Allegheny Institute Blog

The Sports and Exhibition Authority (SEA), the city-county agency that is the owner of Heinz Field, PNC Park, the Convention Center, and the soon to be civic/hockey arena, is apparently bored with its duties as the steward of all the cultural and recreational goodies that make our region the most livable (sarcasm intended). For the third month in a row, they had to cancel a meeting because they could not get a quorum.

Maybe the seven-member board, with three each appointed by the Mayor and the County Executive and one joint appointment, should be looking for some new board members who can be bothered to show up. They could tap the Stadium Authority for interested citizens. That authority used to own Three Rivers Stadium and was supposed to go out of business when the structure was imploded, but still serves as the steward of the City to sign off on North Shore development. It just goes to show that some organizations neither die nor fade away.

If the SEA does want members, staffers here at the Allegheny Institute would be happy to sign up. We would not want the public’s business to go undone.

Mayor Ravenstahl and City advocates continue to beat the drum for a state bailout of Pittsburgh’s heavily under funded pension plans. Claims are repeatedly made that municipal pension problems are epidemic across Pennsylvania and that only state tax dollars will be able to solve the problems. Not so. There are 3,129 local government and authority plans in the state. Pittsburgh and Philadelphia account for 75 percent of all unfunded liabilities.

In Allegheny County, there are 294 municipal and authority plans. The ratio of funded to total liabilities for all plans excluding Pittsburgh is 96 percent. Only 7 plans were below 60 percent funded. In short, Pittsburgh’s municipal plans account for over 90 percent of all the unfunded liabilities in the County. The Allegheny County plan is close to fully funded. The City’s authority plans are fully funded.

Pittsburgh’s unfunded liability problem is the result of overly generous provisions in the plans and years of inadequate funding by the City. And it is not the state’s fault. Pittsburgh gets over half of all the state funding for municipalities in Allegheny County. And the City has only one quarter of the population.

It is not the responsibility of taxpayers in other communities to remedy the City’s mistakes, the excessive generosity and the failure to fund plans at an adequate level.

Indeed, the state and school pension plans will soon develop their own massive problems as result of excessive generosity of the legislature. Taxpayers will have enough burden covering those acts of imprudence.

The North Shore Connector—otherwise known as Pittsburgh’s Big Dig—is off to a less than stellar start. First problems with soil density will result in an additional $3 to $4 million expenditure (it will come from a $9 million contingency fund). Then utility lines that were missed on blueprints will add another $300,000 in expenses. Now comes the departure—whether voluntary and involuntary—of the authority’s engineer and point man on the project.

Is this the shape of things to come for the Connector? Don’t forget the lengths officials from the Federal government and the region went to shepherd this project along. Money was reallocated, revisions made to ridership projections that drastically changed the cost to benefit ratio, yet hardly an eyelash was batted. Instead, the project was viewed as manna from heaven since the Feds were funding a substantial part of it, funding that would have gone somewhere else should the project be abandoned. Boosters for the project seemed to be in lockstep then.

Now there is some disagreement between the PAT board chairman and CEO on the departure of the engineer and the “go-to guy” for the Connector. The former labeled the departure “crazy” while the latter stated “we’re not really changing up”.

Are these a harbinger of things to come for this colossal boondoggle project?

Nearly a decade after the former mayor of Pittsburgh predicted that a new convention center would attract “two new hotels” to Downtown Pittsburgh and that there would be a lot of developers interested in partaking in the convention center building boom, we had this headline in Saturday’s paper: “State subsidy revives Downtown convention hotel plans”.

For years we have heard that Pittsburgh’s convention center needs additional hotel rooms to capitalize on its potential; we have also heard of the enormous economic spinoff benefits from tourism and visitors. Thus the former mayor’s exuberance about the promise of the center. The reality has proved otherwise and the General Assembly’s approval of a slots economic development fund will provide $34 million of the $103 million hotel project.

So after providing a good deal of the money to pay for the new convention center, the state is now paying a good deal of the construction of the hotel. Let’s hope that it does not depress the bookings at other Downtown hotels not lavished with such help and that the activity promised by convention planners comes to pass once the hotel is built.

In today’s Post Gazette an op-ed appeared that described the sorry state of transportation in Pennsylvania and the Pittsburgh region. Signed by 18 members of the Allegheny County House delegation, the piece details how their efforts will fix the decrepit situation in highways, bridges, and the Port Authority.

The piece mentions that if the legislative package had not come together, Allegheny County’s “only alternative would have been a property tax hike” in order to hold off on the proposed second round of cuts proposed in September. This is not true: nowhere has it ever been mentioned that the County was going to hold off on cuts by instituting a property tax increase. In fact, the County Executive and members of council have often boasted of their ability to avoid a property tax increase even in the face of County financial difficulties that resulted in the layoffs of 500 employees a few years back. The legislature could not mandate that the County raise property taxes, so it was at the discretion of the County to do so.

In that way, the optional car rental tax and alcohol tax—options that have been floated before for either covering the deficit of the convention center or the City of Pittsburgh’s finances—are really not that much different than putting the County in the box of deciding what to do with the property tax rate.

The County currently cuts a $25 million check to the Port Authority and that money comes from property taxes. If the County views mass transit as a public good that is on par with health and human services, parks, or public safety, then the County should shed some of its non-essential functions to free up the money.

Just when it appears the Port Authority would receive yet another bailout from state taxpayers, along comes Allegheny County Executive Dan Onorato to attach heavy strings to that money. Under the proposed budget agreement, which still has not been finalized, the Port Authority (PAT) would receive an extra $55 million from the state on top of a base subsidy of $135 million. But if PAT wants more money, Onorato is going to hold their feet to the fire and require the agency to reduce labor costs. For that, the County Executive deserves a pat on the back.

The catch to this additional state money is that Allegheny County would have to provide a partial local match for the funds—an extra $5 to $10 million above the $25 million the County currently provides. Where this money would come from, most likely from new tax streams, is up for debate. But what is apparently not up for debate is the County Executive’s intention to withhold any additional funding until PAT cuts costs, specifically the compensation structure of union and nonunion employees. According to Onorato, PAT will “not get a penny more of revenue until they fix the cost structure….”

As we have chronicled through our research, costs at the Port Authority are far out of line with other transit agencies around the country. PAT employees have the nation’s highest transit worker wage rates adjusted for the cost of living. Moreover, the health benefits for active and retired employees are spiraling completely out of control. So far, the union has been adamant in resisting any meaningful compensation cuts or efficiency enhancing improvements.

To no one’s surprise, Onorato’s stand has drawn the ire of the union president. Obviously making the necessary changes to lower costs and improve efficiencies will be a daunting task. Let’s hope the County Executive will continue to stand firm in his push to achieve much needed changes at the transit agency.

The Pittsburgh Public Schools is going to re-brand itself. Thankfully, they aren’t adding words to the title like the regional marketing initiative from a few years back. Instead, they are simply dropping the public tag from its title, renaming individual schools with the word Pittsburgh in front of it, and focusing on achieving “excellence for all”.

If it were only that easy. The problem is not with the name but with the product and its claim that it can produce excellence for all students. The district is already spending upwards of $18,000 per student and enrollment is on the decline. One board member noted that maybe some of the negative connotation with public schools might dissipate if the district takes on the new name (which, by the way, is not a legal change) like suburban districts do.

Let’s face it: people with school age children know that Pittsburgh schools are public schools just the way they know that Fox Chapel, Quaker Valley, and Mt. Lebanon are public schools. The difference is that the performance in Pittsburgh’s schools is severely lacking in comparison to these districts and is a primary cause of the exodus from the city.

While we applaud some of the changes the district has made in closing schools and trying some alternatives, this latest effort is more sizzle than steak. And it is far past the time when feel good cosmetic changes to have any positive effect.

The state’s budget crisis lasted one day before a tentative agreement was reached between the Governor and Legislature. One detail of the new budget that has come to light is yet another state bailout for the Port Authority. The Port Authority (PAT) was to receive an allotment of $129 million from the state—about 40 percent of the transit authority’s projected $325 million budget. However the new state budget includes an extra $55 million, more than enough to cover the projected $45 million deficit, which now brings the state’s contribution to nearly 57 percent of PAT’s budget.

While mass transit proponents laud this development, does it really solve the transit agency’s problems? After all this is not the first time the Governor has thrown money PAT’s way and yet no significant improvement has been made in reducing the high costs of operations or improving efficiencies. More money has not addressed pension or health care costs given to retirees.

PAT needs to have its feet held to the fire. It appeared to be happening as the agency began to cut service, raise fares, and furlough employees—both management and general workforce. But these have been baby steps that have not put a dent in the problem. PAT and its unions have vehemently resisted outsourcing smaller routes or maintenance. They have balked at using smaller buses on lesser used routes or changing work rules to operate split shifts to cover the morning and evening rush. They continue to own and maintain the woefully under utilized Wabash Tunnel HOV and South Hills parking garage. And they continue forward on the boondoggle known as the North Shore Connector.

The Legislature and Governor need to apply pressure to the Port Authority. They should demand representation on PAT’s governance board and insist on privatizing parts of the agency. Until real progress is made, bailouts should not be forthcoming—they just delay the inevitable collapse of the system.

News outlets and sports commentators have been gushing with praise of Kevin McClatchy since the announcement he is leaving as CEO of the Pirates. Strange behavior indeed considering the years they have spent castigating the man for his leadership of the team. Now he is credited with saving the Pirates and getting them a wonderful new ballpark in which to display their talents.

Let’s be clear. Mr. McClatchy did not save the Pirates for Pittsburgh. He and his partners who bought the team in 1996 had one overriding objective—to make money for themselves. And they have done well. After paying $90 million for the franchise in 1996, the partners have seen their investment rise in value to $274 million in 2007, according to Forbes magazine. The increase in value reflects in large measure the revenues produced at the new park, revenue sharing through the “luxury tax” and the general increase in franchise value over time. Again, according to Forbes, the team will earn $25 million pre-tax this year. Moreover, Mr. McClatchy has been paid handsomely for being chief executive over the years his group has owned the team.

There are several inconvenient facts in the “McClatchy saved the Pirates for Pittsburgh” argument. First, there was no market of adequate size available except Washington, D.C. to move to and that market was being ruled out in deference to the Baltimore Orioles. Second, the Montreal Expos were in a much more perilous financial and attendance situation than the Pirates and would have been the major leagues’ priority as a team to move. Eventually, the Expos were taken over by the league and moved to Washington.

Third, if there had been no new stadium, McClatchy was prepared to put the team on the market. In December 1998, after the so-called “stealth” legislation was vetoed by Governor Ridge, McClatchy was quoted as saying, “We can’t be here long term if we can’t put a competitive team on the field. We need a new stadium to be competitive.” In the same interview he held out the threat of triggering the clause that would allow him to sell or move the team if the City could not find a local buyer. In short, he was prepared to take the team out of the City unless he got a new stadium.

So, if the team was saved for Pittsburgh, it was state politicians who defied the overwhelming will of the people not to publicly fund the new stadiums who saved them. This list includes the then Republican Governor, a number of Republican Senators from western Pennsylvania and a Republican County Commissioner in Allegheny County who abandoned a pledge not to use public funding for stadiums. That commissioner joined with the minority Democrat commissioner to move the Plan B funding scheme ahead, including the use of Regional Asset Tax revenues to build the new stadiums. This despite the claims by officials before the tax referendum was soundly defeated that RAD dollars could not be used for new construction.

Here’s the reality. If the team was actually going to move out of Pittsburgh during this period, which in all probability it was not, and was saved by getting a new stadium, then the sports columnists and others who are now lauding Mr. McClatchy ought to have the honesty to give credit where it is due.

By the way, it does not appear that a new stadium was able to cure the small market problem faced by Pittsburgh. Just as we warned at the time.

The House Urban Affairs committee recently passed a measure that would allow southwestern Pennsylvania’s tourism agency, Visit Pittsburgh (formerly the Pittsburgh Convention and Visitors’ Bureau) to become a contractual asset of the Regional Asset District and beneficiary of 2 percent of the RAD share of the 1 percent sales tax.

As it is presently constituted, one half of the proceeds from the 1 percent levy goes to the Regional Asset District for support of cultural, educational, and recreational venues. There are contractual assets—the zoo, aviary, parks, the stadiums, and libraries—that are guaranteed money. The District also has annual allocations that can make to other, non-contractual groups.

The bill passed by the committee would essentially make Visit Pittsburgh another contractual recipient, but by doing so it would take dollars from other grantees. Since the tax has remained relatively flat at $145 million (1/2 going to the District), giving a share to another agency has raised concerns from the District’s leadership and area lawmakers.

Some of their frustration ought to be directed at the region’s boosters who pushed for a bigger convention center, and a new one at that. As a result, more of the county’s hotel tax is being dedicated to debt service, which leaves less for tourism promotion. If any organization should understand a new item siphoning off available funds, it would be Visit Pittsburgh. (In fact, RAD made an allocation to the Convention Center, for operations, in 2006).

And since this change comes on the heels of a recent proposal to shift some sales tax money to the Port Authority, the battle over dollars will likely become fiercer in the coming years.