Allegheny Institute Blog

The oft-repeated claim that Pittsburgh needs more hotel rooms within the immediate vicinity of the convention center came back again this week. Look at how this issue has morphed: in 1997 when the region was debating the ½ percent sales tax increase, officials claimed that a new center had a lot of people interested in building hotels near the center. In 2001, a subsidy plan was hatched to build a hotel. In 2002, the SEA discussed building a hotel itself. Now gaming will provide $44 million for a hotel, but the tourism community is upset that the developer is only planning 300 rooms instead of 500 to reach a somewhat magical target number of 1,000 connected rooms.

Clearly, the arguments about what happened to the private interest, the fact that subsiding new hotel rooms only opens the door for more subsidies later, and the disadvantage a subsidy will have for other established hotels are being pushed aside. The state has stepped in and its assistance is viewed as sufficient to convince the developer that construction costs or the rate of return just don’t matter—all that does is securing the ever-so-important magic number of hotel rooms, a factor so important that planners did not bother to push for its inclusion when the center was being drawn up.

Pittsburgh is in fierce competition in the convention market (Philly is expanding its center with help from gaming money) and a shinier center with better amenities has barely nudged attendance above where it was in the waning days of the old center. In fact, bookings through 2015 are pitifully low. Will a 500 room hotel change these projections? We can only wait and see.

The July 1, 2006 to July 1, 2007 estimates for the growth in U.S. metropolitan areas is in and Pittsburgh, the 22nd largest metro area at 2.355 million, experienced a net decline of 7,502 people (-0.3%) over the time frame. In terms of net population change in numbers, Pittsburgh was third from the bottom among the 100 largest metro areas. Only Cleveland, with a drop of 8,848 and Detroit, down 27,314, experienced a greater decline.

The data, available at http://www.census.gov/Press-Release/www/releases/archives/cb08-49table3.xls, shows other metros experiencing population losses are concentrated in the northeast and Midwest—Buffalo, Province, Youngstown, Dayton—but also included Miami and Virginia Beach.

Pittsburgh is, for the time being, firmly entrenched at its number 22 spot. The 23rd spot belongs to the Portland (OR) metro at 2.175 million. Based on the 06-07 changes, with Pittsburgh losing 7,500 and Portland gaining 41,000, in 2011 Portland would surpass the Pittsburgh metro in total population size. The gap between Pittsburgh and the 21st largest metro, Denver, has also become more pronounced. In 2006 Denver had 48,000 more people and in 2007 a gain by Denver and a loss by Pittsburgh widened the gap to 109,000.

And as of the July 2007 numbers there are 11 metros in the 2 million to 3 million range. Only Pittsburgh and Cleveland were net losers in that range.

We wrote in a previous Policy Brief about Allegheny County’s plan to explore private sector assistance in improving selected assets in the nearly 12,000 acres of parkland. To that end the County has produced the first two Requests for Proposal, one for the boathouse in North Park and the other for the Hartwood Stables. The successful bidders will be responsible for all maintenance and capital improvements at the sites and the proposals will be evaluated on how well plans mesh with the character and vision of the parks.

In announcing the plan the Executive stated “we’re never going to sell these parks” and the approach to allowing the private sector into the parks will be a gradual one. The County itself is maintaining all the advertising rights at the sites and will not entertain naming rights at the time. This is somewhat in contrast to the August 2007 Oglebay Foundation study on potential revenue options in the parks, including the pursuit of “non-traditional funding sources such as advertising, corporate sponsors, and other potential individual donors…”

Another complicating factor, in the case of the North Park Boathouse, is that the lake is scheduled for a major dredging operation to remove silt and sand. This project is slated to be completed in 2011. The RFP notes that “there will likely be some disruption of lake usage in and around the Boathouse during sediment removal operations” and the extent of that disruption is “not known at this time”. Hopefully such uncertainty will not drive away potential bidders.

County Council has passed Ordinance 3662-08, which directs the County to go after the Airport Authority for the balance of the County’s supposed $42 million investment in Pittsburgh International Airport, and the Executive has allowed it to become law without his signature. That $42 million has generated a significant amount of controversy since the County first took possession of a $19.9 million distribution from the gaming Tourism and Economic Development Fund.

To summarize: the gaming law set aside $150 million for “debt service, development, and economic development” at the airport. The public record indicates that the entire $150 million was to go for the close to $600 million debt held by the Authority for the airport. A late amendment in the Tourism Fund statute allowed that money to come directly to the County and the Executive, claiming that the recovery of the $42 million debt was something for which he has crusaded for many years, took the initial $19.9 million and used it to fill a 2007 budget deficit.

The ordinance acknowledges the receipt of the $19.9 million and now is after the balance of $22.6 million, plus interest, which at 5 percent since 1987 when the bonds were issued amounts to about $24.8 million. They have 90 days to “make arrangements satisfactorily [sic] to the Chief Executive and County Council”.

One would wonder if the Airport Authority would just inform Council that they can keep the next $44.5 million of the gaming money since, thanks to the legislative amendment, it will be coming to the County first. That would leave closer to $87 million for the retirement of airport debt held by the Authority, well below the $150 million envisioned.

The Executive’s letter describing his refusal to sign the ordinance and instead let it become law without his objection raises some issues, but none related to the issue of whether the $42 million is a debt, public investment, or other. He does note that the ordinance “could be viewed as an attempt by County Council to negotiate a contract” possibly “violating the plain text of the Home Rule Charter”. Why not veto the bill then? If it is a clear violation, then it is the responsibility of the Executive to check the power of Council. Perhaps the illusion that Council is endorsing the recovery of this supposed debt is more important that the Charter.

Now the ball is once again with the Authority. Their solicitor stated that the $42 million “is not a debt. It is clearly set out as an investment”. The ordinance references the Transfer Agreement labeling the bonds as “County Debt”, yet the Airport Authority’s books show no such debt.

As we speculated in previous pieces, since this bill has become law the Airport Authority will almost certainly challenge this in court. Or they will just let the County take its cut of the gaming money for the rest of the debt and interest without rocking any boats.

The City’s Act 47 plan described the existence of non-essential take-home vehicles thusly: “a symbolically negative image to the City workforce and the public counter to the dire nature of the City’s finances and the need for permanent reform”. That’s why the coordinator instructed the City to right-size the fleet and re-examine the policy on take-home vehicles for non-elected officials. There were 83 such vehicles in September of 2003. That number was to be reduced in two steps.

First, 31 vehicles would be eliminated by removing the 24-hour privileges for employees not designated as performing public health or safety functions. Second, a closer look would be taken at the remaining 52 vehicles since it was found that 41 of those traveled less than 8,000 miles per year. Unless their use could be justified, they would be reduced by another 23 vehicles, thus reducing the level of take-home vehicles to 29, a reduction of 54 vehicles or 65 percent.

But instead of 29 vehicles, the number remains close to 58 vehicles according to newspaper reports. That’s higher than the level the first cut was supposed to achieve, and Council is taking up the matter. If a proposed ordinance passes the Mayor and 7 department heads will continue to have 24-hour unrestricted use. Employees driving over 1,200 miles per month aren’t entitled to one, but can be assigned one subject to availability. The legislation spells out further regulations and restrictions, including those on personal vehicles used for City business.

This episode again raises the issue of determining who is in control—the Act 47 coordinator, who wanted the City to “immediately amend” the take-home vehicle policy (that would have been in 2004), or the City, who seems to be getting around to it four years after the directive. It also raises the questions on the City’s contract with Flexcar’s car sharing program, which included a payment of $10,000 “for use by designated users of the City of Pittsburgh” and was touted by the Act 47 team when they stated “automated vehicle sharing can help reduce fleet size, reduce costs, and improve utilization”. Where is the punishment from the foot-dragging and where is the evidence that the City’s support of car-sharing is paying dividends?

Pittsburgh’s Urban Redevelopment Authority (URA) has just approved its latest budget. The Authority will spend $10.8 million this year, up from $7.8 in 2007. The director notes that the new budget is balanced and requires no borrowing. But what is significant in this budget is that for the first time in many years the URA sending $1.5 million to the City as a “payment in lieu of taxes” (PILOT) which the chairman of the board says “is a way to also encourage the rest of the non-profit community to do their part, as they’ve been doing for several years”.

For years the City has been decrying land holdings from the non-profit community, especially those of the hospitals and universities. As the City sank into financial distress a large amount of blame was directed at these nonprofit entities. But as a 2003 Allegheny Institute report notes “the market value of exempt property held by government and government related agencies increased an average of 57 percent from 1993 to 2003.” This growth rate was in fact faster than that of the market value of hospitals, universities and churches which had increased by 55 percent (Tax Exempt Property in the City of Pittsburgh: 1993-2003. Report # 03-01: www.alleghenyinstitute.org/reports).

Yet when the City entered financial distress status in 2004, it was the non-profit community who increased their PILOT contributions to the City to help them out—while the URA and other City authorities sat by. For years the nonprofit community had been making PILOTs to the City of around $2 million which increased to $5.7 million in 2005 and are now running at about $4.2 million. Now the URA makes a contribution and claims to be leading the way? If they want to lead the way help out the City they should start selling off properties and returning them to the tax rolls. They should also stop pushing government driven economic development projects such as tax increment financing, and let the market take over. Getting out of the way may be the best thing the URA can do for the City.

Two communities in southeast Allegheny County, White Oak and Versailles, have begun talks to merge services. The talks have focused on merging services such as police, fire, EMS, public works, and administration. While talks have only just begun, optimism from both councils is high. As the Versailles council president put it “Merging services makes sense. We’re a small town with a stagnant tax base that always must look for ways to save taxpayers money. I’m optimistic something can be worked out that would benefit everyone involved.”

Hopefully these talks will evolve into a fruitful merger of services for these two towns and provide a blueprint for other small municipalities to follow. This is exactly what needs to happen in many communities around Allegheny County—merge services where it makes sense.

This will not only save each community money it will allow them to maintain their identities. This is precisely the tonic that ails most communities in Allegheny County. But instead of swallowing the kool-aid of regionalism, and clamoring for a mass city-county merger, these two communities are embracing sensible changes to save their taxpayers money and hopefully improve the efficiency in which services are delivered.

County Council’s Government Reform Committee is debating legislation to end the existence of the Port Authority, ALCOSAN, and the Airport Authority. If a proposed resolution passes, the Committee will commission a feasibility study to examine whether these authorities can be dissolved or privatized.

There are many examples of the private sector doing a remarkable job providing mass transit service, sewage treatment, and running airports. So it is not too far of a stretch to say that there is a possibility that the authorities could be dissolved.

But at the same time, authorities everywhere are quite powerful entities that possess most powers of general purpose governments except for the power to levy taxes (though PAT fares, sewer fees, and landing charges aren’t exactly voluntary). We would be surprised to find many instances of authorities going out of business—they usually morph into something else, like the City’s Stadium Authority. It owned Three Rivers Stadium and was to go out of business as the rubble of the facility was cleared away. Yet it is still here, signing off on development on the North Shore.

Likely what County Council will find is that it would take a vote of the board of each authority to end its existence. So that means appointing people committed to taking that action, and of course that has to happen over several years as board terms are often staggered. It can happen, but there aren’t many case studies to guide the way.

The local “progressively” oriented paper is bemoaning the state of the economy and feels compelled to offer palliatives, blaming Bush for everything that is wrong. They say the President can fix the economy by strengthening the nation's education system and putting health care on a more efficient footing. Pitiful.

I guess the programs they support do not matter. Such as the misguided Federal program to increase ethanol production by a factor of six, an effort that is driving up corn and food prices; such as the horribly ill-advised government push to get home loans to people who could not afford them. Or maybe they might want to reconsider their unwillingness to act strongly to shut off the flood of illegal aliens who have undoubtedly held wage rates down for citizens in the lower skill occupations and their support of environmentalists who have made drilling for oil within our borders and offshore impossible not to mention the blockage of any new refineries.

This is the newspaper that has thrown its support behind the colossal waste of money in the North Shore Connector. It has promoted every failed education scheme, was extremely dilatory in recognizing the disaster that is the Port Authority with its horrendously expensive and inefficient operations and has supported every proposed new tax in the County. They simply have no credentials or credibility with which to propose fiscal and economic solutions.

Today's economic problems created by sub-prime mortgages and a never ending string of massive trade deficits that have put the dollar under overwhelming downward pressure will not be solved by the ill-considered and intellectually empty nostrums offered by the paper.

In its March 9 Forum section, the Post Gazette (PG) ran a graph displaying median property taxes paid as a percentage of median property value for the Pittsburgh region compared to 39 other regions around the country. Pittsburgh ranked 6th highest on the list with a ratio of 1.7 percent. The Pittsburgh region is defined for the comparison study as an 18 county area including counties from southwestern Pennsylvania as well as West Virginia and Ohio.

Including 11 more counties with the Pittsburgh MSA obviously dilutes and disguises the hefty burden of property taxes in Allegheny County. Indeed, many counties in the Pittsburgh MSA have far lower combined school, county and municipal taxes than Allegheny County.

What is interesting about the tax burden comparison is the collection of regions ranking highest and those ranking lowest. The four highest tax burden regions according to the PG graph are in Texas. This might be a surprise until one realizes that there is no income tax in Texas making that state’s local governments more dependent on property taxes. In Pennsylvania, municipalities and schools can impose property taxes and earned income taxes (Allegheny County has a sales tax as well as a drink and car rental tax). Municipalities can also levy a parking tax, business privilege tax, and a $52 municipal service tax. In short, southwestern Pennsylvania local tax burdens are far higher than just property taxes, which are plenty high.

Meanwhile, seven of the lowest property tax burden regions according to the PG’s graph are in California where property tax increases are limited by Proposition 13. Median property taxes as a percentage of median property value in those regions were barely above 0.5 percent compared to Pittsburgh’s 1.7 percent Also counted among the lowest ten tax burdens was Denver, Colorado. No surprise there in light of the fact that the state enacted a Taxpayer Bill of Rights in 1992. The law requires a voter referendum for any tax rate increase at all levels of government.

Obviously, there is a message here. The Pittsburgh region—especially Allegheny County— despite having a menu of taxes, still takes a significant bite out of the homeowner. Without taxpayer say over tax hikes, the bite will almost certainly get worse. Playing games with the assessments in Allegheny County will not solve the problem.

The Port Authority has completed public meetings in Dormont and Mt. Lebanon on the subject of transit revitalization and a top official stated that “it’s all conceptual right now. There are no developers”. We wonder why. As we discussed in a recent Brief, the County’s own study showed that while both communities are losing population, the losses are more pronounced in the ¼ mile radius of the stations, exactly the areas targeted for the high density development.

If living near the transit stations is attractive, why have these areas shed population to this degree? Obviously the Port Authority’s answer is that what is there is not good enough. Thus the efforts to “streamline development in the future” near the stops.

Actually, the official should have mentioned there is in fact one developer, one who has been trying to do something at the Castle Shannon trolley stop since 2000 (it was not studied in the report). Nothing has happened there to date; there is a message there, but don’t look for PAT to get it.

Trying to bail out the failure of light rail to generate its own demand by building up density around the trolley stops is not likely to work given the other powerful factors at work in the County. There are things that PAT could do to get people on to the light rail and eliminate duplicative large bus service in the South Hills, but that does not appear to be happening.

The region’s political and civic leaders have treaded carefully around the issue of government consolidation—they support it in principle, citing that we have “too many” municipalities, but implement changes at a glacial pace, proving that self-interest is a significant driving force in public life. After all, no one wants to voluntarily lose their position or be viewed as the one who ended the existence of a community or municipal service (as long as they want to be re-elected).

But there is a lot of talk about having two parks, two public works, two police, etc. as redundant as far as the City and County are concerned. A panel chaired by the head of the University of Pittsburgh is producing a study on the issue, and that might serve as a guide for future efforts. That study is likely to be released in the spring, but that’s not a definite.

So why is the City of Pittsburgh now creating a Task Force for Intergovernmental Cooperation to search for efficiencies between the City, the Pittsburgh Schools, the City authorities (URA, Water, etc.) and Allegheny County? Is it because the City is unsatisfied with the pace at which the Pitt study is moving? Is it to provide another menu of options for consolidation? Or is it to make sure that the City is a step ahead and does not get swallowed up in a mega City-County merger down the line?

It is too hard to say. It could just be posturing—another effort in a long line of task forces that say a lot but eventually do little. There was a City-County summit in the spring of 2004 that produced a series of reports but obviously not any earth-shaking recommendations as evidenced by the solicitation of Pitt.

In any case, the City Council passed the measure creating the new Task Force, and soon a City Council member, the Controller, and the Mayor (or their designees) will convene and the body will “exist until all possible efficiencies have been fully realized for the citizens and taxpayers of Pittsburgh and the surrounding region or until such time as City Council deems its work complete”. Based on history, that could be a long time.

Despite the fact that we have been told endlessly that Pittsburgh is part of—and in competition with places in—the national and global economy, it is the opinion of the chairman and CEO of Deloitte Tax LLP that Pittsburgh should essentially shield itself from the national talk of recession because “If people stopped reading the national press and just essentially said, 'Look, this is Pittsburgh [they would realize] We don't have these problems.”

That’s true, we have a whole set of problems unrivaled by other sections of the country, the biggest being a mindset that favors government-driven economic development, reluctance to challenge public sector union dominance, and a “tax first” mentality that has continually depressed growth in the region. We also have been plagued with a sluggish growth rate in jobs for some time now. From April 2003 through April 2007, well into a period of national economic upturn, the region’s private sector employment grew a tiny 0.8 percent. That’s before any talk of recession or national sluggishness and accounting for the fact that the state and local governments do everything they can to prime the pump through handouts and subsidies.

“Let's keep driving the employment up that we've been doing,' I think things will be OK. But pay more attention to what's happening locally.” Obviously the executive was spoon-fed a lot of anecdotal information about job growth in certain sectors or of certain employers. He was probably wowed by the signs of building activity, not fully aware that most of that is happening with significant public subsidy. Or the fact that the labor force has shrunk by 30,000.

It’s one thing to pick and choose and tell us how good things are, as that’s been happening for years in the region. But here’s the key question: if the executive feels that when things are bad nationally we should realize how good we have it, should we also avoid looking nationally when things are going good to see how far behind the region is?