Allegheny Institute Blog

The opinions have continued to roll in, but there should not be any surprise: bar owners and bar patrons are not at all happy about the new 10 percent poured drink tax that goes into effect January 1st. Here’s a sampling of the chorus of voices:

“I have nothing against Port Authority, but if I run into trouble here, are they going to tax riders to help me out?”
“It's not fair to those who come out and relax.”
“It's totally ridiculous.”
“With the high wages and benefits, the whole thing is way out of line.”
“If my business was failing, would they add 10 percent to bus fare to bail me out?'”

If they are looking for a silver lining though, they should take heart that the County itself is confused as to how they are even going to work out the logistics of collecting the tax. The County Treasurer noted that “County Council threw this in my lap and there are a few hurdles.” There is someone that maybe bar owners could sympathize with. While the County machinery gets itself up to speed, tavern and restaurant personnel have to get their menus changed, cash registers adjusted, and have to do so on their own dime all by January 1, just eighteen days away.

Maybe once the tax is up and running those businesses that aren’t too worried about their bottom line can take some time and look at what purpose the money really serves: to shore up the County budget, which is expected to show a significant drop in uncollected property tax revenues and large increases to debt service and fringe benefits. It is not as though the drink tax will be offset by a reduction in property taxes, the source from which the County has historically funded mass transit.

“I'm not sure Houdini could do this, but we're going to give it our best shot.” That statement by the Treasurer accurately describes the bait and switch perpetuated by the County and the magic act a lot of businesses are going to have to perform to make sure their business does not drown while they struggle with the chains of the new tax.

Not that there really needed to be more compelling facts of the positive economic benefits that come from having a Right to Work law, which prohibits compulsory unionism as a condition of employment, but two recent studies demonstrate them quite effectively.

The American Legislative Exchange Council released their Economic Competitiveness Rating of the 50 states and found that factors related to competitiveness—taxes, regulations, government debt, etc.—are driving the location decisions of people and the human capital they possess. In 2006, the Council found that on a daily basis 1,500 people moved from the least competitive states (PA, NY, NJ) to the most competitive states (AZ, TX, FL). One of the most powerful variables the Council found was whether the state had a Right to Work law. The states without such a law had lower rates of employment growth and companies in heavy industry usually avoid putting down roots in those states.

The second study by the Michigan-based Mackinac Institute showed that job growth was higher and unemployment rate was lower in states that were Right to Work. Florida, Kansas, Nevada, Texas, and three others with such a law had higher disposable income than Michigan, and the gap between Michigan and the remaining Right to Work states is closing quickly. The report also pointed out that restrictive labor laws like prevailing wage costs taxpayers additional dollars and that Alabama—a Right to Work state with no prevailing wage—added 5,000 construction jobs between 2001 and 2006 while Michigan, with its resistance to Right to Work and holding onto prevailing wage, lost 26,000 construction jobs over the same time frame.

There are lessons for Pennsylvania here, and we have pointed them out time and again. Expansive government and the taxes and regulations that come with it damper economic freedom and the state is losing the battle to pro-growth states every day.

In trying to justify his vote—the tenth and deciding vote—in favor of the drink tax, County Councilman Dave Fawcett, the only Republican to vote for the tax, said that the base year assessment system drove him to it. County property tax receipts have barely increased since 2003 since the 2002 appraised values have been locked in place. The 2005 adoption of the base year plan has locked the 2002 numbers in permanently and has reduced the likelihood of future property tax revenue growth almost nil. Unless, of course Council and the Executive opt to raise the millage rate, something the Executive has pledged will never happen.

He went on to say in the newspaper account, “We have come to a point in time when we're going to need more revenue as a county.” Curious though that the Councilman voted for the drink tax but against the car rental tax. Is one type of revenue better than the other? Was he targeting bar owners and drinkers but not those who rent cars? There are more questions than answers in deciphering the outgoing member’s vote. But it is clear that heavy pressure was brought to bear on the Councilman to be the necessary tenth vote.

But here’s the really sad part: In his zeal to correct for the base year assessment system by voting for a new tax, he may not have realized that voting against the drink tax might have forced the issue against the base year. Instead, the tax revenue machine now rolls merrily along with taxes on drinks and car rentals set to fill the budget void. It is also important to note that with a Supreme Court decision on the base year looming, Allegheny County could be in the situation where it is forced to abandon the base year and reassess periodically while still levying the drink and car rental taxes, along with an extra one percent sales tax.

“You need revenue to run a government.” That does not sound like the mantra of a self proclaimed fiscal conservative. A fiscal conservative would have taken a hard look at County government and come up with savings from each department or seen what functions maybe the County ought not to be performing. Indeed, Mr. Fawcett apparently never recommended any major spending reductions. Moreover, his solution was just a different mixture of taxes.

Sad to say, but with Council members looking to non-profits for revenue, permitting new taxes, and letting personnel costs get the best of them, the chasm that once separated Allegheny County government from the City of Pittsburgh government appears to be getting smaller.

US Steel just announced a $1 billion investment program at the Clairton Coke Works that will keep hundreds of jobs in the state for many years to come. Normally, an economic development announcement of this magnitude would be expected to elicit effusive comments from the Governor about how important this is for Pennsylvania and how it proves Pennsylvania is an attractive state for manufacturing investment. But to date, Governor Rendell has not uttered a word for public consumption through a press release or press conference.

Could it be that the US Steel announcement is actually an embarrassment for the Governor? After all, for him economic development is state driven and the hand of government must be involved to promote and guide through programs, subsidies, tax incentives, advisor groups, and so on and so on.

What a perceived slap in the face it must have seemed for US Steel to make this announcement with little or no recognition of the state’s help except promises to assist in expediting environmental regulatory hurdles. Not showing up for the announcement or commenting on the record amount to a gubernatorial snub of US Steel by a Governor who makes trips to hand out cardboard checks of a half million dollars or less.

As was mentioned in a blog entry last week, City Council today formally passed a resolution asking the Secretary of DCED to make a determination whether Pittsburgh is still a community in distressed status. Here’s what the language of the resolution states: “if the Secretary determines that the City is not eligible for removal of distressed municipality status, the Council of the City of Pittsburgh respectfully requests that the Secretary provide to the government of the City clear and definable benchmarks as to what would be further required to have the status of distressed municipality removed”.

Imagine if one of the benchmarks was a reduction of 10 percent of the City workforce by layoff or attrition each year for the next three years with a hiring freeze; or getting the pension funding level up to 70 percent funded by 2010; or immediately outsourcing every non-public safety service to the County, the private or non-profit sector. Benchmarks like those would be met with vitriol and claims of too much heavy-handedness by the state.

Here’s a prediction: the state will simply say “keep up the good work, but you are not there yet” without giving any bold recommendations. As we have pointed out before, there is no fixed time limit for distressed status and some municipalities have carried that tag for two decades. Given the magnitude of Pittsburgh’s issues, it could be a long time before the exit Act 47.

Besides, the Act 47 coordinator is the DCED Secretary’s person on the scene. If the Coordinator is not satisfied with progress, why would the Secretary be? Moreover, why not just ask the Secretary what needs to be done. Simple: Council has probably already done that and did not like the answer.

This is probably political grandstanding to get the attention of the Governor—to what end, we don’t know.