Issue Summary (Updated January 2011)
Pittsburgh's Financial Overseers

The Issue:

The City of Pittsburgh has been in Act 47 distressed status and under the watch of an oversight board for six years.

What We Know:

Act 47 is an open-ended designation—a municipality is in it until the Secretary of DCED determines that it has erased the conditions that led it into Act 47 in the first place. The City petitioned the state in 2007 to be removed from Act 47 status. In rendering his decision in July of 2008, the Secretary noted “rescission at this time would be premature and could subject the City to a return to distress status in the near future...many of the conditions that originally led to the distress determination have not been fully alleviated”.

In addition, Act 11 of 2004 created the oversight board to assist the City of Pittsburgh with its financial difficulties. As intended in the statute, the oversight board would “operate concurrent and equally” with the Act 47 Recovery Team. The five directors of the oversight board were appointed by the leaders of the House (2), Senate (2), and the Governor (1). The appointees were required to have “substantial experience in finance or management” and were to be either residents of Pittsburgh or have their primary place of employment in the City. The statute gave the oversight board an existence of at least seven years, which means it will go out of business in 2011 unless it is renewed by state action.

Pittsburgh is currently operating with an amended recovery plan.  The purpose of the amendment was to address pending legacy costs of debt, pensions, post retirement benefits, workers’ compensation along with a long-term capital plan, while maintaining positive operating budgets well into the future.  The plan recommended that the City put more money into pensions, including the possibility of new fees and charges, including some on college students.  This morphed into the tuition tax, and the oversight board nixed the 2010 budget based on the fact that their was no legal foundation for the tax. 

Recommendations:

If the oversight board does end its legal existence in 2011 the door is open for the City to pursue a tax on non-residents.  A municipality in Act 47 is free to petition the courts for an increase in the wage tax to fall on non-residents (it would also have to increase on City residents by the same percentage).  However, the law that created the oversight board prohibited such an action while the board was in place.  Should the board expire and the City and its defenders stick to their notion that the City needs more revenues to get out of its predicament, look for this avenue to be explored.

The Legislature should pass a bill to extend the life of the oversight board for five years, until December 31, 2016 and the appointing authorities should consider placing new members on the board to give the ICA new vitality and bring some discipline to the City's finances. 

Issue Summary (Updated January 2011)

The Impact of Gaming Money in Allegheny County

The Issue:  

Legalized slots machines in Pennsylvania will result in the redistribution of close to $700 million for various economic development and general government purposes in Allegheny County in the coming years. 

What We Know:  

Under two state statutes-one creating legalized slots (Act 71 of 2004)-and the other setting the distribution of gaming money from the Tourism and Economic Development Fund (Act 53 of 2007), we can pinpoint the amounts, recipients, and purposes of gaming money.  Here is a rundown of what exists in legislation at the present time:

Act 53

                                                      Act 71

Initial returns for the lone casino in Allegheny County, the Rivers Casino, have been disappointing.  As indicated in the table above, Act 71 guarantees Allegheny County two percent of gross terminal revenues to be used for general government purposes.  Rivers' owners had forecasted first year gross revenues at $427 million while the Gaming Board estimated them at $362 million.  If these estimates were accurate, the County would receive at least $7.3 million in host fees.  However, the first full year of operations (August 2009 through July 2010) gross terminal revenues at the Rivers Casino came in at $222.3 million--well below either projection.  The County only received $4.5 million as a result of Act 71. 

But the County is not the only claimant on money generated at Pittsburgh's casino.  The casino, as a condition of its license application, is responsible for paying a $7.5 million per year for the new hockey arena.  The Rivers Casino was not able to make the first payment in whole by the October 2009 deadline, instead opting to make a partial payment while paying the rest in April 2010.  Further casting doubt on the success of the casino, its bond rating had been downgraded a few times since its opening and at the end of 2010 stood at SD (selective default).  This reflects pessimism among credit agencies that the casino will be able to meet its own debt obligations, let alone its community related obligations. 

In July 2010, the Rivers Casino began operation of table games such as poker and blackjack which were added to the video slot machines.  Through the first six months of play, table games have brought an additional $1 million per week on average to the casino's gross revenues.  However, table games are more labor intensive and have higher costs than do electronic slot machines that will eat into this extra revenue.  The early indications are that table games have not hurt the slots play, but it hasn't helped either.  Even with the new table games, the casino is still well below the initial revenue projections. 

Recommendations:

The gaming money can be viewed as a "fix it program" for some of the mistakes of the past: an airport that is now too big, a convention center that was too big and failed to generate the spinoff development its proponents promised, development funds that diverted tax revenue, etc. 

Many officials have viewed the money as "manna from heaven", but that has not stopped fierce competition over the money.  For instance, the first two installments of gaming money for airport debt were instead used by the County.  All along, officials seem convinced that the $150 million would be used to pay down the close to $600 million in debt held by the Airport Authority, but the County, thanks to an amendment to the bill, swooped in and got the first call on the money.  Despite claims that the County itself had a $42 million debt stemming from what they put into construction of the airport, the debt did not show up on the Authority's books as a debt owed and one as they intended to repay.  Now the County will receive the entire $150 million under the law, but promises to forward $108 million to the Authority for debt service purposes.