Pittsburgh’s First Two Months of Tax Collections

For 2018, the City of Pittsburgh’s general fund budget is $566 million; revenues include taxes, charges, fees, licenses, etc.  Close to 70% of that total comes from seven taxes: property, wage, payroll, parking, deed transfer, amusement, and local services, $395.7 million in all.

The City Controller’s website has a feature called Fiscal Focus, and the data for revenue collections through the end of February has been posted.  For the seven taxes on a current basis (not counting delinquent or any penalty and interest) $142.4 million was collected, about a third of the budget total.  This included $109.9 million in property tax (payment is due at the end of February for full amount or for first installment if paying on three installments) of the $139.6 million budgeted.

Compared to the end of February 2017, the total current collection is $300k lower; the City collected $4.1 million more in property tax (last year at this time the total was $105.8 million) and $100k more in parking tax ($4.4 million vs. $4.3 million) but every other tax was down, including a $1.9 million dip in deed transfer tax.  That tax was raised on February 1st to 1.5% for the City’s share (with the state and Pittsburgh Public Schools rates the total tax rate paid in the City on a deed transfer to 4.5% until January 1, 2020 when another 1/2 of a percentage point will be tacked on to the City’s portion.

Details of PPS-PFT Agreement

Having averted a strike, the Pittsburgh Public Schools (PPS) has posted the details of its tentative agreement with the Pittsburgh Federation of Teachers (PFT) on a contract that is retroactive to July 1, 2017 and to end on June 30, 2020.  Our blog from February after the PFT voted to authorize a strike outlined the disputed points as described by the fact-finding process.

The agreement eliminates the pay for performance model as was noted in the fact-finding agreement (this applied to employees hired after 2010), and employees will get 2% pay raises in each year.  There will be two health care coverage options, and language in the agreement allows for arbitration should the coverage become subject to the “Cadillac tax” provision of the Affordable Care Act.

On teacher scheduling, which was an area of bargaining dispute over managerial rights (the fact-finder sided with PPS on this part), what was a three point pertinent section cited by the fact-finder now has 14 points in the tentative agreement to take into consideration teacher preference and principal review.  District-wide there will be 35 assignments within grades K-5 “…that are available to principals as involuntary assignments to complete school schedules” with no more than three involuntary assignments per school (there were 1,992 teachers in 2016) .  No teacher could be involuntarily assigned more than once in a five year time frame and the involuntary assignment has to take into consideration student data and student achievement.  An appeal process written into the agreement with arbitration as the dispute settlement method.

Last week the PFT announced that the ratification vote by its members will be rescheduled due to a change in healthcare rates, but is assumed that both parties are going to approve the tentative agreement.

Act 47 Coordinator Recommends Three Year Exit Plan for Harrisburg

A blog from two weeks ago recapped the history of Harrisburg’s finances since 2010 and its options under Act 47 distressed status due to the amendments to Act 47 on how long a municipality could stay in.  When the decision point arrives, a municipality can have its distressed status terminated, be disincorporated, be placed in a fiscal emergency condition, or have a three year exit plan crafted.

The financial condition report released yesterday recommends the three year exit plan option (Harrisburg was declared to be in a fiscal emergency pre-2014) that would take the City’s distressed status until 2021.  This current budget year the City is projected to incur a $9 million operating deficit, with $63 million in revenues and $72 million in expenditures (2017 was budgeted to end with a $4.2 million deficit but actual results were $2.9 million).  Of the City’s general fund expenditures legacy costs (retiree healthcare, pensions, and debt service) represent a third.  The total outstanding debt principal is just over $77 million and, quite surprisingly, its three pensions are very well funded as measured by funded ratio (two of the three are more than 100% funded).  The City is putting about $6 million per year into retiree health care obligations.

The issue that the coordinators want to address is the expenditures are expected to increase 5% and revenues at 1.3% (recall from the Brief on Pittsburgh’s release that one of the factors to be considered in releasing a municipality is that there will be five years of positive operating results forecast)  While in Act 47 higher earned income and local services taxes can be levied but those go away once the status is terminated.  That’s why there has been an urge for Harrisburg to adopt a home rule charter so that they can have a higher than 1% earned income tax on residents.  Maybe other good things to think about for a charter would be sunset review of departments and functions, supermajority or taxpayer approval of tax increases, and zero based budgeting.

 

Goodbye, Town Hall? Part III

Last May we wrote a blog on the task force report advocating for municipalities in Allegheny County to dissolve if residents voted to do so.  Last week legislation to allow for voluntary municipal disincorporation in Allegheny County was introduced in the General Assembly and referred to committee.

Pennsylvania is one of twelve states that does not have a law that permits a municipality to dissolve and become unincorporated.  However, there is language in the Pennsylvania Constitution on initiatives and referenda relating to mergers, consolidations, and boundary changes.  And 2014 amendments to Act 47 allow for disincorporation of distressed municipalities should they be deemed nonviable.

The proposed legislation would give “…electors residing in a municipal corporation located in a county of the second class [the] right to voluntarily dissolve their existing form of government and transfer all powers, duties, and responsibilities for the governance of the municipal corporation to an unincorporated district administered by a county of the second class if the electors believe that the county would be able to provide for more efficient and effective municipal services”

Voluntary disincorporation sounds like a laudable goal.  If it makes economic sense, and the voters approve, the municipality goes away. So, if the law passes, all 130 municipalities in the County can begin disincorporation deliberations, right?

Not exactly.  The proposed law defines a “municipal corporation” as “a city, borough, incorporated town, township, or home rule municipality with a population of 10,000 or less and located entirely in a county”.  2016 population estimates show that 31 municipalities have a population greater than 10,000, so disincorporation would not be an option for Ross, Robinson, Upper St. Clair, Penn Hills, Pittsburgh, and 26 others.

Due to the requirement of being located entirely within a county McDonald and Trafford would be eliminated, bringing the eligible count to 97 municipalities (75% of the total).

The total population in these 97 municipalities as of 2016 was 339,210, which is about the combined size of Pittsburgh and Penn Hills.  Three of the municipalities under 10,000 people (Duquesne, Rankin, and Braddock) are currently in distressed status and could be eligible for disincorporation via that statute or the proposed one if it became law. 14 municipalities have a population of 1,000 or less.

Regardless of the size, the decision of whether a municipality would give up its government in favor of becoming an unincorporated district is hard to see happening, especially when there is very little interest in consolidations and mergers presently.  Some already contract or cooperate for services with other municipalities, authorities, or the private sector.  The savings would have to be more than significant and the residents would have to be convinced there would be no drop off in services.

Upcoming blogs will cover the mechanics of the disincorporation procedures as proposed in the legislation.

 

 

Will Police Cooperation Idea Move Past Drawing Board?

At a meeting of Cheswick Borough Council this evening the topic of exploring an agreement with neighboring Springdale Township is to be discussed.  Two months ago we wrote a blog that several communities down the Allegheny River were exploring the possibility of consolidating into a multi-municipal police force.  This blog from June of last year describes how police services are provided in Allegheny County’s municipalities.

There are communities in the County (16) that contract with another municipality to provide police service; it appears from news coverage that Cheswick is not looking to do that, but once the Department of Community and Economic Development studies the idea (if it gets that far) that could be a possibility.  Cheswick has only one full-time police employee and the rest (eight) are part-timers.  A previous consolidation idea involved Cheswick and three other municipalities in 2012 which itself was the by-product of a 2005 proposal.

Voters to Get a Say on “Resign to Run”?

At this week’s meeting of Allegheny County Council there will be the first reading of an ordinance that proposes a ballot question to amend the County’s Home Rule Charter.  Specifically, the language on the “requirements and prohibitions” of elected officials.

That section of the Charter has three “requirements and prohibitions”: the County Executive can’t be a nominee or candidate for more than one County office at the same time; a member of County Council can’t be a nominee or candidate for any elected political office without having first resigned from their Council seat; and neither the Executive or a member of Council can hold any other political office while holding their County position and, unless the Charter permits it, they can’t receive any other pay from the County or a County authority.

The proposed ordinance seeks to eliminate the second provision requiring County Council members to resign prior to running for another office.

Back in 2003 the question of the “resign to run” requirement went on the ballot but was defeated (the same thing happened across the state in Philly in 2014).  In 2016 when the Charter-required Government Review Commission produced its recommendations it suggested scrapping the “resign to run” requirement and making the language about not being able to run for two County offices simultaneously apply to Council.

If the ordinance passes Council it would go before the Allegheny County electorate in November.  The ordinance calls for Article III, 6(b) to be deleted, but the ordinance does not explicitly spell out what 6(b) does (that is where the “resign to run” language is located).  Maybe that will be in the plain language explanation of the question should it make it on the ballot, but wouldn’t good governance suggest that appear in the question along with the language of 6(a) (that is where the dual office seeking prohibition is located)?

Over 30% of County Workers in Reformed Pension Model

In 2013 the General Assembly passed legislation that became Act 125, an act to amend the Second Class County Code’s language on pension benefits for employees of Allegheny County.  Similar to almost every reform to post-retirement benefits for public sector employees, new pension benefit rules such as more years of service to qualify for normal retirement, longer vesting period, different final average salary calculations, and limitations on how much overtime could be counted toward the pension would affect only new hires as of a certain date.  In Allegheny County’s case the date was February 21, 2014.

More than four years have passed since the change became effective.  So how many non-uniformed, police, deputy sheriffs, prison guards, and fire personnel have taken employment with the County since that date?

According to the County’s Retirement Office the total as of March 13th is 2,290 employees.  On the same date the County’s total count of active employees in the retirement system was 7,380, meaning 31% of the current active count of employees are covered by the Act 125 pension structure.  5,090 (69%) are not covered by Act 125, which likely means they were employed by the County prior to February 21, 2014 (there is language in the law and guidelines about those returning to employment and whether they would be subject to Act 125, and that depends on the number of years they served previously).

 

PSERS Had a Good Investment Year

Our most recent Brief covered the investment portfolio performance for the City of Pittsburgh’s Comprehensive Municipal Pension Trust Fund (CMPTF).  That covers the employees of the City of Pittsburgh.  School employees in the Pittsburgh Public Schools participate in the Public School Employee Retirement System (PSERS) along with employees in all other school districts in Pennsylvania (PSERS reported 257k active employees in June of 2016, many more than the City’s 7.4k).

Both systems, though very different in size, are close in funded ratio (PSERS was 57% in June of 2016), rely on employee and employer contributions and earnings on investments for funding.  Just recently PSERS announced that in 2017 $6.2 billion (12.3%) was added in investment income.

As stated by the system’s chief investment officer the gain far outpaced what the normal assumption of 7.25% projected.  This chart shows how investments performed in the quarter, fiscal year to date, and calendar year to date along with longer time frames of three, five, and ten years.  In calendar year 2016 the system’s investments earned $4.8 billion (10.7%).

What Happens if a Category 4 Casino Doesn’t Receive a Bid?

Thus far there have been four licenses for the new Category 4 casinos authorized by Act 42 of 2017.  The Act permits ten of these casinos to be located in Pennsylvania with specific provisions on where they can set up shop. The Act also stipulated the way in which auctions for a Category 4 license were to be structured, with rounds of bidding.

As described by the Gaming Control Board in this document, there is an initial round which is open to holders of Category 1 and Category 2 licenses–that is how the first four Category 4 licenses were awarded–who bid a dollar amount and a proposed location.  If the initial round fails to produce a winning bid, the Act permits a subsequent auction which is then opened up to Category 3 license holders as well (there are two casinos in this Category).   That subsequent auction is currently scheduled for March 21st.

So would anyone other that a current casino license holder get a crack at getting into the casino business?  That could happen if initial and subsequent auctions fail to dispense of the ten licenses then at the Board’s discretion it could open up the process in an additional auction in which non-license holders could bid after going through an application and vetting process.

Distressed Status in Harrisburg: What Comes Next?

In 2010 we wrote about how the issues with a trash incinerator had the possibility of pushing Harrisburg into a Chapter 9 municipal bankruptcy.  The City made debt service agreements that in turn threatened municipal finances.

There was no bankruptcy, but Harrisburg was placed in Act 47 in December 2010.  Tussling over the recovery plan between the state and the City led to language being added to Act 47 for fiscal emergencies in third class cities, which covers Harrisburg.  The City’s recovery was headed by a receiver instead of the customary recovery coordinator.  In 2014 the City was taken out of receivership status by Commonwealth Court and then came under the direction of a coordinator.  Later that year amendments to Act 47 by the General Assembly included a duration of status (which we just wrote about regarding Pittsburgh) limitation.

Options for distressed municipalities are terminating status after five years from the most recent recovery plan or amendment, disincorporation, fiscal emergency, or a three year exit plan.  It is unlikely that Harrisburg would be recommended for disincorporation and the City has already been through a fiscal emergency status that pre-dated the 2014 statutory amendments, but that could happen again if finances are dire.  That leaves exit in 2018 (that would be five years from the recent recovery plan) or remaining in until 2021 under the terms of the exit plan.  

Harrisburg’s officials have thought about and are still thinking about the taxing power the City has while in distressed status and what it means if they are not in distressed status.  In the recovery plan the coordinator recommended bumping up the Local Services Tax to $156 (this tax is normally levied at a maximum of $52 on people who work in a municipality, regardless of place of residence) but with this caveat:

“The City must recognize that this increase must be eliminated subsequent to 2018, which is the last year of the City’s initial five year time under Act 47, unless at that time the evaluation results in a recommendation for a three year exit plan. Therefore, initiatives aimed at increasing revenues, reducing recurring expenses or both should be undertaken as soon as possible. If the City does not grow its revenues sufficiently to eventually replace the Local Services Tax revenue or change its governing form to a Home Rule Charter, the City will not be able to exit Act 47 under the five year schedule and will be required to undertake revenue and expenditure changes that will ensure its exit from Act 47 by 2021.”