We’ve long had serious questions about how credit-rating agencies conduct themselves when determining the “financial outlooks” of municipalities. Too many times, however, it seems they whistle past readily available information in the public domain.
And that appears to be the case in two credit-rating agencies’ assessment of the City of Pittsburgh’s finances.
Read the recent headline in the Tribune-Review:
“Credit rating agencies bullish on Pittsburgh’s $62 million bond issue, deem outlook ‘stable.’”
Went the Post-Gazette headline, adding a qualifying caution:
“Pittsburgh receives ‘stable’ credit rating days after controller raises concerns about potential revenue loss.”
The AA- rating means Pittsburgh can receive a more favorable interest rate on bonds it plans to float this year. The Pittsburgh bonds thus are a “safe” investment, the agencies have declared.
As the Trib reports it, the bond money will be used to pay for capital budget items, from bridge work, to flood control and landslide work, to paving and recreation/senior centers.
City officials jumped on the news as proof-in-the-pudding-positive that city finances are A-OK. As the Trib further reported:
“Mayor Ed Gainey said the administration was ‘proactive in our work to have a balanced budget, dynamic regional economy and strong financial management.’”
What “dynamic regional economy”? That’s a pure chimera.
The rating “validates what my administration is doing to care for the long-term financial health of our city,” the mayor said.
Oh really?
Added City Council President R. Daniel Lavelle:
“Our city is on strong financial footing. These affirmations show that we are good stewards of our residents’ tax dollars.”
Wow. On what planet? Certainly not Planet Earth. Truth apparently is the first casualty of not only credit-rating agencies but municipal public relations. Credit both the Trib and the P-G for not ignoring the giant red-ink elephant in the room.
Just last week, Pittsburgh Controller Rachael Heisler warned that the city’s budget was built a multimillion-dollar myth — by including revenue it will not collect from the court-struck “jock tax.”
And not only that, it does not take into account the massive reduction (retroactive in such cases) in the property tax assessments on Downtown high-rises that will cost city coffers millions of dollars more in revenues.
Heisler has been urging the Gainey administration to reopen the budget to reflect what are, by any real accounting, coming devastating shortfalls.
(As an aside, Eric Montarti, research director at the Allegheny Institute, reminds the Commonwealth Court ruling that struck down the “jock tax” currently is pending on appeal before Supreme Court.
“If the fee is struck down there and there are any collections on non-resident athletes and performers, the controller has suggested this be folded into the earned-income tax (EIT) collection line,” he says.)
But here’s the dirty little kicker from the Trib’s reportage:
Part of the reason for the city’s supposed “financial stability, according to the rating agencies, is the city’s ability to increase property taxes to cover its costs.”
Don’t try this at home.
And one of the two credit-rating agencies weighing in concluded Pittsburgh’s financial plan is “reasonable”? It shows you how out of touch with fiscal prudence these agencies and the city really are.
Here’s the bottom line, from City Councilman Bob Charland, as told to the Trib’s Julia Felton:
“(T)the city’s financial situation over the coming years is ‘really scary’ as federal American Rescue Plan Act dollars dry up and the city’s financial margins become increasingly tight.”
City Council Budget Director Peter McDevitt “has warned a tax hike may be necessary in the coming years, as the city is spending more than it’s bringing in,” she further reports.
Gainey attempted to further defend his administration’s fiscal prowess by noting the city’s presentation to the bond-rating agencies came before Controller Heisler’s warnings.
What, the administration was in the dark on its own non-credible budget numbers? If it was, it is more incompetent than anybody has given it “credit” for. What a joke.
Sadly, tragically, this bad joke will be on taxpayers.
Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).
