Allegheny Institute Blog

The Census Bureau estimates for city and town population counts as of July 1, 2006 have just been released. The City of Pittsburgh shows a 1.1 percent drop from 316.7k to 312.8k from 2005 to last year. If the City continues to lose 1 percent of its population a year through 2010, it will fall below 300,000 at the start of the next decade.

It would not be a surprise to see Pittsburgh—now the 57th largest city in the nation—to be overtaken by one or two of the cities close on its heels, Bakersfield (CA), Aurora (CO), or Riverside (CA).

Pittsburgh’s percentage loss was exceeded by Cleveland, which fell 1.4 percent from 2005 to 2006, as well as Detroit (-1.4%) and St. Louis (-1.5%).

An especially troubling aspect of the City’s continued decline is that projected expenditures are expected to rise from $427 million now to $470 million in 2011. That implies even higher per capita spending for a shrinking City.

We have written at length about the problems with the Duquesne School District, which is about to have its high school students parceled out to nearby districts within a 10 mile radius. It appears that the state Department of Education would assign students under a proportional formula so that one district does not have to immediately absorb 200 students for the start of the 2007-2008 school year. According to a newspaper report, the Department would not confirm that this was indeed the plan they have signed off on.

If it is, there is a troubling aspect to the plan. It protects the employees of the Duquesne High School by stipulating that any opening at a school accepting students must first be offered to a member of a pool of furloughed Duquesne employees. “…no new employee could be hired unless the job was offered, in order of seniority, to all properly certified members of the furloughed pool” is the language of the agreement. In other words, the agreement, if ratified, will give preference to teachers who could not get the job done at Duquesne, despite massive state subsidies.

How reprehensible. One would think the failure that is the Duquesne School District would hit the teachers just as much as it has hit the families and their children. The state will allow teachers to follow their charges to new districts by giving them preferential treatment, but would not even consider allowing parents to choose the best way for educating their kids by allowing them to use vouchers or allowing a charter school to compete.

Pennsylvania leads the nation in strikes by public school teachers and has for many years. The deck is stacked in their favor: they face no financial harm, no threat from replacement workers, and can count on parents to put pressure on the school board to resolve any impasse, which usually comes down on the side of the teachers.

But now there may be a little bit of heat on the faculty of the state’s higher education system, whose contract expires Saturday. Apparently a letter from the system’s administration notes that pay and benefits could be affected if there is a system-wide strike.

The president of the union took offense, noting that the letter is “meant to scare and intimidate people” and has filed an unfair labor practice complaint.

Maybe the state’s “junior circuit”—the teachers in the elementary and secondary schools—should reassure the union president that fear and intimidation is part of the negotiation process in Pennsylvania. They have almost elevated the prediction of dire consequences from budget cuts or efforts to hold the line on taxes to a high science.

Pittsburgh’s parking tax—the highest in the nation—is on the track to being reduced, but City Council is not happy about it. That’s because they want to see the parking rates reduced commensurate with the tax decrease. Pardon us if we don’t buy into the concern for the consumer being exhibited by City Council, who, after all, in 2004 made the then high 31 percent tax into an even higher 50 percent tax.

As part of the state’s tax reform package, the parking tax is being whittled away in small steps, year-over-year, until 2010 when it will be 35 percent. Those reductions are expected to cost the City $10 million in revenue over the next three years. The City could find those savings and petition the state’s overseers to immediately roll back the parking tax to 35 percent, which would force the public and private operators of parking facilities to enact a rate decrease. State law says the reductions should result in rates “no more than” the annual targets, meaning the City could go even further in its zeal to show it wants to improve the parking situation in the City.

But that won’t happen. There are rumblings on Council that there will be some effort to resist the next round of the decrease set for the 2008 budget.

Why not work on the Parking Authority whose members are appointed by the Mayor and control public parking? After all, the audit performed by the Controller’s office found that none of their rates were rolled back after the tax decrease. As we pointed out in a Policy Brief late last year, the Authority actually increased their rates well in excess of the amount needed to cover the impact of the tax. And the Authority controls enough parking that a roll back in their rates would have an impact. The characterization that the Authority “is not price gouging” is inaccurate.

If City officials are looking for someone to step up, the Parking Authority is the place to start.

The Mayor of Pittsburgh spoke once again on the idea of merging the state’s 3,100-plus municipal pension plans into one statewide system at a conference of the PA League of Cities. Understanding that Pittsburgh’s three separate pension plans are woefully underfunded to the tune of $470 million, the Mayor is looking for a solution. Certainly none has been provided by either of the City’s two overseers.

Maybe the state will retool the distribution of state aid. Maybe the state will call for a merger and make municipal pensions like the state retiree or school employee system.

It is true that aid declines as the City employment headcount declines. Bu that makes sense in that future liability accruals are reduced as employment is reduced. And the state aid decrease does not excuse the fact that it was the City that made overly generous promises to its employees. Those costs should not be pushed onto the rest of the state.

And then there is this: the state’s Budget Secretary noted that the Commonwealth has to address its own looming pension shortfall, which demands a $1.5 billion balloon payment in five years, before it can help fix the municipal retirement system. On top of that will be the school pension solution, which will see employer contributions jump in 2013. That puts the municipal plans at the bottom of the totem pole of reform actions.

The Mayor and leaders in the state’s other cities might want to look at some of the solutions we proposed in our report on local pensions earlier this year. This includes putting all new employees into a defined contribution plan, selling the liquor stores to provide for a source of revenue, or setting up something like the Pension Benefit Guaranty Corporation.

For nearly ten years, students from the University of Pittsburgh have been able to ride Port Authority (PAT) buses for a deeply discounted rate. The students only had to show their University ID cards to use the bus system and Pitt would reimburse PAT $0.58 per ride. The contract is up for renewal this August and negotiations to date have been “cautiously pessimistic” according to a PAT lawyer.

No doubt the sharply reduced rate was agreed upon by PAT to boost sagging ridership numbers. Ridership and use of the public transit system had been declining for decades—even the most recent rise in gasoline prices has not helped substantially. No doubt the relationship between PAT and the local universities (Carnegie-Mellon also has such an agreement that reimburses PAT $0.52 per ride) had been mutually beneficial.

However, PAT now finds itself in deep financial trouble and unable to keep offering the discounts they would like to raise the rate of reimbursement for each university. They have asked Pitt to pay $1 per ride—still below the average rate of $1.24 that all riders pay, and well below the actual cost of riding the bus which is being generously picked up by taxpayers. Pitt has responded by offering $0.65 per ride.

While the pace of the negotiations is troubling—it’s the attitude of the University that causes concern. A spokesman for Pitt remarked the bus program has been “very important for reducing congestion and helping the environment.” Wrapping themselves in the cloak of environmentalism only emphasizes their hypocrisy—they’re concerned about the environment as long as someone else foots the bill. If officials at the University actually believed in this message, they would be more willing to pay the full cost—not just the reduced cost offered by PAT—of bus rides for their students. Pitt does charge their students a “transportation fee” presumably to cover the cost of this program. If the program were to be stopped, would they pass the savings on to the student body—it’s highly unlikely. Higher education continues to sink to new lows.

Since granting local governments the ability to increase the $10 occupational privilege tax to $52 and renaming the tax the Emergency and Municipal Services Tax, the state legislature, after several tries, approved four major changes to the tax that will become effective if the Governor signs S218:

• The tax will be withheld in the amount of $1 per week and remitted to the municipality by the employer on a quarterly basis
• The tax will exempt those making less that $12,000 in a year (they can apply for an exemption annually)
• The tax will be renamed the Local Services Tax
• At least 25 percent of the revenue must be used for emergency services

Recall that a bill containing most of these features passed previously but was vetoed by the Governor since he felt that local budgets had already been prepared and the uncertainty from changing the tax late in the year would have been too much of a hardship for those localities. “The timeline is not reasonable” were the words of the Governor in the veto message. The Governor noted that if the taxpayer protections were submitted to him with “reasonable time periods for implementation”, then he would sign it into law.

Gone in this bill is a provision that would have allowed the City of Pittsburgh a “grace period” to keep collecting the tax in one $52 lump until 2010. That language is omitted, and it appears as though the City will have to abide by the collection method and the exemptions. This could cost the City about $6 million in revenue (based on changes they made to their 2006 budget when it looked like they would be subject to the statute).

This is a win for “the little guys” that have seen a big chunk of their first paycheck of the year gobbled up by the tax.

Recently PNC Chairman James Rohr, who is also the chair of the Allegheny Conference on Community Development, told a gathering of business owners that there are a few roadblocks facing Pittsburgh on its path to growth. While he is very correct in this assessment, he is very wrong on most of his analysis.

He mentions high business taxes, government fragmentation, lack of air service to Europe, and a lack of a skilled workforce as reasons for the area’s economic stagnation.

Business taxes are definitely a major impediment to economic growth in the Pittsburgh area. Businesses shoulder a very large burden of not only corporate income taxes at the state level, but also are responsible for the exorbitant local property taxes imposed by school districts and municipalities. They are often treated as “cash cows” by the governing bodies and see very little if any tax relief—except when large firms, such as PNC, are able to buffalo these governments into bestowing upon them generous subsidies to compensate for the unreasonable tax climate. Indeed Mr. Rohr’s company is receiving $48 million from state and local tax coffers to build an upscale mixed-use office building despite profits in the hundreds of millions of dollars. It’s deals like this that contribute to the high tax climate Mr. Rohr decries.

The other roadblocks mentioned: government fragmentation, lack of air service to Europe, and an unskilled workforce are red herrings at best. There is no evidence that a having one city-county system is the cure-all for an ailing area. In fact, the oldest example of a consolidated government, Philadelphia, provides evidence to the contrary. Other more recent city-county mergers, Indianapolis and Louisville, have not provided the economic boom or cost savings most proponents envision. If anything a Pittsburgh-Allegheny County merger would spread the cost of a failing City across the rest of the County.

As far as air service is concerned, the lack of direct flights to Europe is dependent upon the free market. If there were enough demand for such a flight, it would exist. Previous routes to England and Germany were abandoned by the airlines for lack of passengers—a possible reflection of the stagnating local economy. If the economy was to grow and the demand would rise to adequate levels, no doubt an airline would step in and respond. Or maybe PNC could use some of their profits to start an airline with flights from Pittsburgh to Europe.

One of the region’s bragging points has always been a skilled workforce. In fact, nearly 25 percent of Allegheny County’s workforce holds a college degree (compared to 14 percent in Philadelphia). If the area lacks a skilled workforce, it may be because they have moved elsewhere to find employment.

There are many obstacles in the way of Pittsburgh’s economic recovery—Mr. Rohr just turns a blind eye to them. He never mentioned the problems with unions, specifically public sector unions which are crippling mass transit and the educational system, nor does he mention the regulatory environment that mandates wages or collective bargaining. Instead, he continues to echo the same message that the area leaders have clung to for years rather championing real reform.

Just when you have become resigned to your assessed value, a Court of Common Pleas decision has thrown out the Allegheny County base year assessment plan. We noted many times that this base year plan was not really a carefully thought out one, rather, it was a last resort aimed at doing everything possible to avoid letting the 2006 assessment go forward. As such, the County and the Appeals Board never really understood how they were going to assess homes that were, for example, built after the 2002 base year and not on the tax rolls. Taxpayers were even more confused.

If the ruling stands—it will be appealed, no doubt—it will challenge the very existence of the assessment system statewide, where many counties have not reassessed for decades. Much of the opinion outlines the statutes of other states; it is clear that the Judge is letting it be known that the state legislature may have to take some type of action to get assessments uniform.

Absent statewide change, the opinion directs Allegheny County to get a computer generated reassessment ready for 2009, which, incidentally, would have been the first year of annual assessments if the 2006 valuations had not been thrown out.

Knowing that there is once again a window of opportunity, first to get assessments as correct as humanly possible and second to get a handle on the services the County provides in relation to its border county neighbors and how much it costs to provide those services, it is incumbent on officials to get it done right this time. Knowing that tax increases occur even in places where there is a base year assessment in place provides little comfort to taxpayers. As previous rulings have noted, there is no use waiting for the perfect reassessment and the County’s chief assessment officer at the time noted that the 2006 assessments were “uniform and accurate”.

The editorial writers at “One of America’s Great Newspapers”—as they proclaim themselves to be—apparently cannot resist any opportunity to perpetuate a lie about the Duquesne School district. Again today they rail at the State for not addressing inequities in school funding in an editorial about the District. The problem for their position is that Duquesne schools are currently receiving and have been receiving the bulk of their funding from the State.

For this year, the State is providing $12 million of a $16 million budget. All this for 750 students for a total annual per student expenditures of $21,000—double the state average and $9,000 more than the “rich” district of Mt. Lebanon. Indeed, the State subsidy to Duquesne on a per student basis comes to $16,000, far higher than virtually all districts in the State spend. For many years prior to this school year, the State has provided 70 to 75 percent of school funding. Clearly, a district that cannot afford to pay 25 percent of its education costs should be abolished.

The constant refrain from “One of America’s Great Newspapers” about poor, inequitably treated Duquesne is a load of rot. And they either know this and don’t care or they are so dedicated to a false proposition that the facts are never allowed to intrude on their thinking. In either case, they do a grave disservice to the State, its taxpayers and to readers who don’t follow the stories about Duquesne closely enough to see through the propaganda they so ceaselessly print about a district whose educational performance is so abysmal that it should have been shut down long ago.