Allegheny Institute Blog

Pittsburgh’s GOP is circulating a petition to reduce the size of City Council from nine to seven members—five district seats and two at large seats. Presumably this new format will follow the County’s model where one at large seat must be filled by a Republican, but the details do not guarantee as much. With a voter registration disadvantage of 6-to-1, the odds of a Republican being elected to Council seems long at best—it’s been 70 years since such an occurrence has happened.

But what if the City’s GOP is successful? Will one Republican on Council make much of a difference? More than likely they will be marginalized and irrelevant.

If the City’s Republican Party wants to be relevant and make a difference, they need to embrace the traditional stances of the party—lower taxes, reducing the size of government, and cutting spending. Courting city unions for endorsements does not signal progress. Public sector unions will resist vehemently any changes toward privatization, a change in work rules, or any other measures that are designed to reduce the size of government or make it more efficient. And courting these unions will compromise Republican principles.

Pittsburgh’s distressed financial situation should have provided an ideal backdrop for change. The current status quo of raising taxes, increasing government spending or providing tax breaks for government driven development is not going to get it done. What the City needs is a reduction in tax rates, privatization of services, a reduction of worker’s compensation costs, and debt reduction. These are issues the City’s GOP should be running with—not away from. The party should be proposing to eliminate the now irrelevant stadium authority, which most thinking people would support. These are the kind of things Republicans should be fighting for.

The best way to get elected to City Council, and maybe even the Mayor’s office, is to take this platform of meaningful change and reform.

On December 20, the Pittsburgh School board approved a 2007 operating budget with no increase in spending over the 2006 budget. On its face this would seem like a real win for taxpayers. However, before we break out the champagne, let’s keep in mind that because of the continuing decline in enrollment, per pupil spending will still exceed $18,300.

At this level, Pittsburgh schools rank as one of the highest-- if not the highest-- per pupil spending districts in Pennsylvania. Moreover, at the $18,000 level, Pittsburgh spending rivals many private schools and many colleges. Obviously, a lot of work needs to be done to bring the district more in line with the Pennsylvania average of $12,000 or so per student.

And even worse, Pittsburgh schools are not faring well on measurements of academic achievement. In several of the city’s high schools, 80 percent or more of eleventh graders cannot perform at grade level in math and 70 percent and higher are below grade level in reading. This is nothing short of a calamity for kids about to graduate.

Mr. Roosevelt, the new superintendent, is making some dramatic changes to address poor academic achievement and to rein in spending. It is a daunting task. We can and should wish him well as he takes on the entrenched interests that have for so long prevented the kinds of reforms needed to correct the serious problems faced by the district.

Maybe in future Christmas-time announcements, much better news about progress toward solving the spending and academic problems will be reported.

Apparently, there is no limit to how far the Federal Transit Administration (FTA) is willing to stretch the interpretation of their guidelines when they want to fund a project or are under high-powered political pressure to fund a project. Case in point; the North Shore Connector.

Back in the fall of 2003 when the FTA announced its recommendation to proceed with the Connector, they reported that the “operating financial condition of the Port Authority is stable.” It went on to comment that the “project’s [the Connector] non-farebox funding will be covered by forecasted operating surpluses.” And to round out their review of the Port Authority’s future financial picture, “All operating sources exist and are committed. State and county operating funds will account for 23.4 percent and 7.8 percent, respectively, of total operating revenues in FY 2009.”

Three years later on the eve of starting construction on the Connector, how imbecilic and fatuous the FTA’s words seem now. The problem is they simply took the Port Authority’s assertions at face value and regurgitated them in their recommendation analysis. Granted, that was then. Maybe they can be forgiven for being gullible in 2003. But events transpiring over the last three years and the facts regarding the Port Authority’s horrendous cost structure, its glaring inefficiencies, its current and prospective severe financial problems that will almost certainly necessitate service cuts and fare increases, should have attracted some notice by the FTA. Surely, some member of staff comes out once and while to look at what’s happening with the recipient of massive amounts of taxpayer dollars the FTA is charged with spending prudently and circumspectly. For the FTA to be ignorant of the financial debacle at the Port Authority is simply not plausible.

Further, in light of the fiscal shambles at the Port Authority, the FTA ought to feel a moral obligation to withhold funding for the construction of a project whose costs are already well beyond the initially approved amount and whose ridership numbers and economic benefits have been dramatically reduced as a result of the decision to eliminate the line to the Convention Center. Indeed, without the Convention Center line, much of the economic justification for the Connector that was given weight by the FTA has been removed.

In an amazing disregard for good sense and its solemn duty to protect taxpayer interests, the FTA continues to support the project and is releasing funds to begin work despite the fact that the earlier, flimsy case for supporting the project has been obliterated.

Surely, the mystery that will haunt the Connector project forever is why no member of Congress was willing to step forward and oppose this monstrosity.

Back in March 2005, the County’s Chief Assessor told the County Council’s Special Committee on Property Tax Assessments that the recently developed reassessment values to be used in 2006 abided by the standards of the International Association of Assessing Officers. According to news reports the following day the Chief Assessor went on to say, “that means the percentage of inaccurate of assessments is likely to be in the single digits.”

The issue at the time was whether the new “2006” numbers better reflected market values than the old 2002 numbers still being used for property taxes in Allegheny County. Many on Council and the Chief Executive were opposed to the new assessment values because of the relatively large increase in market values captured by the latest reassessment.

As we pointed out on numerous occasions at the time, the new reassessment numbers much more accurately reflected market values than the 2002 figures. The newer assessments corrected some of the serious 2002 assessment problems in all price ranges studied except for the homes in the under $50,000 group.

The problem was that the Chief Executive and most of County Council simply did not want to send out the new assessments because of the large increases many homeowners would receive. There was no trust that the limit on windfalls would be honored by municipalities and school districts. Of course, that is a poor excuse for not proceeding with the better numbers. If school districts abused the windfall, then legal action would have followed. That is the position the Executive should have taken.

But, in actuality, many high end homeowners would have seen substantial increases in assessments even after the windfall adjustment was made. Why? Because in the 2002 assessment their properties were far below market value and the new assessment had brought them more in line with reality. Some of those assessments rose by 30 or 40 percent, which means that, notwithstanding the adjustment for windfall, the owner would face a significant rise in taxes. Therein lay the real opposition to going forward with the more accurate figures.

Fast forward to December 2006. Asked to testify in the lawsuit case brought against the County’s base year assessment system, the Chief Assessor now says that the overall assessment met international standards but some neighborhoods were inaccurately assessed. Her evaluation found that these problems could indicate problems within the entire reassessment.

But most revealing was her comment that, “The response to me was that no further analysis would be done, and the move toward the base year was begun.” The supreme irony is that Judge Wettick, who is hearing the case, had ruled in an earlier case regarding the new assessments that the County should go back and fix the problems and adopt the new numbers. Obviously, the County chose to ignore that admonition and decided to adopt the base year system as a way to avoid having to come to grips with the reality of the changing market values during the low interest rate environment of the 2002 to 2005 period which drove sales and rising prices.

Perhaps the Judge can finally get his earlier ruling put in force by throwing out the problem- ridden base year plan the County adopted. As we have noted, the base year plan is unconstitutional in that it does not treat all property owners uniformly, i.e., some would be taxed on 2002 sales prices while others will be taxed on future construction costs. Secondly, using the 2002 numbers lock in the substantial errors that caused such uproar when they were adopted. The numbers contained showed serious underassessments for high end homes and overassessements for the very low value homes. On average the errors “met” International Standards, but there were significant issues across neighborhoods within the County.

The new assessments with appropriate remedial steps could have gone a long way to creating a much better and fairer set of assessments.

Allegheny County’s base year plan is on trial. Taxpayers in communities where values have fallen brought suit against the County, arguing that using 2002 values in perpetuity locks them in at artificially high values while keeping those values in appreciating neighborhoods artificially low. Their suit claims that this violates the uniformity clause of the Pennsylvania Constitution and equal protection under the law.

The testimony yesterday focused on one of the legislators who crafted the base year statute in 1982. That legislator noted that, in his opinion, a base year “treats people as fairly as you can” and presumably better than annual assessments. But, when pressed, he also noted that the base year was a temporary fix and that he did not expect counties in 2006 to be using 1970 values. In fact, of the 16 counties that used a base year approach as of last March, nine had base years set in 1982 or earlier.

If the base year is temporary, and one of the people who crafted the law would not expect a base year to sit still, then why have a base year at all? It would have been interesting to hear his opinion on Allegheny County’s maneuvering to arrive at a base year plan, decided upon only after other plans did not wash.

Then came the admission of the County Manager who said that another reassessment would drive business out of Allegheny County and into neighboring counties that use a base year. But the key point is this: the real problem for Allegheny County that goes unaddressed is the high cost of schools, municipal government, and the County government compared to surrounding counties.

Get the spending down, outsource functions to the private sector, and do whatever it takes to make the County more competitive.

The Governor has set a deadline of December 22nd for accepting information from private companies interested in leasing and/or operating the Pennsylvania Turnpike. Privatizing the Turnpike is an idea recently floated by the Governor’s Transportation Funding and Reform Commission (TFRC), which recommended that the use of private-public partnerships should “be pursued aggressively”.

That’s because the funding problems facing the state’s road and bridge infrastructure and mass transit systems is daunting, to say the least. In all, the TFRC has recommended about $1.7 billion in net new spending per year to address transportation issues. Increases in taxes on sales, gasoline, realty transfers as well as a boost in motorist fees have all been mentioned as part of the mix for raising the needed revenues.

Two recent sales of toll roads show the positive benefits: the government gets cash up front or in allotments, and allows the private sector to take responsibility for an asset that may not need to be run by the government. A toll road in northern Indiana sold for $3.8 billion, allowing for “the largest building program in the state’s history while transferring the burden and the risk of running the toll road to a private firm”, according to that state’s Governor. Meanwhile, the Chicago Skyway is currently being leased for $1.8 billion. The mayor of that City noted that “running a toll road is not a core function of City government”.

So the idea of selling or leasing the Turnpike represents some outside-the-box thinking for Pennsylvania; the timetable is aggressive; it would relieve the impending tax burden; and it has been proven to work in other places.

Too bad there is not similar enthusiasm for bringing this thinking into the public transit arena.

Allowing private operators to compete for an opportunity to operate public transit service in Pittsburgh and Philadelphia would definitely be a break with the past in the Commonwealth. It would help rein in the spiraling labor costs that are threatening the viability of transit. As far as precedent is concerned, we have documented the positive results of contracting out has brought to Denver and in large urban areas around the world.

The TFRC’s ideas on transit contracting don’t rise to the level of privatizing the Turnpike. The panel recommended that PAT and SEPTA be mandated to explore contracting, and we can easily predict how that will be received by the transit unions and the elected office holders that support them.

So when the Governor was quoted as saying “We are looking at all options. Nothing is off the table,” when trying to make the tricky decision between a higher gas tax, higher motorist fees, or the other taxes presented by the report, it is too bad that it appears that an idea for improving the effectiveness of the state’s public transit systems is off the table. Indeed, the City of Pittsburgh could take a lesson from the Governor’s willingness to consider privatization as a way of dealing with its problems.

Simply finding a dedicated revenue source for transit will placate the unions and transit advocates, but taxpayers deserve better.

Is it too much to ask that elected or appointed officials follow the law—or keep up with changes to existing laws? It appears that the Mt. Lebanon Planning Board cannot be bothered with such trivial matters as it recently demonstrated by voting 2 to 1 to approve a basic conditions report to declare eight parcels blighted. The report was prepared by the developer’s consultant. A blight designation is important in that it allows the municipality to offer the developer a subsidy in the form of Tax Increment Financing (TIF).

The problem is that the conditions for blight, originally set forth in the 1945 Urban Redevelopment Law, have been replaced by a 2006 law which limits the use of eminent domain for developments. The consultant’s report approved by the Planning Board used the definitions from the old law—specifically “defective site design, economically undesirable use of land, and faulty lot layout”. Under the 2006 law, these shortcomings are no longer legally acceptable conditions to make a blight determination.

Is this an oversight or an attempt to ramrod this proposal down the taxpayers’ throats? Since the Supreme Court upheld the Kelo vs New London ruling, a highly publicized action which expanded the eminent domain powers of local governments to take property and turn it over to private business, states, including Pennsylvania, have been trying to tighten up laws to protect property owners from overzealous municipalities. Pennsylvania passed Senate Bill 881 in April 2006, which limits the use of eminent domain for commercial development and tightens the definitions for blight. Surely officials in Mt. Lebanon, as well as the project’s developer, knew about the changes to state law. Did they think no one would notice?

If the Commissioners approve the TIF and confirm the blight designation, lawsuits will almost surely follow.

In a previous blog entry it was noted that the elected office of the Treasurer ought to be made an appointed position along with the Sheriff. While there is now a proposal in County Council to put the Sheriff’s office question on the May ballot as a referendum question, the issue of the Treasurer has gotten no play. In fact, the County Executive noted in an editorial column that if the Sheriff is made appointed, the remaining elected offices in the County (Executive, Council, District Attorney, Controller, and Treasurer) would mimic the state’s organizational chart (Governor, Assembly, Attorney General, Auditor General, and Treasurer).

While the progress Allegheny County has made in reducing the number of row offices is to be lauded, the Executive and Council ought to think about doing the same for the Treasurer’s office. The City of Pittsburgh’s Treasurer is appointed. In the five other home rule counties in the Commonwealth (Northampton, Lehigh, Delaware, Lackawanna, and Erie), the record is clearly on the side of having the Treasurer folded into the administration. Only the Home Rule Charter of Lackawanna County requires that the Treasurer position be elected. The remaining home rule counties appear to have placed this position into a Fiscal Affairs Department or Revenue Department. It should be noted that all of the counties save Northampton mandate the election of a Sheriff, so Allegheny County is going farther than the majority of its home rule peers in this case.

In short, the Treasurer’s office does not perform functions that argue strongly that it be an elected position. Let’s put it on the ballot along with the elimination of the Sheriff as an elected position.

Lost among the handwringing and cheers over election results across the nation, was a resounding “thud” as voters put their foot down on public subsidies for corporations in both Washington state and Minnesota. Voters in Seattle approved Initiative 91 by a 3-to-1 margin, which was designed to block city officials from giving that city’s NBA franchise subsidies for a new arena. Meanwhile, voters in Rogers, Minnesota, a small town of about 6,000 just outside of the Twin Cities, ousted its mayor and two city council members who had approved a $5 million tax subsidy for a Cabela’s outdoor retail store.

Seattle’s Initiative 91 (I-91) contains a feature that precludes any city tax money for any professional sports facility. Specifically it notes that any investment needs to return to city taxpayers an amount “at or above fair market value”, with fair market value defined as “no less than the rate of return on a 30-year U.S. Treasury Bond.” Considering that the current rate is 4.75 percent, it does not set the bar very high. If subsidizing sports stadiums were a good investment, the private sector would be building them—without trying to blackmail taxpayers into funding them.

The blackmail tactic most often taken by team owners is the threat of relocation. Seattle voters were not to be bullied and called the bluff. The team’s owners in this case now plan to move the team, but to somewhere else in the county. However, the likelihood that either the state or county officials will put up the desired funds has been greatly diminished by the passage of I-91. Voters have made it very clear this is not where they want their tax dollars to be spent.

At the same time Minnesota voters in the town of Rogers are fed up with their elected officials’ penchant for using Tax Increment Financing (TIF) on retail developments. Rogers had led all major Minnesota cities in the use of TIFs. From 1999 to 2005, it was reported that 27 percent of the town’s total tax capacity was dedicated to TIFs—the statewide average was 9.5 percent. The breaking point was Cabela’s, the nation’s outdoor retailing giant who has made a habit of dipping into the taxpayers’ pockets. Rogers gave Cabela’s a package worth $5 million in public subsidies.

When Rogers’ voters went to the polls, they elected a new mayor, who had campaigned against the overuse of the taxpayer subsidies, and two new council members—both of whom took an opposition to public subsidies. Of the five members of the Rogers’ council, three are opposed to using taxpayer subsidies.

Collectively taxpayers have seen their money being poured down “ratholes” in the name of economic development while being promised great returns. They have seen little if any return, and are starting to shout “Enough!” We can hope this is the start of an emerging trend that will catch on in Pittsburgh, where subsidies have resulted in a failed department store, two new stadiums, and countless other ventures that will never provide any positive return on investment, let alone one that approximates that of a Treasury bond.

Just in time for Christmas the Housing Alliance of Pennsylvania and Homes for Working Families have offered up the results of a survey they claim proves that voters are very concerned about affordable housing for working families. Of course, the purpose of releasing the study at this time (the survey was conducted in early June) is to convince elected officials to put the issue on the legislative agenda in the Session beginning in January. Get the General Assembly to start more programs and throw more money at the cause they make a living lobbying for. It’s not like governments don’t spend vast sums of money trying to provide “affordable housing” and have done so for decades.

But as we have cautioned on many occasions, survey results are no better than the questions asked, the methodology of the research and the credibility of the survey sample. This is especially true with the type of survey the Housing Alliance commissioned.

For one thing, the questions asked in the survey assume that everyone shares an understanding of what “affordability” means and what “working families” means. There is no indication that respondents were given definitions. So respondents were simply free to choose what they mean by affordability and working families. No doubt many of the respondents simply relied on a vague notion based on strands of information gathered over the years from news accounts, general reading or TV watching. Undoubtedly, the researchers did not have in mind families with two hard working entrepreneur business owners who routinely put in 70 hour weeks building and nurturing their business and their dreams.

And to make matters worse, the survey contains a series of questions designed to elicit the most favorable, non-contentious responses. For example, “people who work should not be homeless, agree or disagree. “ Or this, “If you work full-time you should be able to afford a home, agree or disagree.” And the researchers are surprised to find high levels of agreement?

We offer a more useful survey question; “Should a family earning $30,000 a year be able to afford to live in $300,000 house?” In other words, what does affordability mean? Or this, “Did you know that the ratio of median home price to median family income in the Pittsburgh region is one of the lowest in the nation?” Or better yet, to get at the real answer the Housing Alliance wants to hear, “Is it the government’s responsibility to make sure everyone has a job making good wages, lives in a nice four bedroom home on a quiet residential street that is only 15 minutes from his or her job, and provide a wonderful public school for the children?”

If the government of Pennsylvania cannot provide a “thorough and efficient system of public education,” as it is constitutionally required to do, why would we want it to take on these other tasks that are not required by the constitution and for which government programs almost invariably create more problems than they solve? Moreover, such programs continue the process of making the citizenry more and more dependent on government and more and more convinced that only government can deal with what should be primarily private matters despite all the evidence that government involvement rarely leads to better results than the free market.

Nowhere in the survey report, or the accompanying press release, do the authors bother to ask the obvious question, “If homes in Pennsylvania are increasingly unaffordable, why do average home prices in most of the state rise year after year?” Nor do the authors ask the question, “Are high property taxes forcing you to buy a less expensive home than you might other wise buy?” These would be politically incorrect and the answers would undermine the results the researchers were seeking.

And that’s the real issue with this survey and its findings. It was designed to elicit results by asking feel good, non-controversial questions with limited useful content. In short, it is a political document and not a research document. It was developed to stir up sympathy and compassion for a nebulous group of people who may or may not be really looking for help.

Interestingly, the report contains the seed of its own undoing in terms of its credibility. Asked if the lack of affordable housing for families earning $20,000 to $40,000 was a problem in their area, only 32 percent of those earning less than $20,000 per year said it was a problem, while 46 percent of those earning more than $75,000 thought it was a problem. What does this tell us? It tells us that those closest to the supposed problem see less of a problem than those who are the furthest removed from it. This finding should have told the researchers that their findings were driven by vague perceptions on the part of the respondent largely caused by the failure of the survey to establish meaningful definitions, perhaps along with some politically correct guilt induced by the tone of the leading questions. And that, of course, was no accident.

The Housing Alliance wants us to believe there is a need in Pennsylvania to push for more programs promoting affordable housing. What’s that? With public housing, Section 8 housing, low cost loans, FHA, VA, etc., etc., we don’t have enough programs already?

News today from the City’s Intergovernmental Cooperation Authority (oversight board) is that a firm called Tri-Data will be paid close to $200,000 to undertake a study of the City’s Fire Bureau. We wonder why.

Not only is there a long stream of documentation on the problems with the Fire Bureau—including the Competitive Pittsburgh Task Force, Pittsburgh 21, and the Allegheny Institute’s work on Act 111 and benchmark cities—but the oversight board just paid a firm $95,000 for a report delivered two years ago. Who knows where that money came from since the board was supposedly lacking funds.

The initial projection by the board’s executive director is that the firm will have a grasp on the data in six months time. Unfortunately, while the ICA is getting its preliminary results, the decision to reopen the Fire Contract might have already been made.

In short, the issue has been studied to death. It does not look good when the problems have already been adequately documented to go down that path again.

Our studies and others have pointed out that Pittsburgh has too many firefighters, too many stations, and too many generous contract provisions (such as mandatory staffing requirements) that render it far out of line with other cities.

Here’s the deal. The contract needs to be reopened in 2007 and concessions from the firefighters’ union need to be made. In a year when the City is facing a special election for Mayor and half of City Council is up for re-election, the issue of the Fire contract will be Pittsburgh’s political third rail.

The oversight board needs to put its weight into action, not study. But the comments of its chair leave a lot to be desired. She mentioned that it is up to the City, or the Act 47 team, to decide to reopen the contract. What, the ICA has no interest in the issue, even though it is spending $200,000 for another study? The board should not be intimidated by the last episode when its lawsuit over the fire contract was met with resistance and removal of board members.

The ICA’s actions seem a lot different from the intentions of the General Assembly when it created the board.