Allegheny Institute Blog

The University of Pittsburgh Medical Center seems to be getting the same level of respect as Wal-Mart. That’s par for the course when you are the biggest boy on the block. However, there are significant differences, the most notable being UPMC is a non-profit corporation, so it is exempt from paying real estate taxes, no doubt a contributing factor to the expansion of its physical footprint.

As the largest employer in the City, its report of large profits has brought calls for where the money should go. For example, a PG editorial offers suggestions, including the Pittsburgh Public Service Fund, a voluntary fund from non-profits to help boost the City’s finances. (Note that they never ask the Pirates, Steelers, or Penguins—all of whom play in tax exempt facilities—to kick in, but that’s another story).

The editorial implores UPMC to “direct more of its abundance to aid the City that sustains it”. That’s funny on many counts, including the fact that UPMC and the other large non-profits like the universities are likely sustaining the City instead of the other way around.

But there is a way UPMC could engage in some economic benevolence which does not involve writing a check to the City, which essentially amounts to throwing money down a rathole. As a monopoly, the excessive profits indicate that UPMC’s prices are too high. Cut the price, and increase the quantity demanded for the services. That would increase the consumer benefits. It is more cost effective to provide more service to directly improve the health of the region than to give it to the City government in order to sustain its profligate spending ways. It would also lead to more price competition for other health care providers in the market.

The new July 2007 job numbers for the Pittsburgh metro were just released. The unemployment rate of 4.3% equals the state’s rate and is slightly lower than the U.S. rate of 4.6%. But don’t pop the champagne cork just yet.

Since last July, total private employment rose by 3,900 or 0.3%. Much of that growth is owed to the education and health sector, which saw a boost of 4,100 jobs. Construction and manufacturing posted losses of 300 and 1,200 respectively. The problem is that much of the growth in the health sector is driven by government funding. But without its growth, the region would have posted no increase at all. That’s pitiful.

The seasonally-adjusted labor force total—the number of people working or looking for work—is down 5,500 from July of 2006 and stood at 1,198,500 last month. Looking at Allegheny County alone, the labor force has decreased 2,800 from last July. Even more stunning is the 1,400 drop from June 2007 to July 2007. All this indicates that the unemployment rate should not have a lot of fanfare attached to it as it is not indicating a robust local economy. Rather, the decrease in the labor force shows that there is a decrease in the number of people working or looking for work.

Pending in state legislative House and Senate committees are two fairly similar bills that could change the economic development landscape in Pennsylvania. Titled “The Economic Development and Fiscal Accountability Act”, The general Assembly would direct a annual report on all economic development activities—who received the money, where it came from, and how much was awarded. Local government would also be required to file information on all property tax exemptions and abatements that have been awarded.

While we have seen previous audits and attempts on tracking economic development fall flat, we are encouraged that this legislation would issue fines for non-compliance, place thresholds on the cost effectiveness of economic development handouts (for instance, if the cost per job exceeded $35,000, the project would be a no go), and even a process for recapturing an award.

That’s a lot better than what exists now, which is basically non-existent. It might even end a bit of the zeal of officials to hand out gobs of money with dubious results.

For the first time since the light rail system opened nearly two decades ago, the Port Authority will use feeder buses to get customers to the trolley so they can get to their destination. Wow. What a concept. The South Hills is fortunate to have a dedicated light rail system that does not clog up traffic on major roadways. But PAT has been running buses on parallel routes into Downtown, essentially competing with itself.

“Historically, there has been redundancy in our service, especially in the South Hills, where bus routes operate in competition with light-rail,” were the words of a PAT spokesman.

We have been calling for such an arrangement for years only to be ignored. Now PAT is taking on this change as a nod toward efficiency. It makes sense—perhaps that’s why it took so long.

Just in case this mood is contagious over at PAT, here’s another change they ought to look at: the union contract stipulates where and when smaller passenger buses can be used in service. Not surprisingly, the stipulations are restrictive and not geared toward efficiency. The next contract needs to have that provision struck out. Too bad the Legislature did not require a re-opening of the contract before they doled out $55 million in additional PAT aid.

The latest Quinipiac survey, like others it has done in the past, takes the pulse of Pennsylvania on the important issues of the day. Among the important topics in the recent poll are the state budget and taxes. These are always hot topics, and became even more so due to the contentious negotiations and the one-day shutdown of services due to the 2007-08 budget not being passed on time.

That budget came with no new tax increases, though there was plenty of talk about increases for transportation and possibly to pay for expanded property tax relief, much of it initiated by the Governor. He proposed a new oil profits tax to fund transportation, seven new taxes in all.

A question on the survey was “who do you give credit for no new taxes in the state budget—the Governor or the Legislature?”

Interestingly, but not surprisingly, responses were divided along partisan lines. But the bigger story is looking at the responses by region. 59 percent of respondents from Philadelphia gave the Governor credit for no new taxes. The regions of the northeast and southeast gave the Governor kudos at rates of higher than they gave the legislature, but not to the degree as the City of Brotherly Love.

It is almost the reverse situation west of the state capitol. In Allegheny County, 46% gave credit to the Legislature. That percentage was met in the Central region and exceeded by the Northwest region (56% gave credit to the legislature).

Also note that 23% of respondents from Philadelphia felt that the tax situation in Pennsylvania has gotten better since the Governor took office. Perhaps they have forgotten about the income tax increase in 2003. We knew that the Governor was immensely popular in Philadelphia, (as indicated by his 76% job approval rating) but not to the point of ignorance about taxes.

We wrote a while back that the Pittsburgh Public Schools could drop “public” from its name, but they would still be public schools. So who would they be fooling? How about when a small college in southwestern Pennsylvania with 2,300 students becomes a university via state action? Surprising as it may sound, 16 colleges have become universities in the last ten years in the Commonwealth.

How does it happen? According to Department of Education regulations (Title 22, Chapter 22.51), “For university approval, exceptions…may be granted for exceptional educational reasons—such as…universities established for limited or special purposes—when the need for the exception is documented by the institution”. In plain terms, it happens like this: a college goes through a formal application process that includes an evaluation from Department of Education staff and requires approval by the Secretary of Education. Institutions are allowed to pursue an exception from the formal distinction the state grants them, thus explaining why a slew of colleges in western Pennsylvania have graduated from their college status.

The Department of Education does not keep statistics on how many colleges who applied for an exception to get its status changed to a university have been rejected. And there are opportunities for public comment and reaction to a college seeking a change, but there have been no objections raised by the current crop of universities.

Clearly, there is a marketing advantage, as was pointed out by a Department of Education official noted in a newspaper article last week. “Being a university seems to have a cache among foreign students that's lacking with the word college”. Seems like a bit of a bait and switch, but the college and university community seems awfully quiet. Maybe many of them are busy with focus groups and marketing gurus looking for their next competitive edge.

What’s in a name? Probably not much. As long as faculty and students are easily deceived, colleges will keep doing this.

The City’s “Redd Up” crew—a specialized and focused deployment of members of the Public Works Department—are miffed about the condition of the areas where they focus their efforts. And rightly so. Consider the details from a newspaper article this past weekend: public and private properties that were cleaned only to return in a few weeks to their earlier deplorable condition. The crews are frustrated that public parks are returning to litter-strewn lots while abandoned structures that were improved have slipped back into their previous sorry state.

They are Pittsburgh’s version of the mythical Sisyphus, who was doomed forever to roll a boulder up a hill only to have it roll back down. But unlike the myth, it is not a curse that has condemned the Redd Up crew to repeat performances of litter removal; it is the uncaring attitude of residents and visitors who that continue to foul the landscape.

Much of this attitude can attributed to the “Tragedy of the commons” wherein the absence of property rights and ownership reduces the sense of stewardship of public park users. Nonetheless, the crews are not giving up but will refocus their efforts on making more permanent improvements rather than merely cleaning up messes. Good luck with that. One must wonder how much manpower and money will be wasted when all is said and done with the “Redd up” campaign if residents do not adopt a better sense of responsibility for helping maintain clean, safe parks.

The PSSA scores for students in the 3rd, 5th, 8th, and 11th grades in the Pittsburgh Public
Schools were released yesterday. The superintendent is positively bullish on the numbers, referring to them as “very, very, very good” and proof that his initiatives are working.

Here are the numbers: combined scores for reading increased from 51.9% to 53.3% (those scoring at the proficient or advanced level) and combined scores for math went from 54% to 55.7%. When the results are separated out by grade level, the best improvement came in 3rd grade reading where the proficient/advanced performance went from 51.6% last year to 59% this year. Meanwhile scores in grade 3 math and grade 5 reading and math fell from the previous year’s performance.

The superintendent did point out that there remains a significant racial achievement gap between white and black students. Across the four grades in reading, 72.1% of whites performed at the proficient/advanced level while only 38.4% of blacks achieved that same level. A similar gap exists in the math performance category. And that gap is not closing.

Now here’s the troubling part. As today’s Policy Brief points out, the percentage of white students in the district is falling and the ratio of whites in the district compared to whites in the City as a whole is far out of line. As the district’s enrollment becomes more black, the performance of whites on the PSSA will have less of an effect. And the black performance across all grades on math and reading fell from last year to this year. And while the white student scores are reasonably heartening, they still lag most suburban school districts where advanced/proficient levels are commonly in the high 80 to 90 percent range.

The good news from City Hall is that the City is running a budget surplus that will result in an end-of-the-year balance of over $90 million.

The bad news from City Hall is that the long-term obligations of debt, pensions, and benefits will swamp any surplus accumulated this year or the next.

Despite the fact that the City is supposedly bringing in better collections of the payroll and Emergency Services Tax (much of this is likely attributed to construction activity) and has a better return on its investments, the years of making overly-generous promises will have its effect in monsoon-like proportions.

All signs seem to be pointing to yet another intervention by the state, even though the City has two state-directed overseers and the state created a tax reform package in 2004. Code-words like “restructuring city government” and “a comprehensive solution” for pensions requires state action. But as we have noted before, there are things the City should have been doing and could have been doing on its own and the state’s policy agenda is going to be getting more crowded as its own pension systems are facing problems.

So instead of waiting until 2010, the City should seek this quick action via communicating with the state through the oversight board—as of January 1, 2008, all newly-hired City employees, regardless of department, will have a defined contribution pension plan (a 401K) and defined benefit plans will be phased out. Failing that, the other option is to institute layoffs to the 3,100 employee work force so as to curtail the City’s pension obligations for the future.

Everyone knows what is coming—changes in taxes the City collects and the bills for past promises coming due. Who is going to step up and do something?

The Port Authority is in financial trouble. No one disputes this finding. The transit agency has been asking for more money from the state for years—and the Governor has been forthcoming, despite pleas from critics to demand reform. The Port Authority (PAT) had taken a very small step to reform by cutting a small percentage of service and laying off some employees. But this is an agency in dire straits that needs drastic changes to the way it’s being operated. In the next few years PAT will see a tremendous increase to pension obligations and health care costs, especially for its current retirees.

In order to do this PAT will need cooperation from its union by asking to reopen current labor contracts. The transit agency needs to get immediate concessions on work rules and compensation packages as well as the ability to use smaller buses to run the less used routes and to competitively contract out bus services.

But getting the union to seriously consider these requests will be extremely difficult as long as they continue to spend money on outrageous capital projects like the North Shore Connector and the Governor and Legislature continue to throw money PAT’s way. After all why should they capitulate on any cost effective measure if money from the state keeps flowing? Most importantly why should the union reopen its contract and make concessions when management’s abuses keep coming to light.

The most recent episode involves former CEO Paul Skoutelas who sued after PAT reduced his monthly pension payments by a third. The lawsuit has brought to light the details of the pension which include the Authority buying 11 years of service for Skoutelas when others had to buy their own service years. He had also been the beneficiary of a controversial retirement option program PAT’s board had approved on his recommendation. In all he managed to pad his pension payment to more than $9,000 per month. The simple response from the president of PAT’s union: “Wow!”

This reflects a culture of lavish spending during his 8-year tenure as the CEO. A time when more than $1 billion of capital projects had been undertaken or planned—the Wabash Tunnel HOV project, the West Busway and East Busway extension, the South Hills parking garage, and of course the North Shore Connector. This was done at a time when ridership has been essentially flat and costs have been escalating. This shows a complete lack of respect for those who depend on mass transit and especially to the taxpayers who are asked to fund it.

How will PAT ever expect the union to give concessions when they can’t instill trust and confidence they are doing everything they can on their own end to control costs and ensure efficiency? While the new CEO has taken steps such as reducing the salaries of management to show good faith in cutting costs, the culture of corruption and back room bargaining still resonates. If its own union shows no faith and confidence in the transit agency why should taxpayers?

It is possible to get the feeling that City Council really does not care if Pittsburgh has the highest parking tax rate in the country. They raised the tax rate from 31 to 50 percent in early 2004 to fill a budget gap. However, the state reform package of 2004 mandates the rate be trimmed in incremental steps to 35 percent by 2010. It will still be the highest parking tax rate in the nation. At 31 percent, parking tax collections will fall about $9 million a year compared to current revenue.

Council members are not happy that state aid and non-profit payments are not larger while the great savior—gambling money—doesn’t appear to be coming through as planned. So, they are hinting at a possible refusal to reduce the parking tax as required by law. They also trot out the tired old rhetoric about operators pocketing profits since the operators did not reduce parking rates to reflect this year’s cut in the tax rate (from 50 to 45%). The Council conveniently forgets that the Pittsburgh Parking Authority is the biggest single owner and operator of parking facilities in the City.

From Council’s comments it would appear the state has done nothing for the City but require a rollback in the parking tax. They have forgotten to thank the state for letting the City create a new payroll tax and to charge a $52 local services tax on every worker in the City. Council apparently does not remember that the reform package gives Pittsburgh a bigger piece of the wage tax by diverting money from the schools. Nor are they appreciative of the $4 million in RAD money they are no longer forced to send to the school district. All this more than offsets the parking tax decline.

If Council refuses to lower the parking tax, it will produce a showdown with the oversight board and the Act 47 team. Act 47 team members are urging Council against taking such a precipitous and counterproductive step. Violating the law is never a good decision, especially for legislative bodies. If the Council is resolute in a refusal to lower the tax, then the General Assembly ought to retract the entire bailout tax reform program and refuse to allow any further state economic development funds to come to the City.

The City must start cutting spending and quit depending on more and more opportunities to tax people and businesses. It’s ruinous behavior.

The Post-Gazette covered the policy change from the state that will now permit senior citizens to ride transit for free anytime of the day. Previously, free rides were prohibited during rush hours, but now that restriction is lifted.

The Port Authority is reimbursed for the free transit rides from lottery sales, which as we know from advertisements, are “used to benefit senior citizens”.

Obviously the concern expressed by some of the people interviewed for the article is that the buses would be more crowded. Not a problem, says the organizer of a senior citizen group that applauded the change. “[A crowded bus is] a good reason for the Port Authority to add another bus. And then we'll have fewer Port Authority drivers out of work,” he said. “It sounds like win-win all around.”

Unfortunately, this is what passes for logic in the region. First of all, if the riders at peak times represent additional riders, then PAT costs will go up and someone has to pay those. If these rides reduce the number of off-peak rides, then there would need to be fewer off-peak buses. The desired outcome is to have transit demand spread more evenly throughout the day: higher peak demand means more employment, more buses, and more costs than the community can afford.

The County Controller just said that the Port Authority should be running 46 percent fewer buses to be at a level with peer transit agencies. We know from the Allegheny Institute’s work and the Governor’s Task Force that PAT drivers are the highest paid in the nation when adjusting for the cost of living. The Port Authority needs to get smaller, and this change that might lead to overcrowding just reinforces the tired old notions that PAT is overworked, underpaid, etc.

No, an overcrowded bus is a good reason to raise fares, and possibly making seniors pay a discounted rate. A raise in fares gets the riders to focus on the system and the costs it incurs. But the good feelings of seniors riding anytime they want, the rescinding of service cuts thanks to state dollars, and the prospect of moving to “harmless” alcohol and car rental taxes to fund transit makes the situation more difficult.