An article today noted that the South Allegheny School District has begun its budget process for the next school year and does not plan to raise its real estate tax rate above its Act 1 index. The district’s tax rate is 17.24 mills currently and the state Department of Education notes that its 2016-17 index is 3.7%. That means it could raise the real estate tax rate to 17.87 mills by a board action. If it wanted to exceed that total millage, it would have to either seek an exception from the state or it could place the tax increase on the ballot for an up or down vote by the district’s electorate, a rare occurrence in Pennsylvania since the inception of Act 1 (see footnote 4 of this 2014 report).
So while the article notes ” Districts that do not accept the Act 1 index must hold a referendum to get approval for a higher tax rate” they actually can seek an exception and typically do. In Allegheny County from FY07 to FY14 school districts were granted 54 separate exceptions to Act 1; South Allegheny never did, but it did raise taxes in 2011-12 to the Act 1 index.
Could that be changing? In light of the proposed tax shift of raising state sales tax to lower school property taxes much of the reluctance and trepidation has been over how voters can ensure that the property tax reduction is not temporary. A proposal has been made to strip away the Act 1 index and the exceptions and subject all future tax increases to voter referendum. This proposal has surfaced as a possible key issue in the ongoing negotiations in the Peters School District where teachers are currently on strike.
Several school associations have weighed in on the issue (here and here) but the point is that putting all proposed tax increases on the ballot does not always guarantee rejection; it does guarantee having to hear a case from the school board and administration to the voters as to why the increase is justified.
No more “spiking” (working lots of overtime near the end of one’s employment career to enhance pension payouts), a longer period of employment to become vested in the pension system, higher employee payments into pension plans, and all of this falls on new hires.
The place where these changes are happening are at the Southeastern PA Transit Authority, or SEPTA. Officials there are hoping that changes that will affect non-union employees in 2016 will save $183 million and raise the current 60% funded ratio of the pension fund.
If those changes sound familiar, they should since benefit changes to new hires have occurred in Allegheny County government, City of Pittsburgh government, and at the Port Authority, which provides mass transit service in Allegheny County.
Recall too that many have held up the idea of a SEPTA-like system as a model for southwestern Pennsylvania (read here, here, here, and here) and the idea was studied by PENNDOT as directed by state legislation. Much of the resistance to a consolidation in the counties in SW PA outside of Allegheny County was due to the legacy costs of the Port Authority, a conclusion upheld by PENNDOT.
Based on our 2011 report and data analysis, the population density in SEPTA’s service area meant that it could operate bus service on a trip and hourly basis much lower than a consolidated southwestern agency could. However, the fact that the larger SEPTA system has had to tackle legacy cost issues does not help bolster any case that a larger system here would bring about efficiencies and avoid legacy cost issues.
As mentioned in a recent Brief the Erie School District is one of the school districts in the state that has had to look for funding during the state impasse, going so far as to request a $47 million loan from the Department of Education.
It makes sense that districts that are heavily reliant on state revenue are going to be affected more by the impasse than those that generate more money locally. Here in Allegheny County while Sto-Rox, McKeesport, and Clairton have had to take out loans Quaker Valley and Montour, for example, are not taking similar actions as of yet.
That’s the case for Erie, since a look at the state’s summaries of financial data shows that in 2013-14 Erie received $93.1 million in state revenue, which represents 55% of total revenue (local, state, Federal, other). On a per-pupil basis state revenue in Erie was $6.857, which ranked it 203 out of 500 school districts (297 districts received less per-pupil from the state).
Of course there is frustration in Erie over the impasse and the denial of the loan request, but when the superintendent of the District stated at a meeting that “Just because you live in a community that has a high poverty index, shouldn’t mean that you should have school systems that are underfunded” it does not stand up to scrutiny.
Consider working backward from the 2013-14 data above to 2000-01. In that year, Erie raised $45.7 million locally (43% of total) and received $48.6 million from the state (46%). As mentioned above, state revenue in 2013-14 jumped to $93.1 million–an increase of 91%. Local revenue increased to $58.1 million, or 27%. Local and state revenue combined increased 55% on a per-pupil basis over that time frame.
A near doubling of state revenue in fifteen years while enrollment grew 3% and the implication is that the school district is underfunded?
Being one of the few districts to budget on a calendar year basis, the Pittsburgh Public Schools preliminary 2016 budget projects revenues of $546 million ($249 million, or 46% coming from the Commonwealth) and expenditures of $567 million, a deficit of $21 million. That’s fairly par for the course as both the 2014 final and 2015 final budgets show an operating deficit every year from 2014-2018.
A few years back, in 2012, it was the view of the PPS financial staff that this current year would be one where the district would face insolvency. That forecast changed, however, as the millage rate went up twice and operating deficits shrank. The 2014 final budget projected that by 2017 the district would end the year with a negative fund balance of $72 million; the 2015 final budget projects that 2017 would end with a small, $1 million positive fund balance. That would not meet the district’s fund balance policy, and that budget shows the bottoming out–a negative year-end fund balance–in 2018.
The Auditor General has completed and released his office’s audit of the Intergovernmental Cooperation Authority as requested by the Mayor of Pittsburgh and recommends an agreement by which “…the city commits to use gaming revenue to reduce Pittsburgh’s sizeable municipal pension liability and in exchange, the Commonwealth agrees to dissolve the ICA”.
The office’s press release on the audit notes that “… even after the ICA is eventually dissolved, Pittsburgh will likely remain under the oversight of advisors as part of the Municipalities Financial Recover Act, better known as Act 47. Pittsburgh is one of 19 cities across the state currently in “Distressed” status under Act 47.”
So here we are three years after the November 2012 recommendation by the City’s Act 47 team that they should be the ones to go because the ICA would still be in place.
The audit states that “our review concludes that the City had balanced annual operating budgets and five-year financial plans approved by the ICA board for calendar years 2013, 2014, and 2015. The ICA’s approval of three consecutive balanced budgets appears to meet the standard set in the ICA act that would allow the DCED secretary to proceed with dissolving the ICA”. If that is the case, then why the need to broker a separate agreement on the gaming money with the state?
Today the Mayor of Pittsburgh issued an executive order raising minimum wage to $15 for all workers employed by the City, which will affect about 300 employees in the City’s workforce, with the $15 hourly wage achieved in 2021. The first phase in is to occur at the start of 2017 with a floor of $12.50. The order notes that “the federal minimum wage of $7.25 an hour equals a yearly gross income of $15,080, not nearly enough for a full time worker to live without public assistance, yet alone raise a family or own a home”, but it does not state if any of the City’s employees are being paid at the Federal minimum.
The executive order requests legislation that would require firms that contract with the City–not City government itself–to “…pay their workers $15 hourly, or face penalties”.
Just nine months ago the City Council passed and the Mayor signed an ordinance that would incentivize businesses that raised the minimum wage for their employees by offering recognition from the City by way of free advertising space. Regulations for the “minimum wage employer regulation program” were written up by the City Finance Department. The wage rate to receive recognition? $10.10 an hour, a rate that the ordinance states “…is not invasive enough to negatively affect consumer trends or business”.
So in less than one year’s time we have seen the City’s preferred minimum wage to be paid by businesses by $4.90 and the approach shift from incentivizing to penalizing. And the same City department will have to enforce both approaches should legislation from the executive order come to pass.
Just recently we wrote that one of the oldest municipalities in Act 47 status–Clairton–might be crossing the “get out of distress” line soon after 25 years and if that happens that might give the Department that oversees the Act 47 program some extra help to deal with the Borough of Colywn in Delaware County, which just suffered from resignations from its Mayor and two Council members prior to a meeting on the Act 47 recovery plan for the town.
The borough’s Act 47 declaration does not present a pretty picture and it is possible that the borough could possibly face some of the new remedies put forth by the Act 47 overhaul that went into effect in 2014. But more immediately the borough officials–whomever they may be–have until the end of November to approve the state recovery plan or draft their own alternative.
Amid declining steel sales and a bleak outlook for the company’s immediate future, US Steel announced that it was skating away from the commitment to relocate its headquarters in the new Lower Hill redevelopment area. The 28-acre site was once the home of the Civic Arena and is now vacant. In a sweetheart deal for the Pittsburgh Penguins hockey club, they were given the rights to develop the site and their anchor tenant was to be US Steel. So what are the ramifications of this announcement?
The first, and most obvious, is that the Pittsburgh Penguins have to find a new anchor tenant. US Steel’s proposed headquarters was to be five stories tall and occupy 285,000 square feet on 2.23 acres. This is a big hole to fill in the development. There are very few companies of US Steel’s size who could replace this anchor. The team may make a pitch to Kennemetal, the tool-making company leaving the Latrobe area to relocate downtown, but this company is also having financial difficulty and may not be willing to use up that much space without a very heavy subsidy.
Also the entire project, as envisioned by City officials, was going to be used to throw off money to help the rest of the Hill District through a Tax Increment Finance (TIF) program. An Urban Redevelopment Authority press release from 2014 noted that the 20-year TIF may generate $22 million in proceeds that could be used in other areas of the Hill. US Steel was to receive tax credits (New Markets Tax Credits) and abatements (Local Economic Revitalization Tax Assistance) for their headquarters over ten years (approximately $7.5 million) of which they were going to use about half and put about $3 million into a development fund to assist other projects in the Hill District. TIF money from other retail development would fill the remainder of this fund. The mixed-use development is to also include a residential component. Keep in mind that residential developments do not qualify for a TIF under state law (Policy Brief Volume 14, Number 48) so they can’t backfill the project with more residences. The loss of US Steel puts a potential hole in the redevelopment fund that was going to pay for other improvements in that area.
Furthermore, not only will they have to fill the space vacated by US Steel, they also lose about 800 US Steel employees who would have likely been patrons to any retailers occupying the project. Will this dissuade any retailers or restauranteurs who were in discussion with the team about locating near the anchor tenant? How wide ranging of an affect will this announcement have?
Thus while the team and civic officials are shrugging this announcement off, it puts a serious hole in their plans for the Lower Hill Redevelopment project. How they fill it, and how much taxpayer money they have to throw at potential replacements, will be worth watching.
Last week a columnist wrote a piece of the Intergovernmental Cooperation Authority (oversight board) and its tussle with the City of Pittsburgh’s Mayor and asked “[the Governor] and the Democratic leaders in Harrisburg are the ones dawdling on filling the three ICA vacancies, by the way. Do they see that as a backdoor way of making the ICA disappear?.”
While the columnist stated that the oversight board is akin to a British upper house, it is actually modeled on one from the state’s largest city, Philadelphia, known as the Pennsylvania Intergovernmental Cooperation Authority, which was created by state legislation in 1991.
Both pieces of state legislation (this is the ICA law for Pittsburgh) contain identical language on the number of appointees (five) and who appoints them (Governor, Senate pro tem, Senate Minority leader, House Speaker, House Minority leader). Both pieces of legislation say that the terms of the appointees are coterminous with the person who appointed them and that they serve at the pleasure of the person who appointed them. A vacancy in an appointment is supposed to be filled within thirty days.
Right now, according to the PICA website, the board has a full compliment of appointees. The ICA, as we have read in numerous reports, including the column, has two. Of the three vacancies, one was due to resignation, one due to death, and one due to the term of the former Governor ending and placing the appointment under the control of the current Governor. The ICA board has obviously dealt with plenty of turnover during its existence (for example, read here, here, here, here, and here) and though there may have been some delay past the 30 day time frame seats have always been filled.
Though notices to property owners won’t be going out until the dead of winter, the fiscal year for Washington County begins January 1st and this will be the final year that the County budgets based on 1981 property values with a pre-determined ratio less than 100% of market value.
That means when values go out, appeals are heard, etc., etc. this time next year the County will be budgeting on values much more recent and will have to adjust millage rates to comply with state law. Municipalities and school districts will likewise have to make adjustments.
One thing does not appear to be in the works–a millage hike prior to the reassessed values going into effect, a la Allegheny County in late 2011.