Allegheny Institute Blog

Based on the first three months of collection, the new countywide levies on poured drinks and car rentals could exceed $30 million and might be closer to $35 million. That raises the question: if those projections are reached, what happens to the overage?

Recall that the reason the levies were enacted was to move the County’s annual subsidy to the Port Authority (in the range of $20-$25 million) from real estate taxes, since the executive told us that no County uses real estate taxes for mass transit, to new dedicated sources of funding. Act 44 allowed drink and car rental taxes, Council enacted them, and now they are sitting in a fund waiting on the outcome of the Port Authority contract negotiations.

Assuming the transit union agrees to concessions and reworks their contract to allow for changes to legacy costs, retirement age, and other benefits, the Executive said he would release the money. But does the subsidy go up to include everything from the drink/rental taxes, or just the historical level of subsidy? If it stays at $25 million or so, what happens to the rest of the money—does it stay in escrow and carry over to the next year? Or does the County have the ability to use it for general operating purposes?

A state House committee has passed legislation that would enact cost of living increases for state retirees that range from 2.7 percent to 25 percent. Why would legislators do this? Look no further than the old adage of the “squeaky wheel getting the grease”. One newspaper report notes pressure from retirees on lawmakers due to the level of returns the two statewide retirement systems (SERS and PSERS) are getting and the sponsor of the legislation noted retirees need for financial relief.

Where to begin? There are a lot of retirees in this state, union and non-union, that did not work for the state government and are feeling the pressure of mounting costs and the crushing tax burden that don’t have the luxury of leaning on the legislature for pension enhancements. These retirees will have to dip further into their pockets to pay for the enhancements through higher school property taxes or state income taxes. Remember that thanks to the last cost of living increase in the early part of this decade contribution rates for the school and state systems are projected to jump significantly. That could amount to steep tax hikes.

And what about the rest of the state? Taxpayers have been complaining about taxes and regulations and common sense reform that would grow investment here, yet we only get tepid change. Yet when the head of the retirees’ union queries “what's a better economic stimulus package than to give your former state employees a cost-of-living increase, which they're going to spend right here in Pennsylvania?,” few if any point out that such an action may end up costing Pennsylvanians in the future or the flippant nature of the comment. Consider that, according to the 2006 SERS financial statement, the last three cost of living adjustments for retirees (effective dates of July 1 in 1998, 2002, and 2003) added an additional $1.1 billion to actuarial liabilities of the system. Did this infusion of cash help stimulate PA’s economy?

Hot on the heels of the City Council-Mayoral debate over what City-owned vehicles can be taken home and by whom, the County Council’s committee on Government Reform will try to establish its own policy by taking up a bill to define the use of County vehicles and their take home use. If passed, the bill will create a policy in which the County manager will take an annual count of the vehicles and their characteristics, and whether the vehicle is allowed to be taken home by an employee. The legislation would prohibit the vehicles for “any and all personal uses”.

Granted, there are significant differences from the City’s situation—the Act 47 team actually took the City’s fleet of 83 vehicles and prescribed the steps to remove their use by officials not performing public safety or public health functions and then the remainder with low mileage would be examined individually. The goal was to get the 83 down to 29. Only now is the City getting around to it and the number is well above the 29.

But in both cases, the language of the Act 47 team is apropos: that take home vehicle use was “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”. With the County’s financial picture not too rosy, and the presence of new taxes on drinks, the Council’s move, if enacted, might be an attempt to head off that perception.

The 2008 Pittsburgh Pirates’ campaign has begun as the team tries to make it to .500 and thus avoid tying the record of consecutive losing seasons in professional sports at sixteen years. The anemic attendance numbers at PNC Park thus far this season indicate that a lot of people might end up missing the possible tying of a record.

Through nine home games, attendance has averaged 14,337, lowest in the league and about 5 percent below the Florida Marlins, who are next to last. How far fortunes have fallen since the late 1990s when taxpayer subsidies for PNC Park were sold as a way to keep the Pirates here, make the team competitive, and boost attendance. One out of three isn’t too bad, we guess.

Here’s the problem as we noted out in our Issue Summary on attendance: aside from the opening year of the park (2001) and the boost from having the All-Star game here (2006), total attendance is not much different from where it was at Three Rivers Stadium. The taxpayers of the region were promised more than a one year boost in attendance and projections placed it closer to the 2 million level annually. More realistic numbers are in the 1.5 to 1.6 million range. PNC Park attendance has never risen higher than 17th in the league, and that happened in the park’s debut year.

Here’s the other problem: the teams languishing at the bottom of the barrel in attendance with the Pirates include Cleveland, Cincinnati, and Baltimore. Two of these cities built retro ballparks that inspired the push and design for PNC Park. In the case of Cleveland and Baltimore, those stadiums will be approaching the two decade mark in the next five years. Will those designs be seen as passé if attendance hovers in the bottom third of major league teams?

Clearly stadiums are not the big draw for attendance they were sold to the public to be. Poor play over time obviously takes a toll on attendance. But in Pittsburgh attendance was never all that good.

As that famous philosopher Yogi Berra would say, “if people do not want to go to the ballpark, you can’t stop them”

The North Shore Connector drilling machine was moving along at good clip until it hit what was described by varying newspaper accounts as “pieces of tree” and “tree pieces lodged in clay” or “wooden fill material” slowed the process down. The Authority views it as a temporary slowdown and things will be back to normal with the machine.

But it raises questions. How did a tree get down to that depth? Did it come down when the river was formed thousands of years ago? Was it debris left from a long ago flood? Is it a bridge piling from some old structure? Would fill material be that deep? Who knows. But it is clear that if there is one—whether a tree or a piling—it is likely that there will be more. The Authority hasn’t speculated on this possibility but it definitely could slow the digging machine down, and it can’t back out of the hole without disassembling the machine.

If the machine does hit another tree, rest assured that it will definitely make a sound.

One of the points we have tried to hammer home following the release of the Advisory Committee’s report on merging the City and the County is that it becomes a real heavy-lifting task when the details are spelled out. How do you merge two departments when there are different labor contracts? How do you account for services that are not duplicative? And what about the independent entities that carry out vital public services but aren’t a part of the elected machinery of government?

Case in point: legislation is pending in a City Council committee to extend the life of the Pittsburgh Water and Sewer Authority until 2045 so that its life span coincides with debt it is about to issue this June. Now a region supposedly knee-deep with officials that won’t tolerate duplicative services would have to say something about this. While there is no County water authority per se, there is Alcosan, the sanitary authority, other water authorities in other parts of the county, as well as a heavy dose of the private sector involved in getting water to homes and businesses. Consider that the Water and Sewer Authority entered into a complicated financial transaction with the City of Pittsburgh in the mid 1990s to provide the City with some much needed cash. Department of Water employees were spun off into the authority and now the Authority pays the City a payment in lieu of taxes. Not the best example of governmental efficiency for sure.

But this begs the question—if the City and County were really committed to the merger and looking at all points possible, would the Authority be getting such a long term lease on its life span?

The Allegheny County Controller weighed in on finances recently with the issuance of the 2007 Comprehensive Annual Financial Report, the official financial record of the County. He says reliance on one-time revenues to avoid deficits and stagnant revenues in the future paint a gloomy picture of what has been going on and what lies ahead. The County will get money as a host county for the gaming facility and from the tourism fund for various projects (see our issue summary for details) but, barring a Supreme Court ruling nullifying the base year assessment plan, it is unlikely that any increases to property values or property tax revenue will be coming.

That brings us to the drink and car rental taxes. Recall that the reason these taxes were enacted was to shift support of the Port Authority from County property taxes to new sources of revenue. The Executive’s Order from November of 2007 says that the County is “legally required” to send support to the Authority, but that same order vows to withhold the money until the transit union agrees to concessions. As we mentioned in an April 15 Brief, the Authority has mentioned an “end around” in the form of borrowing $27 million to trigger state subsidies.

If the state permits the Port Authority to borrow its own local matching funds, and the labor stalemate continues into next year, will the Authority be able to borrow another $27 million to keep the state dollars flowing? Assuming the state money is forthcoming and the Authority can continue to operate, why would the union make concessions but simply offer to work under the terms of the old contract?

So what happens as the drink/car rental tax revenue the County is collecting if it isn’t remitted to the Authority and the Port Authority unions are able to avoid having to make concessions demanded by the Chief Executive? Money we were told was critical for mass transit will be accumulating in a restricted fund while the contract negotiations drag on endlessly. Having this money pile up and the union off the hook for making concessions because of the end around borrowing by the Authority will not sit well with bar owners and restaurant owners already white hot angry over the new taxes.

Exercising his duty as the County’s elected “watchdog” of finances, the Controller yesterday raised some serious questions on the proposed City-County merger. “I think [voters] want to see concrete, hard facts in terms of financially what's going to happen as well as structurally what's going to happen.” Maybe the Controller is expecting too much: all the committee had was 17 months, decades worth of studies on merging services, and numerous case studies from other City-County mergers around the country.

The predictable response from the County Executive’s office is that “more details are coming”. Remember that the merger study committee wants to have this issue on the ballot as soon as possible. It has taken years just to get one unified 911 system—how can anyone possibly believe that the proposal will sail through the legislature in time for an up or down vote within the next three years?

Let’s be frank: we do not know what the merged entity will be called, how many representatives there will be, what they will be paid, what taxes will be levied and where, how the merged entity will interact with other independent municipalities, what the ironclad assurance that City debt and pension liability will remain with the former City, how union contracts will be merged, and what happens to the authorities.

All the committee has to hang their hat on is that a merger will unify leadership and help the region speak with one voice, specifically on economic development. And even that case is not very convincing based on their own research commissioned for the study.

The Controller is wise to point out that the devil is in the details. Pie in the sky musings about how nice a merger would be are simply not enough.

As speculated in this blog on Monday, the state’s opinion on the City of Pittsburgh’s distressed status is one of “good job so far, but bad long term forecast” and the City is unlikely to emerge from Act 47. If it had, its tenure would have been the second shortest to the Borough of Ambridge, which came out after three years.

Originally those pushing for the removal of status wanted “clear and definable benchmarks as to what would be further required to have the status of distressed municipality removed” as stated in the resolution from this past November.

The public meeting instead became an opportunity for City officials to lobby the state for various remedies. The Mayor wants “debt and pension relief”; a City Council member wants to tax non-profits and help with pensions and debt too; yet another wants “regional revenue sharing” and mentioned pensions and debt. The controller likewise mentioned legacy costs.

As we pointed out back in 2003, Act 47 is tailored to small municipalities and not many of those had non-operating obligations to the degree Pittsburgh has—that’s part of the reason the state created the second oversight board, the ICA. But the Act 47 plan for Pittsburgh is not silent on these items: it points out that “the debt service on its outstanding bonds represents one of the single largest impediments to the City’s return to financial health and balanced budgets” and “the extremely weak funding status of the City pension funds threaten the ongoing stability of retiree benefits as well as the City’s finances”.

It is just that what the City is looking for—the state to assume responsibility for the pensions by folding them into the State Employees’ Retirement System or coming up with a new revenue source for these legacy costs—is quite different from the recommendations made by Act 47 (much of their proposed changes for pensions come from labor-management changes and debt paid down not by refinancing but by moving to pay as you go capital spending). The $10 million in gaming money the City is supposed to receive are to be applied toward legacy costs, and downsizing staffing levels to be more in line with better performing cities will help pension costs in the future. Changes to retiree health benefits like Scranton and Philadelphia have made would also help.

But if the City Council and the Mayor are expecting state taxpayers to bail out the City, they will be waiting for a long time. And for benchmarks? If the DCED secretary hasn’t crafted any yet, here are a few: the City should have to reduce per capita employment levels to national norms, reduce workers’ compensation costs, bring the pension funded ratio level up, and enact zero spending growth for the next five years. How does that sound?

Though they have shuttered a considerable number of schools, costs for the Pittsburgh Public Schools are troublesome to the point that the chief finance officer for the district is recommending cuts to spending and a rightsizing of faculty numbers to align with dwindling enrollment. The board would be wise to go beyond the initial recommendations of subsequent 10 percent cuts in 2009 and 2010 and try to bring per pupil spending numbers in line with other districts around the county.

This school year the district’s general fund budget is $526 million. With enrollment around 29,000, per student spending translates to $18,159. Back to back cuts of 10 percent in the next two years would bring the budget to $426 million in 2010. With enrollment declining as it has over the past few years (about 5% annually), per student spending would fall to $17,727. Not the stuff of legends or districts trying to radically change their fortunes. For certain, in order to get per pupil spending to $12,500 or so the district would be looking at a general fund budget of around $370 million (a 30% drop from the 2008 level) or would have to grow enrollment to its early 1990s level of 40,000 students.

The recommendation for 10 percent annual drops should have started years ago, and one would think that the 2006 audit by the Council of Great Schools would have prodded officials on. That study had the data, but did not capitalize on the fact that Pittsburgh was spending about 60 percent more than the comparison districts, and we recommended 10 percent cuts until spending reached $12,500. Obviously the day of reckoning was just pushed further into the future, which is here.

Timing is everything as they say. Various opinions have been put forth on the proposed City-County merger from newspaper articles and editorials, elected officials, and our own Policy Brief today on the subject. It just so happens that tomorrow the state secretary of the Department of Community and Economic Development is coming to town to consider a petition by the City of Pittsburgh to be lifted out of Act 47 distressed status. What happens there may have a big impact on how for the merger idea goes. At the very least it might serve as a way to see how the Governor feels about the idea since the DCED is a cabinet and the secretary is an ally of the Governor.

Now the Mayor and the Chief Executive, with the findings of the Nordenberg study backing them, certainly aren’t leading with the idea that the merger is going to save a lot of money. They are hoping that voters of the County will think a singular voice advocating for the county and, perhaps, the region will lead to growth and vitality and that government can be streamlined.

But they’ve also got to sell the idea that the City’s mismanagement won’t dominate a merged government. They’ve stressed that debt and pensions won’t go beyond the City limits and that the City, or former City, will pay higher taxes to retire the obligations. That’s a hard one, and it will be interesting to see how the state hearing plays out tomorrow. We pointed out in 2003 that Act 47 was not really tailored to a City of 300,000 and, true to form, there have been times where the City seemed like it was telling its overseer what would happen. But the City was placed in distressed status, and now the state will determine if it should come out of it. City Council has asked that if the state does not lift Act 47 that it give the City some benchmarks or metrics of what has to happen to get out.

An objective observer would say “no way, the City has not nearly done enough” and they would be right. Along with the separate oversight board, the Act 47 team could have made the bold changes that the Mayor was just talking about would come from a merger. The City got tax reform, made changes to the fire department, but yet is still debating an Act 47 directive on take home cars. A lot of foot dragging and resistance have come from the City as the Act 47 plan has played out.

But the state obviously has caught wind of the proposed City-County merger and what a continuation in Act 47 would have on that prospect (the oversight board is supposed to be around until 2011). Not lifting the status would be stating the obvious—that the City is not yet ready to be out from under the state’s watch. Lifting it would be viewed as giving the City a pass to shine a favorable light on the merger’s prospects in the General Assembly that the City is in better fiscal health than it was four years ago.

So here’s a guess: the City stays in Act 47, gets a hearty pat on the back for the progress, is told there is more to do, and the spin that more time in Act 47 status should and won’t affect the recommendations of the merger committee will soon follow.

After a long delay the Citizens Advisory Committee has released its report on a City-County merger. Not surprisingly, the report calls for a consolidation of the City government with County government in a way to eliminate service duplication, which would essentially mean one police force, one parks department, one public works department, etc. A full merger would entail the conversion of the County’s functions of human services and the jail and the City’s functions of fire fighting and refuse collection to a new government.

The buzz words of “zero-service duplication” is empty pandering since the City and County have dragged their feet on combining services for years and have only made small progress on 911, fingerprinting, and some purchasing. Let’s see if this report prods them on.

The biggest surprise is that the Mayor has signed off on the concept though the public record indicates he did not really believe in the concept unless it was a money saver. In July of 2007, for instance, the Mayor stated “how are [city residents] lives better off because of consolidation?” and in January of this year he asked “does it save taxpayer’s money? Does it provide a more efficient government?” At the time, the Mayor indicated that he wanted the City to expand its service reach to other municipalities.

But not happy with small changes—gosh, after four years of the City taking turns as being its own overseer despite an Act 47 team and an oversight board, who would have thought that would have happened?—the Mayor now has signed on as a full-backer of possibly being the last Mayor of the City of Pittsburgh, something he campaigned against in the last election. Funny how things change. The City and the County have done little in the way of being “bold, decisive or far-reaching”.

If the plan comes to fruition, the General Assembly will design a referendum question that will spell out the what, when, where, and how of the issue. But it is certain that the issues of the City’s debt and pension load will be a major obstacle to the consolidation.

The PA Department of Education has released more data on where school districts are in relation to the requirements of Act 1 of 2006, the Special Session on Property Tax Reform. Act 1 stipulates that school districts can either 1) pass a resolution stating that their taxes will not increase faster than a state-crafted index (which varies from district to district) or 2) submit a preliminary budget to the state. If the budget plans a tax increase greater than the index, it can either work to reduce the impact of the tax, apply for an exception from the Education Department or the Court of Common Pleas, or put it on the ballot for an up or down decision by the electorate.

Here’s the data on Allegheny County’s 42 suburban school districts for the coming school year: 35 districts have passed a resolution subject to section 311 of the act. This means that taxes can’t surpass the index, which has gone up in all districts since the last school year. On average, the index was 4% in 2007-08 and 5% for 2008-09. They can increase taxes up to the limit, but can’t exceed it.

Four districts have secured exemptions from the Department of Education: Allegheny Valley, Deer Lakes, Mt. Lebanon, and Steel Valley. Last year 10 districts had exemptions and of that group only Mt. Lebanon and Steel Valley remain. There are 10 possible reasons for granting an exemption and of the four districts getting one this year the reasons were varied—health care in Allegheny Valley, revenue maintenance in Deer Lakes and Mt. Lebanon, and special education expenditures in Steel Valley. The PDE approved a total of $2.7 million in exceptions for these four districts. The increase in the index must have had an impact—seven districts that received an exemption last year have passed resolutions this year stating they will not exceed their index.

The status of three districts—South Fayette, Elizabeth Forward, and East Allegheny—are unclear. They are either seeking an exemption from the Courts, planning to put an increase on the ballot, or have worked their tax rate down to prevent a boost above the index.

The ultimate irony in all of this is that, thanks to the construction of the index, the poorest districts have the most leeway to increase taxes up to the top of the index. That’s really the last thing those districts need.

A newspaper article today pointed out the lavish parking privileges given to City and County employees that work Downtown. Favorable locations, discounted rates, and forgiveness from the City’s parking tax are just some of the benefits. About 200 City workers and 340 County workers are taking part.

One City official noted that the perk is there to compensate for the low average salaries paid to City workers, even though the average private sector salary is below that of the City average. Great pension and health benefits are also present in government work, so the level of “extras” just keep piling up and up until, low and behold, there is a pension crisis present. Certainly the people getting the parking passes, including the top officials of both the City and the County, do not fall below the mean mark for salary. The fact that “seniority and job title” play into determining who gets the privilege belies the claim that the so-called low average salary prodded the parking privileges on.

For all the talk extolling the virtues of public transit to the City’s support of Flexcar—for which they removed parking meters and entered into a $10,000 contract—one would think that City and County workers would have options just like private sector workers commuting in and out of Downtown, whose time is likewise valuable.