There is much rejoicing in the office of the Pittsburgh Promise program as well in the Mayor's and Superintendent's office. Several million more dollars have been squeezed from the corporate community to ensure that UPMC's pledge of $10 million will be forthcoming.

The Promise program was established to provide college scholarships to graduates of the City's high schools in an effort to stanch the flood of students abandoning the public school system-a bribe by another name.  And why is the bribe necessary? Because the school system has been, and continues to be, an almost utter failure in delivering quality education to the majority of its students.  So parents are enticed to stay in the City or move into the City in order for their children to get help with college expenses.

But the supreme irony is that the larger and more morally important promise to provide a good education implicit in the district's very existence has not simply been broken, it has been shattered.  Having failed in its moral obligation, the school district and the City have launched an effort to keep kids in the schools. Their first and primary obligation should be to restore a quality education program that achieves good results.  When that happens, parents will not have to be bribed to send their children to Pittsburgh's schools.

After all, the expenditure of over $20,000 per pupil ought to be enough to get the job done. The fact that it isn't getting done argues for dramatic changes and reforms in the management and oversight of the schools.   Some real competition and choice through a voucher program would do wonders for the public schools. They would either get better or disappear. Instead, the Pittsburgh solution is in place: Ignore the real underlying causes of the problems and just throw more money at the them. Money that could be spent on far better things. 

Of course all this depends on a corporate and foundation community that is willing to spend money on politically correct things as opposed to things that might actually work-such as a corporate scholarship program to let students choose a school other than the public school.

When will elected officials tackle the building pension crisis?  According to researchers at the American Enterprise Institute "it is only when the gloom of crisis finally descends that public officials will muster the will to address the mismatch between [pension] promises and resources".

Obviously in Pennsylvania that gloom arrives at different times-with two statewide systems (one for teachers, one for state workers) and more than 3,000 local government plans-depending on the funding status and weight of unfunded liabilities.  It could be easily argued that the gloom is on Pittsburgh.  Just yesterday the Council approved its Act 47 amendment that calls for an additional $10-$14 million per year to be put toward pensions.  Philadelphia is at that point as well with unfunded liabilities of close to $4 billion and a funded ratio of 55% in 2008, only besting Pittsburgh (29%) and Atlanta (53% in 2007) according to a Pew Charitable Trust study of the issue.  The majority of other local plans entered the economic downturn with healthy funded ratios.  Now the Public Employee Retirement Commission is trying to build consensus for municipal reform, including an option to shuttle the most troubled municipal plans to state control and oversight. 

The day of reckoning for the statewide systems in Pennsylvania is closer to 2012 when rate spikes are expected to take hold.  A presentation made to the Senate Finance Committee last month showed that the employer (school district) pension contribution is supposed to grow from 4.75% in 2011 to 16.40% in 2012.  The companion state retiree system shows employer contribution rising from 8.79% in 2011 to 28.30% in 2012. 

That same AEI study notes an expert as saying "once granted, a pension is a contractual obligation of the employer" and taxpayers will be on the hook for any shortfall.  Not a reassuring situation for a state contemplating tax hikes or a region where its largest County just added two new taxes and its largest City is looking for a variety of tax and fee options. 

The just released Census Bureau 2008 population estimate for Pittsburgh shows yet another decline in the City's resident count, continuing the trend of the last five decades.  And right on cue, City officials are saying the decline is about over-something that also happens every year when the latest estimate is released.

Pittsburgh is not the biggest loser, with Cleveland's and Baltimore's losses much heftier. Still, at a time when most cities are growing, some dramatically, such as Raleigh and Austin, the Pittsburgh loss stands in stark contrast with the national performance. Even Erie had a small increase.

 The timing of the population estimate release could not be more ironic. It comes the day after the City Council approved a five year financial plan that envisions still higher taxes and fees, the same taxes and fees that have been a major factor in the exodus of population and businesses. 

To say the Council is out of touch with reality would be an understatement.

In recent statements emanating from the Mayor's office and City Council, there has been a theme of tortured logic to the effect that non-residents and non-profits must contribute more to the City's coffers to pay for the services they use and presumably for the privilege of visiting or working in Pittsburgh.

The idea turns reason on its head, especially in light of the enormous amount of taxes non-residents contribute to Pittsburgh.  Here's the Mayor's real problem: The huge loss of residents over the last several decades, a decline that continues with more people leaving each year.  Residents have departed Pittsburgh to get away from high taxes, horrendous public schools, inept and financially clueless City governance and the stranglehold public sector unions have on the City government, the schools and public transit.

The loss of residents has a serious negative impact on real estate values throughout the City, causing them to stagnate or decline as the supply of residences rises relative to demand. And since the property tax is the City's largest single source of revenue, the inability to grow property values forces the City to go after other sources of funds. And now, the old canard about non-residents and non-profits not contributing enough has raised its ugly head once again because it is politically expedient to do so.

Rather than deal with the spending and untenable legacy cost buildup that excessive deference to unions have created, the Mayor and Council choose to look endlessly for more ways to generate revenue. This five years after the Legislature gave the City new taxing power and 15 years after the RAD tax was implemented in large part to provide money to Pittsburgh.   

With this governance, residents will continue to leave and businesses will shy away from the City unless they receive enormous subsidies to offset the taxes they must pay. 

With all the tax talk of late-a possible boost in the state income tax, extending an extra percentage point on the sales tax to counties, etc.-the school tax provisions of Act 1 are slipping under the radar.  Schools start their fiscal year on Wednesday and districts in Allegheny County are finalizing their budgets.

Recall that Act 1 utilizes gaming money to target tax relief to homeowners through an expanded homestead exemption and sets a cap on how high school taxes can go on an annual basis.  It is this second component, the Act 1 index, that warrants scrutiny.  It protects property owners from so-called "extraordinary" tax increases through setting a cap each year.  This does not prevent a school district from enacting a tax increase-it just tries to control the size.  For instance, Upper St. Clair's 4.1 percent Act 1 index allowed them to adopt a 4 percent increase, going from 22.45 mills to 23.37 mills this year.  Avonworth, Bethel Park, Fox Chapel, and Woodland Hills also plan to increase millage rates within the allowable index for this coming fiscal year. 

Failing to live within the tax cap does not mean the matter goes to the voters, either.  That's because the law allows for ten possible exceptions by which a district can exceed its cap without putting it to a referendum.

 In fact, it is fair to say that few voters across the state have had a referendum question on school taxes and spending come before them at the ballot box.  That's a far cry from the type of control voters in other states have and probably not what the voters of this state were thinking they would get when the Legislature went into special session on school taxes. 

Early on in this recession that has been gripping the nation, Pittsburgh had gained national recognition as a city that is seemingly recession proof.  The basis for this thought was that since the Pittsburgh region never "boomed", it couldn't "bust".  Well over the last three months, the recession has not only hit the Pittsburgh area, it has struck hard. 

The latest employment figures from the Bureau of Labor Statistics show that from May 2008 to May 2009 the Pittsburgh Metropolitan Statistical Area (MSA) lost 33,300 total private jobs-the largest such year-over-year loss in at least two decades and the third straight month that claim can be made.  In fact the number of May 2009 total private jobs in the area are at the lowest May level since 1998. 

While it is impossible to say whether or not this represents the bottom of the recession and that things will start to improve, the area's employers are not being helped by elected officials.  With City Council and the Mayor discussing tax increases on hospitals and universities and the Governor wanting to halt the phase out of the capital stock and franchise tax and increasing the personal income tax, the future business climate looks ominous.  The mentality of businesses being cash cows to be milked at the government's pleasure will only harm any efforts to climb out of the recession. 

Of course this is why the area never "boomed" in the first place.

 Pittsburgh is in serious financial difficulties because of a long history of signing generous contracts with its employees. And now City Council wants to abandon what little progress that had been made under Act 47 over the last five years.  Council just voted to amend the Act 47 coordinator's latest plan by restoring pay raises and a 5^th week  of vacation for long time employees-a week that was removed under the original Act 47 plan.  Final approval awaits and faces objections by the Mayor.

From news accounts it appears labor leaders have been lobbying Council members for labor friendly changes in the coordinator's plan before it goes to a final vote. And right on cue, Council has decided to go along. After all, in Pittsburgh maintaining labor peace with City unions is job one.

How to pay for the new found generosity while still trying to figure out how to cover previously incurred legacy costs?  Impose $26 million in fees on all- day parkers, hospital admissions and university students. And hire a delinquent tax collector to see if he can wring $13 million from tax scofflaws over the next five years.

Rather than facing up to the real need to reduce employee costs-which are nearly 60 percent of total expenditures-and the further buildup of legacy costs, the City Council apparently believes that it can spend more, tax more, and hope state and federal generosity will be there when the inevitable crunch comes.  Evidently Council members are admirers of the philosopher Alfred E. Neuman who in times like these would say, "What, me worry?"

One of America's great cities indeed. 

Obviously content with the progress in merging the City of Pittsburgh and Allegheny County, the Chief Executive (along with other county officials) convened a panel on local pensions yesterday that examined what should be done with the 3,100-plus plans that dot the Commonwealth.  "Should there be a statewide municipal pension fund?" was one question the Executive asked.

The answer is "it depends".  If the plan is to absolve local governments completely of there liabilities, it is unlikely to happen.  Philadelphia alone accounts for nearly $4 billion in unfunded liabilities, the lion's share of the total local unfunded liability.  If there is a voluntary movement to the existing PA Municipal Retirement System where there would be management of investments but local governments still make contributions, it would be possible but it would be a gradual process. 

But it is not true that consolidation would allow municipalities to withstand market downturns or pressure from parties interested in increasing benefits as the Executive seemed to imply.  Consider that the state's two statewide pension plans-SERS for state workers and PSERS for teachers-have been hammered by the downturn.  And since these huge plans cover so many workers the impact of rate spikes are much more widespread.  We already know that both systems are set for big jumps in the employer contribution rate due to promises made by the Legislature in the early part of the decade.  School districts could see a tripling of their rates.  One school official noted "even though we know we are coming up to a cliff, nobody's been willing to address that cliff ahead of time". 

Over time any organization, be it a state, a corporation or club can become a victim of policies and procedures that cannot get changed because entrenched interests block any movement away from the status quo. Pennsylvania and its municipalities are prime examples of such a situation.

The list of perpetual, perennial unsolved problems is long including archaic alcoholic beverage control, antiquated and confusing property assessment laws, costly prevailing wage laws, the absence of Right to Work, excessive deference to public sector unions including Act 111 and the right to strike for teachers and public transit workers, ruinously expensive pension plans, high corporate taxes and extraordinary reliance on government led and subsidized economic development to name a few big ones.  

Year after year, these hindrances to freedom and economic vitality go unaddressed.  Indeed, they are essentially accepted as part of the landscape that cannot and will not be altered by the state's government.  As a result, the Commonwealth treads water, constantly trying to find second and third best solutions that are not really solutions. More money for development, more money for education, gaming, lotteries, etc., to no avail. None of these efforts can offset the negative effects of the real problems the state is unable to confront head on. 

While hope may spring eternal, realistically there appears to be little hope for significant improvements in the fundamentals for a very long time. 

After nearly a decade of planning and assembling funding (including $10 million in Federal, state, and local monies) it appears the transit oriented development at the Castle Shannon station in the South Hills could be starting.  And that's a good thing according to the developer since "these excess pieces of land can generate some tax dollars and jobs".

Talk about pumping up the benefits without looking at the costs.  Consider:

• If the annual opportunity cost of the $10 million public investment is 5% ($500,000), then the development must be assessed at $15 million at build-out in order to generate that $500k in property tax dollars to the County, Castle Shannon, and Keystone Oaks School District;
• If the jobs (the development is supposed to have office space, retail, and restaurant(s)) are simply transfers from other locations then there is no net benefit to the County, and possibly to the borough and school district;
• The Port Authority has to spend money to lease parking nearby in order to accommodate people who park at the lot.

Transit is supposed to generate its own demand, but we have already seen from studies on other parts of the trolley line that population loss is more pronounced in areas adjacent to the T.   Sure, the site, when completed, will be shiny and attractive and there will be much fanfare.  But will there be a net benefit from its undertaking?