 million the state will only realize $700 million from the sale of 14 licenses. How much more could the state have gained from auctioning them off? The two casinos in the Pittsburgh area, the Meadows and the stand-alone facility in the city, offer some evidence. Cannery Casinos paid more than $147 million above the original sales price for the rights to the slots license. They still have to pay for the license as well as build the casino. It is worth noting that the original agreement was for $225 million, but had been negotiated down. Thus the value of the slots license is in excess of $200 million. The state will only collect 25 percent of that.

The stand alone parlor in Pittsburgh is obviously worth more. In the opening salvo, the Isle of Carpi offered a $300 million arena to the City whereas on of its opponents, Harrah’s countered with a development proposal worth approximately $500 million. These proposals do not include the value of the license itself. Clearly, each entity has set the value of the license well above the $50 million asking price—from the packages being offered, we see that the range is from $350 million to $550 million. Depending on which operator is chosen, the state will collect anywhere from 14 to 9 percent of this value.

As more tracks and casinos get sold, we will learn of the true value of the slots license and the magnitude of the state’s big giveaway. But if this trend holds, with the state only capturing on average 20 percent of the true value of these licenses, the state will have lost out on billions of dollars.

The Post-Gazette’s transportation reporter has finally come to the realization that labor costs are killing the Port Authority. Benefits and pensions aside, the average wage for drivers when adjusted for the cost of living is higher than systems in Atlanta, Minneapolis, and even Philadelphia. This cost of living comparison was included in the Transportation Commission report as a highlight of their audit of PAT. But the Allegheny Institute has long known that driver costs are harmful to PAT and far out of line with peer agencies.

It’s finally dawned on said reporter.

Nearly two years ago, he authored a piece on driver costs that exonerated the authority, noting that “in the 1970s, Pittsburgh was No. 1, paying the highest wages in the nation to union bus and trolley operators. Times have changed. Now the $22.79 top hourly rate for operators at the financially crippled Port Authority is fourth-highest in the United States among similar-size transit agencies and 17th highest overall when larger cities like San Francisco and New York are included”.

Since Pittsburgh has a lower cost of living, the wages in the other cities did not have the same purchasing power as those of PAT drivers. His analysis missed that. When we adjusted wages to Pittsburgh’s cost of living, PAT topped the list. It was a fact once again confirmed by the Commission’s report, which expanded its analysis to 60 agencies. PAT’s $20.50 wage was 44 percent higher than the agency average of $14.20. Clearly our work, which was included in testimony submitted to the Commission, had an impact.

Now the analysis has legitimacy for the reporter. But that does not mean he has stopped exonerating the authority from its complicit role in the most recent contract, where there was talk of contracting out 20 percent of operations. The Governor and the County Executive intervened when strike talks were imminent. As a result, contracting out routes and maintenance was dropped. “The authority has little control over wages and benefits. They are locked into a labor agreement until Aug. 31, 2008, a contract brokered by Gov. Ed Rendell after a threatened strike”. Wrong. The authority had the control and frittered it away in the name of labor peace. It should have held strong and asked the Executive, who makes all the appointments, to back them up. But with the union holding all of the cards and able to call a strike, the idea was shuttled.

“…with union wages that it claims are the highest in the nation when adjusted for cost of living, a special audit ordered by a bipartisan state panel does not paint a pretty picture of the Port Authority”. Hopefully future reporting on PAT wages will likewise start with a realization that things at the authority are not at all pretty.

“A lot of myths that people think about Pittsburgh are just factually not the case. We're moving in the right direction.” So sayeth the Chairman of the Allegheny Conference at its annual meeting, reassuring us that high taxes, lackluster growth, poor performing schools, and high costs at the Port Authority are mere figments of the imagination.

This “right direction” is so good, in fact, that the business where the Chairman does his daytime work needs $50 million in public money to build a new office building Downtown. The virtues of Pittsburgh are not readily evident when one of the region’s major employers comes to the public to seek free money and not put up more of their own.

The Chairman said that region needs to better promote itself (it has done plenty of that) and consider its benefits compared with larger and glitzier locations such as San Francisco or Boston. Does the Chairman realize that Boston’s public schools spend much less per pupil than Pittsburgh’s schools do, or that the City of San Francisco is losing its football team to the suburbs? How can they possibly survive?

“Do you want a long commute? Do you want it to be less safe? Do you want to increase your cost of housing by 30 or 40 percent to get up to the average? You don't want to trade any of those, so we have to realize we have a lot of wonderful things here.” Really? No one wants to make any tradeoffs? Talk about putting words into people’s mouths—plenty of people trade locations if better opportunities arise. They are willing to commute longer and increase housing costs if their salary increase beats the cost of living increase. And not all workers live in far out suburbs and commute to a Downtown location to work. Indeed many live fairly close to their work.

Real change, not boosterism rhetoric, will fix Pittsburgh’s problems, especially when that rhetoric comes from a major beneficiary of corporate welfare.

Governor Rendell has vetoed Senate Bill 157 which would have made significant changes to the $52 Emergency and Municipal Services Tax paid by workers to the municipality in which they work. This tax replaced the old $10 occupational privilege tax and all municipalities were permitted to raise the rate to the $52 maximum.

The problems with the tax included the fact that the amount came out all at once, placing a burden on low-income wage earners and those working on a part-time basis for a limited time during the year. The new moniker on the tax also led to confusion for ambulance services, who claimed their fundraising was harmed because people thought the tax was for their benefit.

S 157 would have renamed the tax, made it deductible quarterly, and clarified the proceeds for which the tax could be used. It also exempted Pittsburgh from changing the collection scheme until 2010. This provision might have been the bill’s undoing and could have led to the veto.

In the veto message, the Governor noted that “municipalities across the state will lose revenues already planned for in their annual budgets, which have already been adopted. My concerns are echoed by the Pennsylvania League of Cities and Municipalities, the Pennsylvania Association of Township Supervisors, and the Pennsylvania Association of Boroughs…” It could have been that smaller municipalities, some of which are also in Act 47 distressed status, felt that Pittsburgh should not be given preferential treatment.

The Governor also objected to the short time frame for enactment and implementation of the new collection scheme due to the necessity of meeting advertising and for businesses to adjust their payroll.

It will be interesting to see if there is an attempt at an override or if the changes to the EMS tax will be put on hold until next session.

For all the shortcomings with the state’s definition of blight, the Supreme Court’s decision to mandate prevailing wage to be paid on projects funded with a TIF, and the ability to use a TIF in areas where it is not needed and for projects of dubious benefit, there is a limit to the insanity contained in the TIF statute. It is section 5ivC, and it states that “the aggregate value of equalized taxable property of the [proposed] district, plus all existing tax increment districts, does not exceed 10 percent of the total value of equalized taxable property within the municipality”.

With the development of a new retail/office/hotel complex in East Liberty on the drawing board and petitioning for a blight designation and a TIF package, the time for decision has fallen onto City Council’s lap. "If this one would put us at 10 percent," said the city Planning Director, "we need to decide whether this is the one we want to" [put us at the limit].

Perhaps the City would like to have some of those earlier TIF deals back. Lazarus? ALCOA? Home Depot? The new PNC Tower?

That the City has hit the limit already (the first TIF plan came in 1994) indicates they should have erred on the side of caution and been a little more judicious with their TIF packages. What’s worse, the City has failed to grow its real estate tax base in recent years and tax collections are stagnant. Without a reassessment on the horizon, that is unlikely to change.

The morning paper brings news that Pittsburgh Public School enrolment has tumbled again, falling to 29,445 as of September 2006. In the budget for 2006, the district reported 32,529 students attending as of September 30, 2005. That’s a whopping drop of 3,084 or 9.5 percent from the number used for budgeting purposes.

Since 1998, enrollment in Pittsburgh schools (including Mt.Oliver, which is a very tiny fraction of the total) is down over 10,000 students or 25 percent while the City’s population is down by just under 10 percent. Obviously, a couple of very important things are happening. First, parents are taking children out of public schools and placing them in alternative education venues because of the poor quality of education and the lack of discipline in the learning environments prevalent in many City schools. Second, parents of school age children are leaving the City altogether. With losing nearly 4,000 people per year in Pittsburgh’s population, it is more than likely that a high percentage of people leaving are families with school age children who cannot afford private school tuition.

Bear in mind that Pittsburgh’s population to public school enrolment ratio is 10.6 to 1. Statewide the ratio is about 6 to 1. Thus, the burden to taxpayers to fund Pittsburgh’s schools should be much less than the state average. But it is not because of the nearly $18,000 per pupil the district spends on general operations that more than offsets the lower student to population ratio advantage the district should have.

Bad schools and high taxes; the perfect storm for driving people out of the City, especially those with children.

Contemplate this one, dear taxpayers: a judge has nixed a plan to save Beaver County taxpayers nearly $2 million a year by prohibiting a private firm from running the county jail. At least one member of the Board of Commissioners believes that this ruling will lead to a tax increase, possibly 2 mills.

The Commissioners were thrilled by a proposal by a private firm to operate the jail and allowed the guards’ union to try and match the savings, which they could not. “People with less training making lower wages” was the union’s refrain as to how the savings were to be reached.

After months of negotiations and several drafts of the County budget (one with no tax increase and one with), the County decided to go ahead with the private firm’s proposal while still bargaining with the union, whose contract had expired on December 31, 2005. Several months later, the bargaining moved to arbitration, where, not surprisingly, the union was granted a favorable ruling. After the Commissioners opted to say “no thanks”, the union moved to the courts, asking a judge to declare the award legal and binding. This meant that the County would have to go with the lower level of savings with the union manning operations at the jail. The union and its affiliates even threatened a “political shutdown” of all electoral efforts because of the dispute.

Well, the court case finally ended shortly before the firm was to take over operations with the Judge ruling that the arbitration award was binding. Not wanting even more legal hassle and costs, the Commissioners opted to agree to a union contract that gives some concessions, not nearly as much savings as outsourcing the guards, and lasts through 2010. Labor peace is achieved, indeed. And how convenient that it was achieved one week before the election.

Upon hearing of the ruling, the union steward said “What bigger sigh of relief can you have other than hearing that you’re going to have a job for the next couple of years?” And here we thought the union was concerned first and foremost about safety.

Basically, the judge is saying that elected officials cannot privatize a function unless the union agrees to it, which will never happen. The Commissioners should have been ready to turn the jail over to the private firm the day the contract with the union ended: their willingness to bargain probably cost them. And we would not be surprised if the private firm that was led along decides to sue, possibly costing the County more.

With judicial rulings and public sector union favoritism to this degree, is it any wonder that Pennsylvania continues its decline?

The newly installed athletic/activity director in the Steel Valley school district will earn $96,000 a year for nine months work. That’s well above what he would be making as a teacher or principal. Indeed, as a principal (assuming he had the qualifications—many have Ph.D.s) he would be working 12 months for substantially lower pay.

But the story doesn’t stop there. According to a newspaper report the new AD enjoys a close relationship with two of the Board members, one a brother another a cousin. Although the cousin abstained on the vote to make the AD position permanent and set the pay at $96,000, it is more than a little unseemly to have a personnel matter come before a board when the individual involved has two family members sitting on the board.

While this transaction could well be totally innocent and justified, the appearances are not flattering to the board or the school district. It is inescapable that there are many who will suspect the fix was in on this vote.

Beyond that, in times of budget tightness and taxpayer concerns about school taxes being so high, to pay an Athletic director nearly $100,000 for nine months work with $25,000 or $30,000 worth of benefits that go along, the Board’s action strains credulity.

The district could do well to establish a more suspicion free process for handling this type of issue. And it needs to at least give the appearance that it cares about restraining expenditures. Maybe the school district ought to solicit individual and corporate sponsorships and donations to fund coaches and athletic directors