City’s Pension Funded Ratio Hits 60%

A student bringing home a 60% grade on an exam is probably would not elicit a celebration, unless the student was previously scoring well below that.  Certainly there would be an expectation of even more improvement from the 60%.

The grade discussed today is that of the City of Pittsburgh’s aggregate pension funding ratio, measured by taking the actuarial assets divided by the actuarial liabilities to derive a percentage, which, as described in the press release on the funded ratio it “…is a tool for judging the health of such funds”.  And by that measure in 2010 under the Act 44 distress scoring framework established by the General Assembly, Pittsburgh was in bad shape with a 34% funded ratio and a label of “severe distress”.  Thus the press release’s noting “City pension fund at highest funding ratio in seven years”.  Whether that level is fleeting will have to be seen–the Finance Director attributed the status to the stock portfolio–and noted “…any decline in the stock market would probably pull down that funded ratio”.

Our readers are familiar with the history at that point and forward from 2010: the state told Pittsburgh to get the pensions to a funded ratio above 50% or have the plans transferred to the administration of the PA Municipal Retirement System; there was a proposal to have a long-term lease of the garages, lots, and meters owned by the Parking Authority, a proposal that was replaced with a 30 year “infusion of value” involving a stream of parking tax revenue.  When we wrote about the Auditor General’s most recent audit of the city’s pensions the audited funded ratio as of January 1, 2015 was 57%.  As measured by the distress framework. Pittsburgh is in “moderate distress”.

As time flies, next year marks the first when the parking tax revenue is to double from what has currently been contributed ($13 million rises to $26 million).  Though the 2018 budget has yet to be proposed, the initial 2010 value infusion scenario projected a payment into the pension system of $93 million in 2018, up from $79 million this year.  The 2017 budget put this year’s total contribution at $70.4 million (total employee benefits under the Finance Department totaled $76.1 million, which includes items other than pensions).  As we noted earlier this year the City’s pension board also lowered the assumed rate of return which entails putting more money into the system.

City’s Budget Surplus: How Does it Compare?

The release of the City’s 2016 Comprehensive Annual Financial Report (CAFR) shows a surplus of $37 million in the City’s general fund (see page 7 of this document).  The surplus appears in the general fund (the City has funds for general operations, debt service, community development, and capital projects) and is measured by taking total revenues (taxes, fines and forfeits, intergovernmental revenues, etc.) less total expenditures (general government, public safety, public works, etc. ) and other financing uses (specifically transferring to other funds) to get a result, called the “net change in fund balances”.  The same result is produced by taking the year end fund balance less the beginning year fund balance.

In 2016, the City collected $557.9 million in revenue, had $423.7 million in expenditure, and had $96.9 million in other financing uses for a result of $37.1 million ($557.9 – $423.7 – $96.9).

The opposite of a surplus might be called a shortage or a negative “net change in fund balances”: this last occurred in 2014 when the City had $485.4 million in revenue, spent $407 million, and used $110 million for other financing uses resulting in a negative $32.5 million.

In between the two, in 2015, the City had a surplus of $14.3 million.

Since entering Act 47/state oversight in 2004, the City has had a surplus in the general fund in all but four years: 2004, 2008, 2010, and 2014.  The biggest dollar total surplus was in 2006 when the result was $42.4 million, about $5 million above last year’s.  In 2006 (compared to 2005) total revenue had increased almost $20 million to $441 million, total expenditure fell $6 million to $315 million, and other financing uses rose $7 million to $84 million.

Realty Transfer Tax Increase Proposed

Legislation to increase the City’s realty transfer tax from 2% to 3% is to be introduced into City Council today.  As part of the City’s affordable housing task force which released its recommendations last May, it listed among its suggestions for providing money for the fund a boost in the tax, though the ordinance as proposed does not specifically mention affordable housing or the task force (it mentions possible cuts or elimination of the Community Development Block Grant program and needed programs and activities).  An ordinance creating an affordable housing trust fund was enacted last year.

In Pennsylvania, a tax on realty transfers (see page 21) is levied by the state (1%), the municipality, and the school district.  By and large the latter two split a 1% rate 50/50.  Home rule municipalities can exceed the limit, and the Pittsburgh Public School District is governed by a separate statute and levies the tax at 1%.  Thus, the current realty transfer tax in the City of Pittsburgh is 4%.  It would rise to 5% if the proposed increase goes through.  A current listing of realty transfer tax rates in Allegheny County is here.

In the Pittsburgh City Code there are two separate sections detailing the City’s transfer tax (here and here); the proposed ordinance would raise the home rule portion of the tax to 2%.  The last increase came in 2004.

Interestingly the General Assembly passed legislation that was signed into law in 2015 that provided for a portion of its realty transfer tax to go toward the Housing Affordability and Rehabilitation Enhancement Fund (a fund established in 2010) if tax collections exceeded the estimated amount for FY 2014-15 (the distribution would be either a percentage of the difference, or $25 million, which ever was less).  In the current fiscal year for the state this transfer is estimated to total $12.7 million–that is roughly the amount 1 percentage point of the City’s 2% tax is expected to raise this year ($25.3 million).

The tax increase introduction comes one day after the release of the City’s audited 2016 financials which show a $37 million surplus ($6.2 million of this came from increased collection of the realty transfer tax) as measured by the net change in the fund balance for the general fund in 2016 (see page 7 of the CAFR).  What impact this will have on the debate over a tax increase will be interesting to see.

Cashless T Appears to be Delayed

The Port Authority board of directors held its monthly meeting for April this past Friday, and heard public comments related to the enforcement policies the Authority plans on using to ensure riders using the trolley have paid once the trolley goes “cashless”. 

As we noted last June when writing on the proposed change, a document of “frequently asked questions” on the overall fare policy change that began going into effect on January 1st and that were adopted at the April 2016 board meeting the Authority would be using police officers and PAT staff to view/validate proof of payment.

According to the fare policy resolution, there was a public comment period on the proposal from February 1 to March 31, 2016 and the exhibit on the fare policy notes that “cashless proof of payment for rail mode and Mon incline mode” would be effective July 1, 2017 though in comments following the meeting on Friday the chairman of the board referred to the July 1 date as “a floating date”.

In February PAT altered the enter/exit policy that they attempted to implement as part of the fare policy change.

Is Property Tax Shift Dead?

At a forum held this week in the Fox Chapel School District a member of the state Senate said “right now the bill is dead” referring to the proposal to eliminate school property taxes by increasing sales and personal income taxes (we have written about the proposal in years past, including here and here).  We also wrote earlier this year about a forum held in the same district on the topic.

But even if the bill is dead (there is a co-sponsorship memo on the proposal that dates to January, but there is no bill number or history at present) don’t expect the discussion on reducing and/or eliminating school property taxes to stop–even the legislators present at the forum admit that (the senator stating the bill is kaput said he expects discussions to continue, noting it is a “very, very big issue”).

The problem is that eliminating a tax without a significant reduction in spending means the revenue has to shift to some other basis.  That’s what we wrote about in a June 2012 Brief on whether Pennsylvanians would be willing to accept a tax shift.

Johnstown Nearing Decision Point Brought on By Act 47 Changes

On Tuesday we blogged about Virginia’s efforts to develop an early warning system for municipalities in financial trouble; today we write about a municipality in PA that has been in distressed status for some time and is coming to a juncture where it has to assess whether to continue in Act 47 or to leave, and the implications of either decision.

We wrote a full length report on Johnstown in 2010, and in December of this past year we checked back in on the municipality.  Now, with a five year timeline from the date of the last recovery plan coming into play from 2014 reforms by the state, Johnstown is looking to next year when it would have to exit Act 47 or stay in for a three year extension, which would have to be recommended by the recovery coordinator.

Johnstown is looking at the loss of higher tax revenues that are permitted while in distressed status that would not be available upon exit, such as a tripling of the local services tax, and would think about monetizing assets.  That was a course of action taken by several municipalities in Allegheny County when they exited Act 47 prior to the 2014 reforms; we discussed these actions in a 2005 report.

Philly’s Wage Law on Hold

In a Brief earlier this year we mentioned an ordinance passed in Philadelphia that prohibits businesses in the City from asking about salary history of prospective employees.  We noted that companies were considering a lawsuit against the ordinance “…on a very thin argument that alleges first amendment rights violation”.

The Philadelphia Chamber of Commerce challenged the proposal, and last week a Federal judge stayed the effective date of the ordinance (May 23rd).  An article on the stay notes “It is also alleged that the law violates the Commerce Clause of the U.S. Constitution, the Due Process Clause of the Fourteenth Amendment, and Pennsylvania’s Constitution as well as its “First Class City Home Rule Act” by allegedly attempting to restrict the rights of employers outside of Philadelphia.”.  That latter language, at 53 PS 13133 called “Limitations” states a city shall not exercise powers or authority beyond the city limits: what the Chamber argues is that businesses conducting business in Philadelphia might also be doing so outside of the City or even the state but the ordinance would apply.

Pittsburgh passed a salary history prohibition earlier this year, but that applies only to the City government itself, not businesses in Pittsburgh.  Doing anything bigger would certainly run afoul of the language in the Home Rule Charter Law on business regulation at 2962(f).


VA Adopts Early Warning for Distressed Munis: How Does PA Compare?

An article from the National Conference of State Legislatures (NCSL) on state level early monitoring of local government fiscal distress looked at the efforts of Virginia in its last legislative session to adopt an early warning system and intervention procedures.

The article cites a 2016 study on what states do in regards to discovering if their local governments are headed toward financial distress.  At the time of the study it noted that 22 states did monitor local government finances and eight of those fell into a typology of fiscal monitoring with early warning.  Pennsylvania was one of these, and its neighboring states of Ohio and New Jersey were also in the group.

In the case study portion of the report, the process of municipalities submitting annual financial data to the Department of Community and Economic Development was noted and the addition of early intervention language to Act 47 through amendments in 2014 (Act 199) was pointed out, with that language coming into play for 80 local governments and for five that eventually did enter Act 47 status.

PWSA Nominations Will be Introduced this Week

Continuing from our last blog entry, this week legislation to appoint three new members to the PWSA board will be introduced.  Based on the proposals, the terms will start on May 1st and run through April 30, 2020 if Council confirms the nominees.

A March 22nd press release by the Mayor’s office noted that the new appointees (who were to be announced not long after that release) will be charged with “…assist[ing] ongoing efforts to modernize the authority and address its systematic deficiencies” some of which we pointed out in a Brief last month.  At the same time the new board members bring the full membership back to seven there is also a “blue ribbon panel” of nine members who are involved with selecting a professional group to possibly restructure the PWSA as well as an advisory panel of six members who are to “…provide guidance to the [blue ribbon] panel”.

PWSA Nominations Made

The Mayor announced this morning three nominees for the board of the Pittsburgh Water and Sewer Authority.  As we wrote in a Brief last month the Authority has a lot of issues to deal with.

Appointments to the PWSA board have to be confirmed by City Council; in Council’s legislative webpage appointments are separated into “informing” and “requiring vote”.  The most recent appointment votes taken by Council for the PWSA board were in 2015, with two appointments made for terms expiring in 2018 and 2020.  One of the present nominees announced for a appointment today was actually nominated and confirmed for a seat on the PWSA board in 2014 but was soon replaced by a current member of the board a month later.

The three nominees announced today are to take the seats for three members whose terms, according to Council’s records, expired December 31, 2016.  Two other members currently on the board are in seats whose terms expired February 27, 2017, according to the records.