Creating a New City Department: An Update

In the fall we wrote two blogs (here and here) about the City of Pittsburgh’s creation of a new Department of Mobility and Infrastructure.  The first blog noted that “Currently in the Department of Public Works there is a Bureau of Transportation and Engineering, and in that Bureau the Division of Engineering and the Division of Traffic Operations have responsibilities that, on paper, read awfully close to what the mission of the proposed new Department would be”.

That turned out to be the case, and now two pending ordinances (here and here) would amend the City Code to remove several of the functions from the Director of Public Works under 119:02 of the Code related to “management, planning, engineering, and traffic/transportation planning” and inserts a new section 118 into the code for the new department, where the director would be responsible for activities related to transportation.  This would include development of plans, maps, supervision of transportation projects, etc.

Pgh’s Fire Staffing: Comparing Data

A March 3rd press release from the Pittsburgh Mayor’s office dealt with staff levels at the Fire Bureau and noted that staffing is at its highest level since 2004.  That year was a high water mark as the City was in its first year of Act 47 status and was about to change the cost sharing provisions for firefighter health care.

The press release contains a chart on staffing, comparing budgeted levels and actual totals for Fire staffing.  If the March 2017 total holds until year end, it will be the first year since 2004 when actual staffing exceeds budgeted.  The 2017 budget (page 221) shows how the budgeted 656 uniformed positions is broken down by responsibility.

Our Benchmark City reports ran comparisons on Fire staffing (uniformed and civilian) between Pittsburgh and the Benchmark City and here are how they compared in 2004 and 2016 on staffing per 1,000 people.  Even though the headcount per 1,000 fell in both Pittsburgh and the Benchmark City over the time period, Pittsburgh was sill around 40% higher on the measure at both points in time.

Another Chilly Reception to School Tax Shift

Last month we wrote about the opposition to a school property tax shift plan from Fox Chapel School District through a forum and news coverage of another District, this time in Armstrong County, Apollo-Ridge reveals that the leadership of this District is not in favor of the idea either.  The board president noted that “the devil is in the details” since if a district was utilizing property taxes to retire debt, that portion of the tax would not go away.  It is not clear if that is the case for Apollo-Ridge currently.  The board president also noted that property taxes paid to the county and municipality would not go away since they are not part of the shift.  The board passed a resolution in opposition to the plan.

The article noted “another aspect that concerns Apollo-Ridge officials is a dollar-for-dollar reimbursement on per-student spending. They say that would tilt funding toward wealthier school districts.”  That is what we have pointed out previously: if a district is raising a lot of money locally it is going to get back a lot more from a tax shift that moves all revenue to the state than districts that do not raise a lot locally.  Based on financial data from the Department of Education, Apollo-Ridge, on a per-pupil basis, receives more from the state ($9,347) than it raises locally ($6,260).  With three other districts in Armstrong County only one (Freeport) raises more locally than it receives from the state, but not by much ($6,132 state, $7,880 local).

More on Scranton’s Opportunity Costs

At the beginning of the year we blogged about the City of Scranton’s sale of its sewer system and how it faced decisions on what to do with the proceeds.  It is somewhat apropos to Pittsburgh since once upon a time (1995) Pittsburgh spun its water system off to an authority and with recent issues with said authority and the water system there has been a lot of chatter on restructuring the authority and the role privatization may or may not play (see here, here, here, here, and here).

So Scranton’s Council is debating not only how to spend the proceeds of the sewer sale, now there is discussion on how to present the ideas to the public of what to do with the proceeds and the timing of that discussion.  According to the article, the City already paid off some debt, and the discussion over whether debt or pensions is the better target may hinge on “anticipated future results” may depend on the modeling of scenarios by the City on what could happen with pensions, but it is worth noting that Scranton can’t reform the nature of its pension benefits, that falls to the General Assembly.

So while one Council member said “If we put $30 million in the pension fund and tomorrow a war starts or something happens and the market crashes, we’ve lost whatever percentage of that money. If we pay off more debt, once it’s paid off, it’s paid off” that is true but also hinges on present or future Councils and administrations not piling up debt again, which itself is a hard thing to accomplish given the need to upkeep infrastructure and not being able to do that solely through recurring revenues.

Philly Lowers Rate of Return on Pensions

One cannot understate the sheer size and impact of the three local pension plans administered by the City of Philadelphia.  Taken as a whole, the local (municipal, authority, and association) system in Pennsylvania, as of 2015, covers 73k active members, has $16 billion in assets, $24 billion in liabilities, and a funded ratio (assets/liabilities) of 66%.  Remove Philly and the local system would have 46k actives, $11.5 billion in assets, $13 billion in liabilities, and a funded ratio of 84%.

It is that 80% or so level that Philadelphia is aspiring to (it is currently 45% funded) hoping to get there in 14 years.  But the plans took a $146 million loss last year as reported this week.  The pension board voted to lower the rate of return assumed on investments to 7.7%.  As we noted last year Pittsburgh, with a lower rate of return assumption currently, is thinking about an adjustment in 2018.

Compared to 1985, which was prior to a new benefit tier for employees of the city referred to as “Plan 87″ the City of Philadelphia had 32,517 active employees and its funded ratio was around 38% with assets of $1.0 billion and liabilities of $2.8 billion.

Two Authors Offer Suggestions on Chapter 9 Bankruptcy

In an opinion piece appearing in a northeast PA newspaper, two authors take a look at Chapter 9 municipal bankruptcy, something that is quite rare but has occurred in cities such as Detroit and Vallejo in the last decade.  The authors point out some of the shortcomings of having local officials involved in bankruptcy filings and what plagues those localities that might push them toward bankruptcy (legacy costs especially).

Given the negative stigma of a bankruptcy for a municipality is why states often have intermediate steps prior to getting to bankruptcy.  As our 2009 report pointed out, states are the gatekeepers on local government bankruptcy filings–they can prohibit it, attach conditions, etc.–and the authors’ point on having the state receiver work with the Federal judge runs a bit counter to what our report described from a bankruptcy court memorandum on the Vallejo case.  That memo basically stated that a state allowing one of its local governments to go to bankruptcy court cedes language related to state control at that point.  It would seem that if it proceeds to that point the state has given up on rectifying the local government’s financial difficulties through the tools it has at its disposal.

Insolvency Travels North

Recall last year we wrote a reaction to the Auditor General’s audit of the Pittsburgh Public Schools and their claims of insolvency and how it kept getting pushed to the future.  That occurred even though the District was running surpluses.  The mention of insolvency was gone from this year’s budget.

Now the mention of insolvency has moved to the Erie City School District, which is currently in financial watch status under Act 141 of 2012, which is essentially the Act 47 for school districts.  The District was placed in watch status in September of last year.

An audit conducted pursuant to the law noted that the District’s ability to “…stay solvent and pay obligations on a timely basis” was in question.  Some comments in an article about the District’s status noted that insolvency usually applies to a private entity (since public entities can always raise taxes–it appears Erie last raised taxes in the 2011-12 school year), not a public one.  But districts in financial watch move to financial recovery when the district gets an advance on its basic education subsidy (if the district has more than 7,500 pupils) or is in litigation against the state for an advance in order to have the district continue in operation.  Whether or not Erie is there or headed there is yet to be seen.

Three More Executive Orders Related to Affordable Housing Issued

Our last blog discussed Executive Orders 01 and 02 related to the work of the Affordable Housing Task Force and three more came late last week on the same subject.  The new orders direct various officials and departments as well as independent authorities (the URA is mentioned again, as well as the Pittsburgh Land Bank) to focus on various recommendations from the Task Force.

One recommendation directs the Finance Director to work with Allegheny County and Pittsburgh Public Schools to:

“Evaluate the potential for a uniform property tax assessment appeals policy for those appeals initiated by any of the three taxing bodies so as to limit any unexpected tax increases to City residents that disproportionately harm elderly residents and those residents living on fixed incomes.”

As we noted in the blog and in a Brief last year, the Task Force was directed to come up with something regarding appeals following the Mayor’s decision to withdraw 2016 appeals and issue a moratorium on new ones, but did not, so the Executive Order 05 looks to do something regarding appeals that might take place on a property in the City of Pittsburgh, realizing that one of three taxing bodies could choose to file an appeal on a property.  As noted in a 2016 newspaper article, the City went after properties they felt were underassessed by 50% or more and the County did not appeal values.  The School District appealed commercial properties where they felt was an assessment that was 85% lower than market value and residential property that sold for above $500,000 and were subject to that same standard, based on communications with the District.

So the charge to the Finance Director is to talk to the other two taxing bodies and find common ground.  The county could say “don’t do appeals, we don’t” but try convincing the District of that.  The City could say they would follow the District’s appeal standard (assuming that did not change).  Or the City could make its case for appeal policy that contains new elements to the District and the County (assuming the County wants to enter the appeal business).

 

Mayor Issues Two Executive Orders Related to Affordable Housing

The Mayor of Pittsburgh issued two executive orders yesterday (the most recent one was November of 2015) related to the Affordable Housing Task Force report from last year.  These executive orders issue directives to various parties (the City Finance Director, the Bureau of Neighborhood Empowerment, the Chief Urban Affairs Officer–all of these are under the administration–and the Urban Redevelopment Authority and the Housing Authority–independent authorities whose boards are appointed by the Mayor, but qualify “subject to appropriate board action”) to carry out recommendations made by the Task Force.

Various aspects will be explored, with status reports due back at different points in 2017.  The Bureau of Neighborhood Empowerment is to examine titles of properties and work on financial education and is supposed to have a report in six months time; the URA is to examine residential projects that request public funding or purchase publicly owned land on tenant protections and report within six months; the Housing Authority is to look at what the Task Force recommended for that Authority and present findings in six months time.

The Finance Director is to carry out two functions that we discussed at length in a Policy Brief last year related to a long-term owner occupant relief program and/or the possibility of “increased homestead exemptions for longtime owner occupants”.  The Finance Department is to work with Allegheny County and the Pittsburgh Public Schools on these two topics, and allow for review by each “…during the third quarter of 2017″.

We noted that the Task Force mentioned a court case in the late 1990s related to a long-term owner occupant program (but no citation for the case was provided, nor could we locate one or find anyone who knew the name of the case, so perhaps that will be made clear in the report) and currently all three taxing bodies offer a homestead exemption (though there is no distinguishing factor on length of ownership time, just so the property qualifies as a homestead) with the County permitting an $18,000 exclusion, the City $15,000, and the School District $29,447.  The School District’s exemption comes from slot machine gaming, so its exclusion is based on the number of homesteads and the amount of money from gaming.  The City and the County simply establish theirs by ordinance and could change the amount.

Higher LST Tax Not Sitting Well With Some in Scranton

In 2014, the General Assembly made changes to Act 47, the statute that outlines financial recovery for municipalities.  One of those changes was to allow distressed municipalities to seek a boost in the Local Services Tax (LST) a flat tax levied at a maximum of $52 on people who work in the municipality (regardless of residence).  We wrote about the proposal because Pittsburgh, an Act 47 municipality, was prohibited from pursuing the increase.

Scranton is in Act 47 and has levied the tax and planned on doing so again this year, but a lawsuit in Lackawanna County Court of Common Pleas against the increase (here and here).  One claim is that the distressed municipality is required to seek court approval prior to levying the tax, but the City did not do that for 2017.  According to the news articles the LST in Scranton applies to around 30,000 people and the boost in the rate has raised around $5 million.