Red herrings, poison-pillings & disrespect

Red herrings are procreating at an astonishing rate among those who are hell-bent on shutting down even talking about any degree of privatization at the long-troubled Pittsburgh Water and Sewer Authority (PWSA).

Pittsburgh City Controller Michael Lamb has joined the chorus of public officials, here and far, arguing that any talk of privatization is “misguided and premature.”

That assessment came last week as Lamb lauded the beleaguered authority for taking “significant steps” in lead line replacement and, now under state Public Utility Commission (PUC) auspices, having “a new focus” on “finance and customer service” and “long-term planning.”

Lest we forget, things had gotten so bad at the PWSA – it was on the precipice of collapse – that the state Legislature forced PUC oversight on the authority in 2017.

Even more important to remember is that the Legislature mounted that oversight effort to bypass PWSA’s political overlords. The water and sewer authority long had been dysfunctional, wracked by corruption and treated by several iterations of political leaders as a piggybank.

Lamb labeled as “false” – statements and narratives – that the efforts of Peoples Natural Gas to establish either a private water service (or to work in concert with the PWSA) somehow mean “we might as well just invite them in and work with them.”

Pay no attention to the realities behind the curtain, eh?

The false statements and narratives in this suddenly re-blossoming debate are coming from government types yet again trying to muzzle the debate by insisting that it is an article of faith that privatization of any public service automatically is bad.

Pittsburgh has such a long history of, for lack of a better phrase, “poison-pilling” such efforts – through bogus rhetoric, subservience to organized labor and some of the worst political posturing – that the phrase “It’s an embarrassment” doesn’t do it justice.

This notion – this false narrative – that private-sector delivery of a public service somehow leads to societal Armageddon is anathema to not only sound public policy but rational thinking.

How is it that hundreds of thousands of people in our region are served by private water companies and private garbage collectors in a most efficient and cost-effective manner, yet when such proposals are made within Pittsburgh’s city limits, they somehow will lead to horrid things?

Horrid things perhaps for the power base of pols but certainly not for the general public that has been disrespected for decades.

Speaking of disrespecting the general public, the administration of Pennsylvania Gov. Tom Wolf went to court last week in the latest attempt to keep secret the corporate wealthfare package being offered to Amazon.

Commonwealth Court was asked to reverse a ruling by the Office of Open Records that such “incentives” indeed are a matter of public record. How quaint – using public money to hide the prospective disbursement of public money.

Pittsburgh and Philadelphia are among 20 finalists for “HQ2,” what will be Amazon’s second headquarters outside Seattle. A decision is expected by the end of this year.

The Philadelphia Inquirer, citing that city’s chamber of commerce president, has reported the state alone has pledged $1 billion to the very profitable retailing behemoth.

Pittsburgh and Philadelphia officials similarly have refused to make public their Amazon offers and also have gone to court – again, using public resources — to block public release. Given that it is already mid-October, all jurisdictions likely will be able to run out the clock and keep the lid tight on their big secret.

Tut-tut, these public dis-servants have assured, should either Pennsylvania site “win” Amazon’s new operation, there will be a thorough public vetting of the offers through our duly elected representative bodies.

Duly elected representative bodies that, no doubt, will promptly apply the rubber stamp to an already signed, sealed and delivered package of taxpayer dollars, supposedly devised for the “public good” but sans anything resembling sunlight.

Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).

 

 

As one ICA waits to dissolve another could be created

While legislation to dissolve Pittsburgh’s Intergovernmental Cooperation Authority (ICA) has not been passed (it has been in a House committee since June), a bill related to Harrisburg’s distressed status has been amended to allow for the creation of a third ICA in Pennsylvania.

A blog last week examined proposed legislation that would allow the distressed City of Harrisburg to leave Act 47 status but still maintain tax rates that are only granted to municipalities during the time spent in Act 47.  This week a major amendment was inserted into the bill that would create intergovernmental cooperation authorities for cities of the third class.

There are currently 53 cities in that class, but the amendment defines “city” so specifically on population range (48,000 to 55,000) and prior oversight (the third class city would had to have spent time in Act 47 and receivership) that Harrisburg would be the sole city covered by the statute.

The ICA board would be appointed in the same manner as in Philadelphia and Pittsburgh (by the governor and legislative leaders).  It would possess the same political and corporate powers along with specific powers to examine consolidation, tax-exempt property, debt and sale of city property, among other efficiency and money-saving measures.  It would have its books examined in the same manner.

Once an intergovernmental cooperation agreement is signed between the city and the ICA the distressed status under Act 47 would be rescinded.  That’s instead of 2021, as would occur under the three-year exit plan option. The ICA itself would be terminated on Dec. 31 of the fourth full calendar year following the approval of the intergovernmental cooperation agreement.  The special taxes would be levied until this termination date.

In the relatively short time that the City of Harrisburg has been under the watchful eye of the state, it has been under the guidance of, first, a receiver and, second, an Act 47 coordinator.  The next step could be an ICA.

 

The water privatization bogeyman

A member of Baltimore City Council is imploring Pittsburgh residents to reject any attempts to privatize the Pittsburgh Water and Sewer Authority (PWSA).

But the reasons cited by Councilman Bill Henry are remarkable in that some of them actually indict the Baltimore system he claims to be superior.

In an Oct. 9 commentary in the Tribune-Review, Henry laments that when cities allow private corporations to take over public water utilities, “rates go up, wages and benefits for workers are cut and cities have less power to hold decision-makers accountable.”

“Water,” he maintains, “is a public good and human right.”

There have been some periphery discussions about the City of Pittsburgh and People’s Gas partnering to fix a PWSA badly broken by decades of political machinations. But city officials have been adamantly opposed to out-and-out privatization.

In Baltimore next month, voters will be asked to consider a ballot referendum that would ban such privatization efforts. “Baltimore will be the first city to ban the privatization of the public’s water,” Henry writes in the Trib op-ed. “Pittsburgh should be the second.”

Henry’s rationale?

“The purchase and operation of public water utilities by private corporations is often suggested as a solution to budget problems, aging water systems and increasing rates.

“Unfortunately, privatization tends to exacerbate these problems, not fix them,” he contends. “Low-income communities and communities of color suffer the most at the hands of ruthless corporate decision-making.”

Of course, in Pittsburgh, everyone “served” by the PWSA suffered – and will suffer well into the future — because of decades of mismanagement and corruption that allowed the water and sewer systems to rot.

Still, Henry argues that the kind of public-private partnership being bandied about with the PWSA-People’s coupling “is about asserting private interests over public goods and services.”

“When water is controlled by private interests, they put their revenue and the interests of their shareholders first. The rest of us come second, if at all,” Henry claims.

But this kind of “rationale” is all heat and no light. And Henry conveniently omits how Baltimore’s water system operates.

As veteran Baltimore reporter Mark Reutter noted, in an Aug. 6 analysis:

“Ironically, the (prospective) ban on privatization obscures the fact that Baltimore’s water and sewer system already operates much like a private entity with remarkably few checks and balances.”

Continued the much-needed point-of-order assessment:

“(Baltimore’s) municipal water policies are ostensibly intended to provide an essential service. But they’re also designed to capture maximum revenue to satisfy private bondholders and to fund capital projects determined by a relative handful of engineers and consultants.”

Reutter then goes on to explain how Baltimore’s water system works:

“Back in November 1978, city voters approved a charter amendment that designated municipal utility operations as ‘enterprise’ funds.

“The amendment removed the water and sewer systems from the annual budget process and required them to be financially self-sustaining.”

Furthermore:

“Ordinance 941, subsequently approved by the City Council, put a new mechanism in place for determining how much households and businesses would pay for water services.

“Rate determinations were placed in the hands of the Board of Estimates, and especially the director of Public Works, who sits on the spending board.

“If projected future costs outran projected future revenues, the board could raise rates at the recommendation of the Public Works director with the concurrence of the Finance director.

And if the enterprise funds encountered any revenue shortfalls, the Board of Estimates was required to establish new ratesat a level sufficient to recover any accumulated deficit, he notes.

And then there’s this, again from Reutter’s tutorial:

“In short, Baltimore’s water system became as profit-oriented as any private company (although, technically, it could not produce a profit, only a surplus.)”

In a nutshell, Reutter reminds that the government-controlled Baltimore system represents “a monopoly of hundreds of millions of gallons of water and thousands of miles of underground pipes free of any competition.”

The administrators of the water system are not required to justify their expenses and proposed rate hikes to state regulators.

By the way, they would be in any Pittsburgh public-private partnership or privatization scenario.

Reutter notes that the retail price of Baltimore’s water and sewer services remained flat for more than 20 years after the charter amendment and Ordinance 941 were approved.

“Then came a decade of reckoning,” he details.

It has nearly $3 billion in outstanding bonds for water and sewer improvements, many mandated by the federal EPA, with the bonds’ costs and interest coming “straight out of the pockets of ratepayers.”

Again, from Reutter’s in-depth analysis:

“Not surprising, then, the price of water and sewage in Baltimore City has more than doubled in the last 10 years and tripled since 1998. And there is no end in sight.” And water rates have risen in 17 of the last 19 years.

Reutter says that, in Baltimore, turning the issue of privatization into the bogeyman that it typically becomes “has also drowned out a rational discussion about how to finance costly infrastructure improvements.”

“And it’s put a damper on examining how well DPW is serving the public as opposed to fulfilling its obligations to bondholders.”

That is, the takeaway must be that privatization has become the proverbial strawman used to mask critical problems with continued monopoly control by government.

The headline on Reutter’s analysis? “Keeping Baltimore’s water system public won’t cure its accountability problems.”

Back to Bill Henry’s Trib op-ed:

The Baltimore councilman offers a straw argument all his own when he claims the Pittsburgh debate is all about “debt” when, in fact, it is about debt that must be incurred to rectify the failings of monopolist government machinations that came shockingly close to allowing the PWSA to collapse.

“Community control of public assets is critical to a healthy democracy and a healthy community,” Henry concludes. “The people and their elected representatives deserve to have a seat at the table and a say in what happens to their water.”

But when elected and/or appointed representatives run a water system into the ground, “the people” also should have every right to evaluate the privatization option.

Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).

 

County’s 2019 budget presented

The 2019 revenue and expenditure plan for Allegheny County was presented Tuesday night at a meeting of County Council.   In the county’s Home Rule Charter (VII,2,b) the chief executive is required to “appear before County Council to present the budget message and submit the comprehensive fiscal plan no later than 75 days before the end of each fiscal year.”

The operating budget as proposed is $932.4 million, up 2.9 percent over the $905 million for this year.  With capital, grants and special accounts the total spending tops $2.2 billion. As our 2016 report on county finances showed, total expenditures grew 46 percent from 2000 to 2015, slightly higher than inflation in that same period.

Property taxes are budgeted at $376 million based on 4.73 mills and represent close to 80 percent of the total tax revenue generated.  There is a ballot question to raise property taxes 0.25 mill but that proposal is not mentioned in the budget document. The county’s share of the Regional Asset District sales tax is budgeted at $50.2 million and the levies on alcoholic drinks and vehicle rentals are projected to raise $51.1 million.  That is far more than enough to generate the match for mass transit and continues to point out the puzzling situation in which the Port Authority receives a piece of the asset share of the sales tax.

Of the expenditure categories public safety is projected to far outpace the overall 2.9 percent growth in the budget with an increase of 4.64 percent to grow from $247 million this year to $259 million in 2019.  Public works and facilities and culture and recreation–expenditure categories that total $70 million–are also expected to grow faster than the overall percentage change for the budget.  The spending categories of economic development and debt service are budgeted for a decrease of just over $200,000.  On a departmental basis all departments will see an increase with the exception of Shuman Center (-0.22 percent) and County Council (-13.89 percent).

The county’s headcount is expected to increase by 36 full-time equivalents, with half of the increase accounted for by new hires at the jail. Based on the narrative section on the jail’s operations there is a 2019 initiative on minimizing overtime at the facility.

Livability rankings tell us very little

Summary: Livability rankings are very subjective.  The notion of livability will vary from person to person depending upon circumstances or individual tastes and preferences.  Yet they are big news in a city or region when the results are favorable.  This Brief examines two recent livability rankings to show just how different they can be.

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In late August, The Economist Intelligence Unit (EIU), and its sister company The Economist newspaper, released a ranking of the most livable cities on earth.  Pittsburgh media and officials were giddy to learn that the city landed as the 32nd most-livable city in the world and was the second-highest-ranked American city behind Honolulu.

Bear in mind, however, in the spring of 2018, U.S. News & World Report ranked the 125 most populous metro areas in the United States.  According to this ranking, the Pittsburgh area ranked 57th (Honolulu ranked 35th).  Not a lot of media attention, if any, was paid to this ranking of the Pittsburgh area.  So, can anything useful be gleaned from these rankings?  Or are they essentially meaningless exercises?

In the EIU’s methodology each city was evaluated based on qualitative (non-numeric) measures and quantitative (numeric) measures. The qualitative measures were based on the judgment of an in-house expert on that country and a field correspondent in each city.  For quantitative variables, the rating was based on the relative performance of a location using external data sources such as the World Bank or Transparency International.  Of the 30 categories listed, only four, (13 percent), were quantitative or data driven, meaning that the other 26 (87 percent) were based on the judgment of individuals.  Thus, the EIU ranking methodology is extraordinarily subjective rather than based on objective, verifiable facts.  Which is appropriate since the whole notion of livability is very subjective.

The EIU based its ranking on five main categories:  stability (25 percent of total); healthcare (20 percent); culture and environment (25 percent); education (10 percent) and infrastructure (20 percent).  The ratings were on a 100-point scale with anything in the 80-to-100 range meaning “there are few, if any, challenges to living standards.”

Pittsburgh’s best score was in the education category (100, or ideal).  There are three sub-categories to this measure:  availability of private education; quality of private education and public education indicators.  The first two were qualitative while the latter was adapted from World Bank data.  No mention as to what levels of education were evaluated—k-12, higher education, or both.

For livability the most important educational level is, or ought to be, k-12. And for that group our work has demonstrated many times that the Pittsburgh Public School District consistently underperforms academically and has seen drastic declines in enrollment despite spending well above $20,000 per student. Indeed, poorly performing public schools have long been a motivation for parents with school-age children to leave the city or put them in other schools. How could a reasonable, knowledgeable observer possibly give Pittsburgh a 100 percent rating on education?  Consider that just over a year and a half ago the district was excoriated by the Council of the Great City Schools (Policy Brief, Vol. 17, No. 4) for not improving student achievement since its previous report 10 years earlier.  Anyone following Pittsburgh schools should have known about that extremely critical study. In short, the EIU ranking on education is bogus.

Infrastructure was the city’s second next highest rated category (96.4). The sub-categories are: quality of road network; quality of public transportation; quality of international links; availability of good quality housing; quality of energy provision; quality of water provision and quality of telecommunications.  All are qualitative variables and interpreted subjectively.  The standout sub-category here is the quality of water provision.  As was documented in Policy Brief, Vol. 17, Nos. 14, 29 and 49, the Pittsburgh Water and Sewer Authority (PWSA) is beset by major problems with water main breaks in the 100-year old system and does not have the funds to do necessary repairs and replacements ($5 billion) to update the system.  It now is under the oversight of the state Public Utility Commission.

Obviously, the judgment of the EIU experts did not include “cost of provision” of public transportation. As was shown in Policy Brief, Vol. 18, No. 18, the cost of Port Authority bus operations is the second-highest in the country. Only New York City bus operations are more expensive.  Perhaps they were impressed by the tunnel under the river to the North Shore.  But that was built with a hefty half-billion dollar price tag (Policy Brief, Vol. 12, No.10) and offers free rides despite additional operating costs.

Nor did the judgment of the experts factor in the use of public subsidies to prop up the new international flights at Pittsburgh International Airport in the quality of international links.  Subsidies have been doled out to WOW, Condor, British Airways and Delta Airlines the only U.S. carrier. And Delta recently canceled its service to Paris. Without taxpayer handouts, the flights to Iceland, Germany and England would likely not have happened as the demand for unsubsidized travel from Pittsburgh to these destinations is just not adequate to justify the service.

Interestingly, the lowest scoring category was culture and environment (87.7).  There are nine sub-categories in this section of which only two are quantitative (humidity/temperature rating and level of corruption).  The others include discomfort of climate to travelers; sporting and cultural availability; food and drink; availability of consumer goods and services and social or religious restrictions.  Given the amount of money the taxpayers have ponied up for world-class sporting facilities, not to mention the Regional Asset District subsidies handed out to cultural amenities, city officials must undoubtedly believe they were short-changed on this category. And as for climate discomfort for travelers, how is that remotely connected to livability?

Given that the EIU relied mostly on qualitative, or observational, data to compile their scores the City of Pittsburgh obviously looks good to those on the outside.  But the façade belies the extraordinarily high cost of city government and the high tax burden placed on its residents, which is often the primary reason for the outflow of residents.  In a national comparison of city management, Pittsburgh ranked among the very highest in taxes and government cost per resident (Policy Brief, Vol. 16, No. 34).

Contrast the EIU ranking with that of U.S. News & World Report’s “Best Places to Live” ranking which looks at the seven-county metropolitan statistical area (MSA) and not the city proper.  The methodology relies more on quantitative, or numeric, data.  The five categories are:  job market index (20 percent of total); value index (25 percent); quality of life index (30 percent); desirability index (15 percent) and net migration (10 percent).  Pittsburgh’s MSA score was 6.5 (on a 0-10 scale), good for 57th place on the list.

The highest score was with the value index (7.8) which looks at the median annual household income for both homeowners and renters (blended together) and compares that to the annual cost of living in the MSA.  The annual cost includes an estimated cost for housing—mortgages, utilities and taxes for homeowners and utilities and rental prices for renters.

The lowest score came in net migration (5.6) which took data from the U.S. Census on those moving in and out of an area, adjusted for deaths and births.  The underlying premise is that migrants vote with their feet and will choose the best areas in which to live.  Top ranked Austin, Texas, scored a 9.4 on this measure.

The area’s job market index was the second-lowest score (6.1).  It measured the 12-month moving unemployment rate from the U.S. Bureau of Labor Statistics (BLS) with the purpose of seeing whether or not the area’s job market is growing, struggling or remaining stable.  The other part of the index looks at the average salary in the MSA (according to BLS data).  We have commented frequently on the area’s labor market (Policy Brief Vol. 18, No. 23) and have found  it to be stagnating at best with low growth in the goods-producing sector (mining, manufacturing and construction) while experiencing moderate growth in service-providing sectors (especially leisure and hospitality along with education and health).

The metro also did not fare well in the quality of life index scoring just 6.2 of 10. This index is comprised of five measures:  crime rates; quality and availability of health care; quality of education; well-being and commuter index.  What stands out here is the quality of education which is worth 25 percent of the score.  It uses data from the U.S. News Best High Schools rankings which calculated the average college readiness score for all schools in the metro area and compared it to those of all the other metro areas.  The Pittsburgh area scored 5.4 out of 10.  This low score happened despite some very good high schools in the area.

Clearly the two livability rankings offer a stark contrast in methodology and approach and produce widely varying results on the city and area.  The EIU ranking looks mostly at the city through a subjective and possibly very biased observer lens and determined Pittsburgh to be the second-most livable city in the U.S.  It doesn’t take into account any of the hard data on the cost of providing government services including education and transportation where Pittsburgh is woefully lacking when compared to other cities.

The U.S. News rankings do take into account more hard data from the U.S. Census and BLS to draw its far from glowing ranking of the metro area. The economy of the metro and the city (as we have demonstrated in Policy Brief Vol.16, No.42), as measured by jobs, have been weak to stagnant from quite some time.  Meanwhile, Census data show net migration to be another area of weakness for both the city and MSA.  Weak job gains and little or no net in migration are undoubtedly related.

The city and the MSA’s poor business and regulatory climate are key elements in the comparatively weak economic performance. And unfortunately are likely to continue to be a drag on the economy.

Mt. Lebanon’s joke & Murphy’s bad advice

It just might be Allegheny County’s longest-running economic development joke. But the reality is far from funny.

“It” is a prime parcel of property at the south end of the South Hills community of Mt. Lebanon at the corner of Washington and Bower Hill roads. And it’s a prime example of what government interventionism doesn’t get you.

This saga dates back to 2002. It was decided that a parcel owned by the Mt. Lebanon Parking Authority should be developed. But time and time again, throwing good money after bad, sufficient private development dollars never materialized. And the public has paid the price.

The situation turned so sour that in 2013, a second developer, Zamagias Properties, defaulted on state loans it used to acquire that property. Which left taxpayers holding the bag for $1.78 million in loan guarantees.

But wait, it gets even more perverted: The very same Zamagias Properties that defaulted was allowed to keep the property. Don’t try this at home.

Slow-forward to this summer.

A new Zamagias proposal to build high-end condos at the site has been, you guessed it, stalled. A Zamagias official tells Mt. Lebanon Magazine, the official house organ of the community, that a lawsuit by the owner of a neighboring property has halted progress.

Do note that “progress” is a relative term. The site has seen some earth-moving and now sits shielded by a construction fence. Sometimes the weeds are high. Other times the fence redefines dilapidated. Welcome to Mt. Lebanon!

The magazine reports that “Zamagias is looking at other options, including considering offers from other developers to purchase the property,” an option the company official said would take about a year to close.

Another year. Ho-hum.

This project should serve as a textbook case for how local governments should leave economic development to the private sector. It’s attempt to command the economy has been an utter embarrassment.

As the Allegheny Institute noted nearly five years ago:

“Had the municipality simply sold the parcel off to the highest bidder and used the zoning process to guide development, (it) would already be enjoying an expanded tax base instead of staring at a still-vacant lot on (its) main thoroughfare.”

Instead, five years later, this fence-ensconced vacant lot is an overgrown monument to the hubris of pick-a-winner government economic development and the insanity of attempting the same thing over and over and over again.

There are no winners in such a continuing charade. And, invariably, taxpayers keep paying the steep price by having their pockets improperly picked.

Here’s some sage advice to the leaders of Swissvale, Rankin, Braddock and North Braddock:

Don’t listen to Tom Murphy.

The Post-Gazette reports that the former Pittsburgh mayor urged political leaders in these eastern communities to “Kick the door down” in pursuit of, as the P-G put it, “a new look” and “a big development.”

Murphy, of course, was the fella who wanted to bulldoze a large swath of downtown Pittsburgh two decades ago to satiate his central-planning whims.

That was stopped — but not before his more limited exercise in command economics crashed and burned.

In astounding disregard for anything resembling sound public policy, Murphy had the audacity to tout his supposed successes and urged a gathering of 50 political and business leaders to push ahead with their visions even if they don’t have the money.

“Imagine you have the money,” Murphy is quoted as saying.

The former mayor bragged that, again, as the newspaper narrative went, “Pittsburgh could have accepted its decline in the 1990s but he found ways to finance a new vision.”

Let’s see, there were the taxpayer-financed failures at Lazarus/Macy’s and Lord & Taylor (the latter of which eviscerated the historic charms of an old Mellon Bank building).

Don’t forget, either, the bait-and-switch of the North Shore Connector.

Then, of course, there was Murphy’s nose-thumbing at voters — who rejected his Stadiums Tax at the polls — by packing the board of the Regional Asset District to drain money for a purpose never intended.

Wow, now there’s behavior to emulate, right? Sorry, but no.

Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).

The Airport Authority onion

As a matter of ensuring sound public policy, it is long past time for state investigators to peel back the layers of the opaque onion that has become the Allegheny County Airport Authority.

Use of the term “state investigators” hardly is an incendiary phrase that pushes the envelope. It is most apropos given that under Pennsylvania law, it is the state Attorney General’s Office that is charged with auditing the agency that runs the show at Pittsburgh International Airport (PIT) and the Allegheny County Airport (AGC).

And make no mistake, ongoing developments at the authority warrant a look-see into how it has been conducting its business.

Of particular concern should be how the authority board has given CEO Christina Cassotis plenary power to grant subsides to airlines seeking to do business at PIT and what due diligence steps are taken to vet the finances of those receiving such subsidies.

The state AG’s office also should review how county and state agencies have augmented those subsidies: Who’s talking to whom and how have these deals been coordinated.

The most recent case in point that necessitates an outside and independent review is the OneJet mess.

The startup airline that catered to business travelers promised grand things as public officials armed it with $3 million in public subsidies. Those officials called it an “investment.” It was nothing more than a fleecing. There was lots and lots of rah-rah-sis-boom-bah-ing from not only Cassotis but airline industry consultant Mike Boyd.

“It would appear to me this should work very well,” Boyd told the Tribune-Review in May 2017. Cassotis touted how local officials outbid other airports/regions

to land OneJet.

But it didn’t take long for OneJet to go kerplunk. It failed, in stunning fashion, to live up to its agreement to produce the service it promised. And that prompted the Airport Authority to go to court to recover the lion’s share of its $1 million mistake. That case is pending.

Then it was revealed that the federal government filed a tax lien against OneJet for arrearages in excise taxes. But what’s striking is that those arrearages reportedly dated to before millions of dollars in public money was given to OneJet.

Which raises the question of how OneJet, or any carrier being considered for public subsidies, was and is vetted. Sound public policy demands due diligence.

And it also demands checks and balances. It was in April 2016 that the Airport Authority board gave Cassotis the power to grant subsidies – “up to any amount,” the Trib reported – without a board vote. That’s outrageous.

Since then, Cassotis has handed out public money to a number of airlines like Halloween candy. And every deal has been dubious. Sound public policy is being disserved.

OneJet, by the way, said when it suspended service that it would be back in business beginning Oct. 1. As of this writing, it is not. It’s not even taking reservations. And as the Post-Gazette reported Thursday last, OneJet has none of the required Federal Aviation Administration “air carrier operating certificates” to fly. Neither has it resolved the federal tax lien.

But more must happen than just a state Attorney General “audit.” The state Legislature must grant clear auditing authority to either the state Auditor General’s Office and/or the office of the Allegheny County controller.

Unfortunately, legislation that would allow the auditor general to do just that appears to have no legs in Harrisburg. It moved out of a state Senate committee at the end of last year but was tabled in the Senate in March, recounts the Allegheny Institute’s Eric Montarti.

The Airport Authority, among other county authorities, heretofore has balked at allowing the county controller to review operations. They routinely use the rationale that they are “independent” agencies not subject to the county controller and have their own outside auditors.

These, however, are the very same authorities that regularly allow their “independence” to be commandeered by the pols who appoint their members — elected officials who expect their bidding to be done or else.

Again, sound public policy demands checks and balances and transparency. Until that comes to the Allegheny County Airport Authority, reasonable people will view its operations as suspect. It’s time to start peeling that onion.

Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).

 

Legislation permits Harrisburg to keep Act 47 taxes

A bill introduced this week would allow the City of Harrisburg to keep in place its higher than typical local services tax (normally $52 but currently $156) and its higher than typical resident earned income tax (normally 0.5 percent but currently 1.5 percent), or possibly both, past the time when the city would leave Act 47 distressed status.

As we have written previously, amendments in 2014 addressed the length of time a municipality could remain in distressed status.  Right now Harrisburg is in the three-year exit-plan option which means the city would leave in 2021.  However, back and forth between city and state officials over the loss of $11 million in annual revenue from the higher than typical levies led to a discussion of options, from home rule to the legislation at hand.

If the legislation is approved and the city elects to continue to levy the taxes, the money is to be dedicated in a complex way toward the city’s trust fund for its retiree health-care liability.  The city would be required to file an annual report detailing the amount of revenue and its use.  That report would have to be submitted to legislative leadership and specific committees.  It is quite likely the reports would be followed up on the same way the required audits of Pittsburgh’s oversight board were.

Finally, the bill would prohibit a non-resident earned income tax (commuter tax) from being levied by Harrisburg (language that applied to Harrisburg when it was in fiscal emergency status would continue).

Making a special exception to keep higher taxes for a municipality no longer in financial  distress is not good public policy and would likely open the door for requests from current or future distressed municipalities.

 

Make this call, Almono (& another shakedown)

The folks at Almono LLC should have a discussion with a fella by the name of Dave Ziel before they move forward with any plans to construct what surely would be a quite expensive “speculative building” on the grounds of the former LTV Coke Works in Pittsburgh’s Hazelwood neighborhood.

Ziel is the chief development officer of Urban Outfitters, described in one news account as the “hipster-leaning apparel chain” based in Philadelphia. It caters to fashion-minded customers aged 18 to 28.

Ziel’s company just inked a lucrative deal in Indiana County to build a huge fulfillment center said to be the size of 21 football fields in White Township’s Windy Ridge Business and Industrial Park.

The term “lucrative” cuts both ways, depending on which side of the Tax Break/Industrial Economic Development Complex you fall.

A plethora of dubious tax incentives clearly will trim costs that only the very profitable Urban Outfitters should bear.

But supporters defend the breaks saying 225 jobs will be created. There’s happy talk about 500 people being employed there down the road. About 600 short-term construction jobs will be created for a complex set to open in August 2019.

That’s “the most jobs created by a single employer in Indiana County in more than five decades,” recounted Indiana Gazette reporter Chauncey Ross in a Sept. 27 dispatch (a reference to the expected permanent jobs).

Expect to hear defenders employ that old standby “but for” argument: But for the tax incentives, Urban Outfitters would have built elsewhere.

More on that later.

But it’s something Ziel told Ross that should pique the interest of the officials of Almono, a partnership of the Heinz Endowments, the Richard King Mellon Foundation and the Claude Worthington Benedum Foundation, that is working to redevelop the 178-acre tract known as “Hazelwood Green” along the Monongahela River.

In addition to tax breaks, Ross reported:

“What also gave Indiana (County) a competitive advantage, according to Ziel, is the absence of huge, ready-to-occupy business centers that he said are seen sitting empty at almost every turn in Eastern Pennsylvania.”

Furthermore, Ross reported:

“The explosion of ‘speculative building’ prior to tenants coming in tends to oversaturate the region and limit the hiring potential in the east, Ziel said.”

To be fair, Almono’s Hazelwood Green project director, Rebecca Flora, told the Post-Gazette that “spec construction” – meaning to build without a signed tenant – is still in the ‘very early exploratory’ stages.”

And, indeed, the developments of Urban Outfitters and Hazelwood Green are quite different. The former is a retail operation’s fulfillment center (the fancy term for a product distribution center) and the latter is touted as a mixed-used development anchored by high-tech startups and those established tech companies looking to expand.

Nonetheless, there’s an object lesson in all of this that warrants an Almono call to Urban Outfitters’ Dave Ziel.

Build it and they will come? Not necessarily. And given that you can bet there will be some public money component bandied about, sound public policy deserves no less than picking up that phone.

Now, back to the Urban Outfitters incentive plan.

Make no mistake, this retailer is no slouch firm. To wit, it most recently reported quarterly financial results showing earnings per share skyrocketed 91 percent to 84 cents, beating Wall Street forecasts. Net sales of $992 million also exceeded expectations and represented a quarter-over-quarter gain of 13.7 percent. It’s now a corporation valued at $2.2 billion.

Thus, Urban Outfitters is doing quite well, well enough to move ahead with its $30 million Indiana County project. It should do so, however, with its own money, not diving into the public purse.

This profitable and growing concern has been given a very large tax break – paying real estate taxes on the current, undeveloped assessed value for 10 years, through the end of 2029. This being retail, and given the vagaries of the retail economy, who knows if it ever will pay property taxes based on the value of the new operation a decade hence.

And, yet again, taxpayers have been turned into venture capitalists. It’s a role they never should be forced to assume.

Urban Outfitters is self-described as “a lifestyle retailer dedicated to inspiring customers through a unique combination of product, creativity and cultural understanding.” And, hey, it even allows employees to bring their dogs to work.

That, of course, is its business. Woot-woot, and all that. But sound public policy dictates that taxpayers have no business subsidizing it.

Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).

Pittsburgh’s pension ratio falls

When Pittsburgh’s pension board met in September it was told the aggregate funding ratio (assets divided by liabilities) of the city’s three pension plans was 57.5 percent , based on a January 2017 plan valuation.

That’s down slightly from what was a recent highpoint of 62.2 percent reported in December (that ratio was based on a January 2015 valuation). Assets, which are comprised of the invested portfolio and the parking asset, lost $3 million in value (the majority of the decline was accounted for by the parking asset, which fell $2.4 million) while liabilities increased $94 million, which led to the lower funding ratio.

Interestingly the active member count between the two valuations increased by 156 employees, raising the headcount to over 3,300.  Adding more employees to the city’s payroll translates into pension payouts when their service is concluded. As we have pointed out before, Pittsburgh has more employees on a per 1,000 people basis than the Benchmark City. When the city exited Act 47 earlier this year we noted that, when adjusted for population, the city’s headcount had decreased only 7 percent from the time it was declared distressed.

Since entering into the parking asset transaction the city has been at the moderately distressed level of pension scoring under Act 44 of 2009.  Upon Pittsburgh’s release from distressed status, coordinators stated the city should be putting enough money in “so the funding ratio does not crash back to the levels of a few years ago.” In addition Pittsburgh City Council passed an ordinance prohibiting pension enhancements for its employees.

Whether new municipal hires statewide would come under an arrangement similar to new state and public school employees (who will select from three separate plans, all with a defined contribution aspect) as will begin next year is unclear.  It will take a long time to see improvements in pension health from that change.  Under current projections the funding ratios of those two state plans will reach the 90 percent range in 2040, which is about the same time that the city’s parking tax pledge to bolster the pensions will come to an end.  The city made suggestions for municipal pension reform to be undertaken by the end of this legislative session, which, with the number of days left, will likely not occur.  Will the city advocate for those same changes again in the upcoming year?