Allegheny Institute Blog

If a Common Pleas Court decision from March 28, 2007 stands, voters in Allegheny County will not be able to decide whether to make the Sheriff’s office an appointed one until 2010. That’s because the ruling leans heavily on case law that interprets the provision that a change to the form of government can only happen after a five-year wait from to the previous change.

Here’s the language from the Pennsylvania Home Rule Charter and Optional Plans law: “the voters of any municipality (or county) which has adopted a home rule charter or an optional plan of government pursuant to this subpart may not vote on the question of changing the form of government until five years after the home rule charter or optional plan became effective”.

That language is clear. Adopt a charter, wait five years to let the government get established, and then voters can modify the government. The County has argued that position in this case. However, the judge noted “some sixteen years of appellate case law have made defendants’ position untenable”. Other court cases have interpreted the law as a five-year moratorium between all changes to the government, no matter how many years away from the inception of the charter they occurred.

The judge notes that since the law that created the charter for the County, the County Home Rule Charter, and the County Administrative Code all reference language identical to the section of the Home Rule and Optional Plans law, it cannot be interpreted differently.

Since voters went to the polls in 2005 to abolish and modify other row offices, the decision will only allow the next change to happen in 2010, per the interpretation of the language.

We think that the County has a good chance of winning a challenge to this ruling. To us, it is the case law that seems untenable and should not be allowed to negate the powers of voters in home rule counties and municipalities to alter their government as they see fit, after the initial five year adoption of home rule.

Over the weekend three separate studies were released by three separate organizations purporting to document issues affecting Pennsylvania. The Brookings Institution looked at population and demographic issues, the Center for Rural Pennsylvania examined, appropriately, rural issues, and the Pennsylvania Economy League tackled fiscal health in the state’s municipalities. This blog entry looks at the Economy League study.

Noting that fiscal health in many of the state’s 2,500 municipalities are in decline or beyond repair, the study calls for changes to state laws like Act 111 (binding arbitration for public safety workers) and Act 511 (the local tax code) in order to prevent more municipalities from heading into financial distress under Act 47 (the study asked for changes in that law as well). Though some communities—primarily small, rural/suburban townships—are OK now, it is only a matter of time before the roof comes crashing down.

The diagnosis is not in dispute, just the suggested cure. While we argue for imposing government spending limits, referenda for all local tax increases, outsourcing non-core services, the report suggests giving municipalities more revenue options to choose from (a la the school referendum under Act 1), shared expertise amongst communities, enhanced state-level programs, and, of course, further study of the problem.

Pennsylvania’s problems are not on the revenue-side. Philadelphia has a tax system envied by officials in this part of the state as they can tax non-residential income, yet the study does not see the City as healthy. Ditto for Pittsburgh, which has a pretty extensive menu of tax choices, more than the typical southwestern PA community, yet still is in distress and under state oversight.

The problems here are too much government spending, too much one party control of major metropolitan areas, and a subservience to public sector unions that defies common sense and good government practices.

The Port Authority revealed its plans for systemic change this morning, and the bitter pill will be delivered in phases. If approved by the board, the first phase of changes will occur in mid-June with service changes, followed by another phase (possibly) in September, and then a change in fare policy at the beginning of 2008.

Looking at outright elimination of fixed route weekday service—the bulk of traffic carried by the system—shows that the authority has dramatically scaled back its original scenario. That scenario would have eliminated 124 of the 213 routes carried by the authority. Now the plan will cut 29 of those 213 routes. Whereas the original cuts would have affected 11 percent of the ridership, today’s changes will affect 4 percent. To be sure, the public comment period helped to spare the important routes with heavy ridership.

The authority has stated that “an additional 10 percent service reduction would take effect September 2 absent means to reduce the remaining…deficit”.

The phased-in approach should allow for a few innovative changes, if the authority and County leadership is willing to make them. Much of this would come from asking the transit union for a contract reopener and allow for changes that would put smaller buses on the road in place of larger buses and for some outsourcing of routes. If the authority is ending 29 routes, why not solicit private interest in running this service and charging a rate in line with costs?

It is shameful that there has been no movement toward a contract reopener. Making these changes might be able to move the system in line with the more efficient ideal envisioned.

Now that the Mt. Lebanon School Board approved participating in a TIF deal for the Washington Park condo project, the next step is for the commissioners to either approve or reject the deal. A denial at this point seems unlikely.

Why? Well, they have bought into the notion that the project has satisfied the “but for” criterion, namely that without the TIF, the development would not happen. It is a statutory requirement, but it is doubtful that the school board members who voted for the plan or the commissioners planning to get on board have thought objectively about this requirement.

Instead, they listen to people like the high-ranking official of a major real estate company in the region, who said he's been involved with other high-rise condominium projects and that he does not believe Washington Park could be developed without a TIF. “The property has very, very high costs to develop because of infrastructure costs,” said the official.

OK, fine. Then why is it that of the $4.7 million being used directly for the project that over 80 percent of it will be used for non-infrastructure costs? Over $1 million will go for acquisition, $1.3 million for a “public park” that is really landscaping for the facility, and another $1.6 million for a parking garage for the condos. Those are not infrastructure uses. There were other Mt. Lebanon condo projects (such as the MainLine Development)that had infrastructure costs to contend with and did so without a subsidy. How about the fact that Allegheny County, whose TIF policy is to participate in projects “will only be utilized to support public infrastructure improvements”, is not participating in the diversion of taxes?

Too bad objective analysis did not guide this project along. Instead, opinion and subjectivity has. The real estate executive is not exactly unbiased since his company is selling the condos and obviously wants to see them get built.

It is interesting to note the change that has occurred in the writings of the transportation reporter and the editorial board at the Post Gazette relative the operations and finances of the Port Authority. PAT has been through the “doomsday scenario” many times in the last decade and we have argued that a major cause of those scenarios is the out-of-line costs of the authority, especially in comparison with other agencies. Our 2005 report pointed out many of these problems, but our Briefs on the topic go back even further.

Here’s what the PG was writing at the beginning of 2005: “in the 1970s, Pittsburgh was No. 1, paying the highest wages in the nation to union bus and trolley operators. Times have changed”. Also upheld were the findings of an organizational review that characterized the authority as “a relatively lean, cost-effective operation”. An editorial opined that it was not as bad as critics thought. “While the level of pay and benefits at the Port Authority deserve attention with an eye toward a healthy bottom line, they aren’t in the stratosphere either”.

That was the tone that prevailed at the paper until very recently. The mentality was that PAT had some problems, but they were not too bad. We pointed out that the paper’s detailed piece on wages had several flaws, including the fact that the data was not adjusted for cost of living. Moreover, our work showed how terribly inefficient Port Authority bus service was compared to most large transit systems. Then too, the paper failed to mention worker and retiree health benefits, the single biggest cause of the escalating crisis at the Port Authority.

Now we come to 2007: the Governor’s Commission on Transportation has released its report and a separate audit of the Port Authority. The County Executive and the Port Authority CEO are committed to drastically reforming the system.

Now look at the paper’s line: “it is a foregone conclusion that the Port Authority needs to be more efficient, bring management and labor costs under control…” That’s quite a change. It was even pointed out that an audit found “employees collecting fares at booths on station platforms…rang up 31 percent of the overtime costs on the [trolley]”. Today’s editorial page stated that “a liberal pension program and other financial squeezes are killing the Port Authority”. While the pensions for management were called “worrisome” two years ago and that the authority was fortunate that it did not have to put money into the union’s pensions, now the PG “cannot agree more” that there are problems with pensions and have even recommended that “the board…rein in pension and health care costs” at the end of the current contract.

Too bad they were late in catching the bus on this one. An earlier realization and publication of the severity of the developing situation that the Institute was working so hard to demonstrate might have helped bring needed changes prior to the enactment of the most recent contract instead of once again jeopardizing the entire system because of out of control costs. Better late than never perhaps. But always being behind the curve on public policy issues of this importance is a detriment to the health of the County and region.

Thanks to a lot of fuzzy and wishful thinking, the Mt. Lebanon school board agreed by a vote of six to three to participate in the Washington Road Tax Increment Finance project. This decision is wrong on many levels.

First, it is based on a false choice argument. To wit, if we don’t build this, the district will not get the added tax revenues generated at the developed site. That’s utter non-sense. If the Parking Authority would auction off the land it has been sitting on for decades, a private developer could build a substantial project on the site at their own expense that would begin immediately paying full property taxes to the district, the County and the municipality. Tax dollars, by the way, that will never be made up by the TIF project because it takes so long for the schools to get the full amount of taxes paid on the development.

The real problem is that local officials want to control who does the building and what type of residential development gets built. They do not trust the market to do the job. So, we have years of behind the scenes deal making to get a project done that suits the officials. Meanwhile, hundreds of thousands in potential tax revenues have not been collected as would have happened if the property had been turned over to a developer and developed years ago.

Second, the $6.1 million TIF is hardly being used for infrastructure. A million dollars will be used by the developer to purchase the property. That amounts to more than $600,000 per acre for “blighted” property. Another million will be spent on landscaping and streetscaping in front of the condominiums--hardly infrastructure but rather part of the project’s amenities. Another million and half is slated to cover financing costs of the debt issue. Preposterous. Good for bond attorneys and underwriters. Every usual suspect gets a piece of the action.

Third, where is the blight need to qualify for TIF? It takes a feat of legerdemain to concoct a blight destination for property that is worth so much money. Only the most cunningly avaricious or the most gullible could countenance labeling this property as blighted. The blight is in the thinking and arguments of TIF advocates.

Fourth, why has no taxing body asked the developer to present certified estimates of project costs with and without prevailing wage labor used on the development? If TIF is used, then prevailing wages must be paid. We know that will add millions to the cost of construction, perhaps as much as the $4.7 million in TIF proceeds that will actually be available for the proposed condo complex. With no TIF, the full amount of taxes will be due to the taxing bodies as soon as the units are sold.

This is so obvious that it makes one wonder what the real motivation is for the TIF. Surely, the school district has no interest in subsidizing union labor with the tax dollars they are forfeiting with the TIF.

And finally, what about the “but for” clause? By law, no TIF should be used when the project can be done without it. But as we saw at the Galleria, where Commissioners wanted to use a TIF, the project was carried out without a TIF anyway. The same would undoubtedly be true at the Washington Road site. Are all those who voted for the TIF absolutely sure a good project could not be done without a TIF? And if it is so important to get this development done, why is the municipality planning to sell its parcels for $500,000? Why not just give the parcels to a developer to help them get this “fantastic, we must have it” complex built?

Overall, this TIF approval makes a mockery of the intent of the TIF program as spelled out in the Pennsylvania statute. Indeed, it is just another example of how even a reasonable law intended to help the redevelopment of old industrial sites can be perverted by those who will look for any chance to get in the taxpayers’ wallet. What is excruciatingly sad is that local elected officials who should know better are aiding and abetting this misguided chicanery.

Here’s a cautionary tale for fans of government-funded and government-directed economic development. Sony, once the golden child of the region’s hope to rekindle a manufacturing base, has decided to cut 900 jobs at its Westmoreland County plant.

The reason it is doing so is because the market is changing as consumers develop a preference for flat-screen televisions as opposed to the rear-projection models made here. “The [TV] business and technology have changed incredibly over the last three years,” and “The public is looking for the flat panel displays” were the words of one Sony official.

It is not an uncommon occurrence—the only problem is that this market shift not only affects those displaced workers, it also affects the taxpayers of the Commonwealth, who became compulsory investors in the plant when an incentive package of $40 million, was given to Sony. That was on top of a $75 million investment in a Volkswagen operation years earlier. Not surprisingly, changes in the marketplace (in this case, a drop in the price of gas) rendered that operation obsolete. That’s $75 million down the Rabbit hole.

So while Sony is reacting to the market, Pennsylvania and its local governments still try the same old approach to economic development. Chasing after companies with huge subsidies represents “Alice in Wonderland” thinking. Instead of improving the situation statewide by limiting spending, eliminating red tape and regulations, and cutting taxes for everyone, they bet the house on the big project.

Unfortunately, the lesson here will go unheeded by the administration and policy-making officials.

The Governor’s Transportation Commission formally released its audit of the Port Authority. Included among its findings are a ranking of effectiveness in its governance, which refers to the nine member board of directors.

The Allegheny Institute noted recently in a Policy Brief that PAT’s board is not well-aligned with its funding formula in comparison with ten other agencies across the nation. The County Executive appoints all nine board members but the County funds less than half of PAT’s operating budget. We argued that maybe a change—possibly redesigning the board to add state appointees or creating another overseeing authority that would be regional in scope—would be appropriate.

The Commission made this observation about PAT’s board: “the ability of a single elected official to direct all board appointments…raises a question of balance between the centralization of policy and decision making direction by a single appointing official, and the benefits of a robust diversity of views and opinions”.

The Commission ranked as “satisfactory” the board’s ability to work with each other and with staff, but gave “unsatisfactory” rankings to meeting strategic goals and meeting community public transit needs. So it is collegial, but is it effective?

Perhaps governance will be one of the issues examined by the General Assembly.

This week Pennsylvania public school students will take the state assessment exam, the PSSA. While student performance on standardized tests should provide taxpayers with a good understanding of their return on investment, those within the educational establishment downplay the test’s importance. Contrary to their protests, school districts often “teach to the test” in order to improve scores. This is most exemplified in the Pittsburgh Public School System through their restructuring of curriculum and programs to “tie classroom instruction to what’s tested on the PSSA.”

This year’s test is critical for the District as not only will the Superintendent’s reorganization be tested, but District students have fared so poorly on the exam over the last four years that they face penalties under the Federal No Child Left Behind Act.

The Superintendent is predicting a “dip in scores” as faculty and students adjust to the new system. But how much of a “dip” can there possibly be? For the last four years the District’s eleventh grade students, those closest to joining the workforce, have demonstrated to be (at most) 40 percent proficient in math and (at most) 51 percent proficient in reading. That’s a very dismal performance given the large outlays state and local taxpayers have been bestowing on these students—as per pupil spending is more than $18,000 annually.

Teaching to the test is not a new phenomenon. Neither are the pep rallies and other motivational tools used by administrators to boost scores. However, there is no indication that these methods are meeting with success. Taxpayers pour millions of dollars into the Pittsburgh Public School System every year and yet results have been dismal, especially with those students closest to graduation. Whether or not the District’s new programs will improve results will be made clear shortly.

In commenting on proposed legislation to end teacher strikes, a union official said, “We do not support this effort. The vast majority of teacher organizations have not abused the authority to strike.”

What an insight. Since strikes are used sparingly, they cannot be that bad. They are just a tool that is sometimes needed to ensure fairness.

There are two very large logical holes in the union leader’s argument. First, this is equivalent to saying that because a parent only rarely uses stern disciplinary measures to affect a child’s behavior; the child can go ahead and behave as if the threat of stern discipline did not exist. Obviously, the ability to inflict harm does not have to be used frequently to have an impact. Its very threat can be just as effective.

Second, the School District has no comparable bargaining chip. In the private sector, when an impasse in negotiations occurs, the firm has the option to lock the union out of its facilities until such time as agreement is reached. School Boards by law must keep the schools open and get in the 180 days of education. And even if they did a lockout, the teachers lose nothing, because the 180 days must be provided and they will incur no loss of pay.

Teacher strikes create inconvenience for parents and students and produce animosities and discord in the communities where they occur. As a result, school boards are very loath to have to endure them, giving the union a strengthened bargaining position and a better settlement than they could otherwise get.

It is time to put an end to them. No binding arbitration or a judge choosing one side’s final offer. Just end them. And then give voters the right to vote on school budgets and tax increases. That’s where the power needs to reside. After all it is their money and their children. Teacher strikes against publicly funded schools are the hallmark of unionism run amok.

A specious argument that has run through the debate over the financing of a new arena for the Penguins is that if a deal fails to come to fruition and the team leaves town, the elected officials had better look out. According to this argument, the County Executive and the Mayor will certainly feel the wrath, just maybe not this election cycle since they appear to be pretty safe. One columnist noted “a small but highly vocal and deeply passionate Penguins fan base that would do everything in its power to have Onorato and Ravenstahl defeated the next time they dare run for office. Beyond that, people who believe sports are important to the region also will take a dim view of the Penguins leaving and feel new leadership is needed.”

Really? The next time both are running for office is in two months. Between them they have one opponent. Not much of an uprising there. And don’t forget that many Pens fans live outside the City and Allegheny County, meaning that they would have no ability to vote in these elections anyway.

Maybe he meant the “next next time”. Assume that the Executive aims for the Governor’s office in 2010. Are we to believe that a “small but vocal” group will make sure he does not win? Or that this will be the dominant issue? The job cuts in County government and the planned ones at the Port Authority would still have more of an electoral impact between displaced employees, their family, and their friends who will turn out to vote against the candidate. A platform that includes making government smaller, controlling spending, and “fixing” property taxes would probably play very well statewide.

And what about the voters who feel that the approach taken by the officials, even if it results in the Penguins leaving town, are doing the right thing? Does their vote carry any weight? Surely the columnist and the vocal fans recall that voting for the Plan B funding did cost some officials their jobs and they have yet to return to office as of yet. There are those who feel that sports are important but do not want sports kept at any cost.

If Pens fans are contemplating making a political donation to opponents of these officials in the future, maybe that ought to make the check out to the Pens instead. Putting down a hefty deposit on future season tickets might help with the financial picture of the franchise and its ability to settle on an arena deal.

The recent announcement that LANXESS, a chemical company based in the area near the airport, is creating a new technology center was met with much fanfare since the center helps meet goals on investment and job creation set in 2004. That year, the state gave LANXESS $1.8 million for its U.S. headquarters, based in Allegheny County. In return, according to the Department of Community and Economic Development press release, the company would “create up to 435 jobs within three years”.

Sounds great. As the three year deadline is six months away, we would expect someone at DCED to take inventory at the headquarters site to see if the investment paid off. It will be easier said than done.

First, the DCED press release also says that “LANXESS will relocate a portion of its Akron, Ohio, staff to Pittsburgh”. All right, so some of the jobs are transfers, but they are from outside of the state. But then a newspaper article from that same month noted that “the company will employ up to 435…the bulk of them current Bayer employees who will transfer” (italics added). Since LANXESS was a spinoff from Bayer formed out of a consolidation of some company functions, the two companies were linked. That explains why some employees might have moved to the new headquarters. It also explains why when DCED swung in to drop off a check to LANXESS, the generosity spilled over to Bayer in the form of a $1.7 million check.

So it is possible that some of the “new” jobs came from Ohio, and it is also possible that some of them—termed “a bulk” in the newspaper article—came from the airport area. That’s not the same as creating 435 net new jobs to the region. But if the state finds 435 jobs at the headquarters site this fall, they might consider the investment a sound one and the criteria met, implying a win for taxpayers. Sounds like a bait and switch scheme to us.

If this type of counting is not an isolated incident and occurs across the Commonwealth, it calls into serious question the state’s claims of stimulating the economy through all the checks it hands out.

The Penguins have declared an impasse in arena negotiations with government officials. The team is apparently concerned because the appeals filed on the Pittsburgh slots license winner will delay the construction of the arena. They will now “aggressively explore relocation.” Sounds disingenuous. If the Isle of Capri had won the license, the appeals would be going just as they are now with the Majestic Star license.

This whole mess could have been avoided had the state held an auction for this, as well as the other slots licenses. The process could have been simple—the highest bidder wins. Instead, we had a convoluted process that ran on for three years and cost taxpayers millions of dollars as the gaming control board rode around the state listening to proposals and projects that promised the sun, stars, moon, and a new hockey arena.

The process could have been much simpler with the gaming control board, with help from city and county leaders, identifying the best location for a slots parlor. Once the location was selected, an auction for the license would have been held with pre-qualified bidders capable of paying at least $300 million. Considering that the total non-casino development packages from the three applicants were all in excess of $300 million, this would have been a more than fair requirement. Remember that Isle of Capri offered $290 million just for a new arena and that’s over and above the $50 million the state wanted for a license.

Bidding could have started at $100 million, and proceeded from there. Once the license was sold to the highest bidder in an open, public forum, the issue would have been resolved. All this could have been completed by mid 2005 and a casino might have been up and running by late 2006.

Pennsylvania could have taken its $50 million from the auction proceeds and turned over the rest--possibly as much as $300 million--to Allegheny County to be used for local tax relief.

Had this process been followed as opposed to the long, arduous process that was actually used, governments (state, county, and local) would have their money in hand. Projects such as a new arena could have been started or not based on their own merits and ability to fund themselves.

Instead, we have a mess. Still no final award of a license, millions spent and the entangled mess of a possible new arena tied up with the casino debacle. These are two things that would have never been directly linked in an auctioned license award procedure.

In addition to the recent structural collapse at the David L. Lawrence Convention Center, there appears to be an internal collapse at the office of the Center’s master, the Sports and Exhibition Authority. A late breaking news story reports that a forgery and theft by an employee has resulted in a missing $43,000. The staff member has been fired.

This episode echoes one from three years ago when a worker at the City’s Stadium Authority—the agency that was responsible for Three Rivers Stadium and had promised to go out of business when that structure was demolished—embezzled $200,000 over several years. Though two separate agencies, the SEA and the Stadium Authority are linked as they share the same staff. The SEA executive director is also the executive director of the Stadium Authority. That was the arrangement in 2004. Three years ago, the Chairman of the Stadium Authority (who was also the chairman of the SEA, but is now gone from both agencies) stated that “clearly we didn't have enough controls in place” and justified the Stadium Authority’s existence by saying that had to pay off debt.

How lame. The Stadium Authority has continued on limited life support as an extra means of control for the City on how the North Shore is developed. The Mayor appoints all five members to the Stadium Authority board and 3 of the 7 to the SEA board.

Things seem to be falling apart at the SEA. Obviously, the controls that were lacking over at the Stadium Authority are also lacking at the SEA. There are some huge red flags being waved. This latest management debacle combined with the massive construction cost overruns at the convention center, the numerous problems during construction including the death of a worker, and two serious structural problems in the first four years of the convention center’s existence do not reflect well on those who have been in charge at the SEA. It remains to be seen if any management personnel are held accountable.

County officials were busy recently hearing a pitch for Settler’s Ridge, a retail/entertainment/lifestyle center to be located in the area near the Mall at Robinson, Robinson Towne Center, the Pointe at North Fayette and a lot of free standing retail on Route 60. The project developer is promising 2,000 new jobs. Of course they will not be net new jobs since many retailers will lose business and reduce jobs. The new development will also contain a 16-screen theater and that certainly means there will be an impact on the nearby theaters.

The developer proposes to use the Allegheny County Redevelopment Authority as a conduit to secure funding from the state’s Infrastructure and Facilities Improvement Program --created in 2004 to provide grants to offset any debt service associated with the project. According to information provided on the state’s Department of Community and Economic Development website, retail establishments are covered by the IFIP.

So while it is on the up and up with the state, recent local experience should give us pause. We know that retail in this region has not produced job growth in recent years and new sites simply transfer activity from one locale to another. The County Redevelopment Authority just closed the books on the multi-year tug of war over Deer Creek Crossing, which had applied for a TIF package. If anything does go forward on that site it will be much different from what was envisioned. The loss of prospective tenants (to the nearby subsidized Pittsburgh Mills), the loss of developers, and eventually the loss of the TIF ensures that the heavily promoted original plan will not happen. Is there a lesson here that is not being learned?

Retail jobs in Allegheny County are down in recent years and sales tax collections are sluggish. More competition is fine and should be welcome as long as it is private capital at risk. More competition that is subsidized by taxpayers is terrible public policy. It is a loser in terms of revenue and it creates unfair competition. The big question is, “Why are public officials still entertaining these subsidy requests?”