Long road ahead in school funding case

A trial in the case of William Penn School District v. Pennsylvania Department of Education has been tentatively scheduled for the summer of 2020.  A lawsuit over K-12 school funding provided by the state was filed by six school districts and several statewide associations in 2014.

As we noted in a Policy Brief last year, Commonwealth Court dismissed the case in April 2015 upon which it was appealed to the state Supreme Court.  Last fall that court ordered the case back to Commonwealth Court for plaintiffs “to substantiate and elucidate the classification at issue and to establish the nature of the right to education, if any” which could possibly set up a judicial-legislative conflict over determining state subsidies for K-12 education.

According to the docket sheet for the case, fact discovery is to be completed by October 2019, responses, motions and replies by March 2020 and then the trial scheduled for sometime in the summer of that year.

We noted in the 2017 Brief that the process will be “messy, drawn-out and expensive” and with the tentative schedule there is at least an idea of just how drawn out it will be. Parties to the case could spend months diving into the issue of the state and local funding mix and how that produces different per-pupil funding levels.  Even with the tentative date there has to be time for the court to deliberate and there possibly could be a return trip to the Supreme Court depending on the verdict.

If the Commonwealth Court decision comes in 2021, by that point six, possibly seven, years of newly appropriated basic education funding will likely have been distributed through the student weighted funding formula enacted by the General Assembly in Act 35 of 2016.  That formula has been pointed to by legislative defendants named in the case as proof the state has made strides in addressing the claims of petitioners.

With a decision that might eventually order equalized spending across 500 districts there would have to be significant reductions for districts that raise revenue above the state average, largely arising from local property taxes.

 

Pa. near the bottom on pension health

Changes are coming to pension benefits for newly-hired state employees in less than a month and for public school employees later in 2019 due to Act 5 of 2017.  That legislation was enacted to try and improve the health of the state’s two plans, the State Employees Retirement System (SERS) and the Public School Employees Retirement System (PSERS).  Those changes will create three new pension plans, all with a defined contribution component to them, for new hires.

An analysis by the Pew Charitable Trusts on state pension health shows that, when ranked by the aggregate funded ratio (assets divided by liabilities) for state-level pension plans, Pennsylvania is ranked 44th out of 50 with a 53 percent funded ratio for SERS and PSERS.  The U.S. average was 66 percent funded.  Neighboring New Jersey came in last with an aggregate funded ratio of 31 percent for seven state-level plans, with all but one in the 30 percent or lower funded range.

A look at Pennsylvania’s plans from 2000 forward shows that 2003, when assets were $80.2 billion and liabilities were $80.5 billion, was the last year that could be considered at equilibrium.  After that Pennsylvania’s annual required contribution (percent of the actuarially recommended payment that employers contributed) began to decline from over 100 percent to the 30 and 40 percent range and the gap began to widen.  This was traceable to state legislation passed in 2001 and 2003.

Wisconsin, with one state-level plan, the Wisconsin Retirement System, was ranked first in the Pew analysis.  Over its 16 year data snapshot the gap between assets and liabilities never occurred like it did in Pennsylvania.  Wisconsin regularly made 100 percent or more of its annual required contribution.

The system’s funded ratio is 99 percent, which, if projections hold and all goes according to plan, is a level SERS and PSERS will attain sometime in 2040.  In the meantime the legislative reforms will not eliminate the fiscal and budgetary pressures caused by huge unfunded liabilities in the current pension plans.

 

 

The Airport Authority mess grows (again)

It was revealed a year ago that the state Legislature had re-upped a provision that redirects $12.4 million annually in state gambling proceeds – that is, gamblers’ losses – to the Allegheny County Airport Authority.

The authority had been receiving the money for a decade. But without the reauthorization, the transfers would have ended with the close of the 2018-19 fiscal year.

The money is designed to boost economic development efforts at and around Pittsburgh International Airport (PIT) and to reduce costs to airlines that operate at the Findlay Township facility.

Said Airport Authority CEO Christina Casottis at the time, to the Post-Gazette:

“It’s incredibly important because it’s a validation of the strategy. It’s a validation of what we’re doing and how we’re using the money.

“The fact the Legislature made that choice, to me, is a sign that they are comfortable with how we are administering those funds and what we are using them for,” she said.

One can only wonder — a year later and millions of dollars wasted on a number of failed exercises in bribing airlines to fly in and out of PIT and being played for suckers – if legislative leaders and rank-and-file lawmakers feel the same way.

That same news story also laid bare Cassotis’ economically unsound and market-perverting practice of using public dollars to bribe airlines:

“(Airlines) are taking risks when they add service to an existing market or to a new market,” she said. “They are expecting communities everywhere to step up and show their commitment by making an investment.”

But, as the Allegheny Institute has repeatedly noted, there are, or should be, strict parameters governing such “investment.” That would include providing a place for airlines to operate their planes and for customers to park their vehicles.

Public dollars should not otherwise underwrite these airlines. The market system demands that those seeking to do business, having gauged demand, risk their own money in pursuit of profit. The only role the public should have is buying tickets.

Despite 2018’s multimillion-dollar failures at attempting to command the marketplace, Cassotis has indicated she pretty much plans to stay the course. Which should – but likely won’t – prompt state legislators to review the Airport Authority’s performance, if not reconsider how those gambling dollars are being used and abused.

Sadly, however, the activities of Cassotis and the Airport Authority board of directors cry out for a more formal and deeper review. And that should be an audit, if not a full investigation, by the state Attorney General’s Office, which, by statute, has auditing oversight.

That need was driven home like a truck through a brick wall last week when 51 investors in the now-liquidating OneJet airline filed a lawsuit in Allegheny County Common Pleas Court.

That lawsuit, first reported by the P-G, seeks to recover more than $10 million from OneJet. But it also makes serious allegations about as damning as they can get.

Among them being that David Minnotte, chairman of the Airport Authority board, himself was a shareholder in the failed airline. It previously had been reported that two other board members, including the vice-chairman, Robert Lewis, were investors.

That clear conflict prompted the authority to bar such behavior. Why that wasn’t the order of the day to begin with has baffled good-governance critics.

Minnotte and Lewis are among those being sued, as well as several officials of OneJet.

The authority, which is not named in the investor lawsuit, itself is suing OneJet in an attempt to recover $763,000 of its $1 million subsidy, part of an overall $3 million subsidy package.

The investor lawsuit not only alleges that OneJet officials told investors Minnotte and Lewis “could secure favorable treatment of OneJet with the Airport Authority,” it also alleges the pair “touted the fact that the Airport Authority had ‘approved’ OneJet’s operations, as a marketing tool to solicit investments in OneJet.”

The authority’s solicitor, Jeffrey Letwin, told the P-G that the lawsuit’s allegations are “an absolute bunch of garbage.” But it’s the same Letwin who steadfastly holds that it was not, and is not, a conflict of interest for board members to have invested in OneJet because they never directly voted on anything concerning the airline while holding those investments.

Sound public policy begs to differ.

And sound public policy also demands a deeper look into the growing mess that is the Allegheny County Airport Authority. It’s past time for Attorney General Josh Shapiro to get involved.

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

The Airport Authority’s economic perversions

So what does a marketplace-meddling bureaucrat do when government-sponsored interventionism predictably fails?

If you’re Christina Cassotis, the CEO of the Allegheny County Airport Authority, you double-down. After all, interventionists have to cover up the lie of each successive interventionist failure.

In a Wednesday Post-Gazette story, mind-boggling for its concomitant hubris and economic ignorance, Cassotis defends millions of dollars in public subsidies to a number of airlines that predictably grabbed the carrot off the stick then, in their incentivized failures, used the stick to bludgeon sound public policy.

“I’m not rattled,” Cassotis told the newspaper. “None of this bothers me.”

Guess that’s the kind of haughtiness that is bred when failure is underwritten by other people’s money. In this case, it’s all public money, whether it be from county and state grants and loans or even gambling money and proceeds from shale gas drilling at Pittsburgh International Airport (PIT).

The latter two categories, by the way, were designed to lowers costs at PIT, not turn public coffers into venture capitalist or corporate wealthfare troughs.

As the P-G’s Mark Belko reports, “Cassotis chalks up the losses to market adjustments more than anything else.”

The more accurate characterizing phrase would be “market perversions” wrought by government believing it can pick winners that, invariably, create losers.

The list of subsidized failures was long in 2018 for Cassotis, whose Airport Authority board has granted her sole power to grant subsidies of any amount. The bill of particulars has been oft-stated but worth repeating:

OneJet, subsidized even though it was a federal tax scofflaw, isn’t flying and was forced into liquidation. Oh, and now there’s word that at least three clearly conflicted authority board members had a financial interest in the airline.

Delta Air Lines, subsidized by the Allegheny Conference, reduced flights to Paris when the subsidy ran out. Then, when the authority announced a $3 million subsidy to international competitor British Airways, Delta said it would pull out.

The authority incentivized Qatar Airways to fail with a contract that paid the cargo carrier $1.48 million to not reach tonnage goals. Incredibly, Cassotis is talking about future “partnership opportunities.”

And WOW Air, heavily subsidized by a number of airports and no longer flying to most of them, is re-evaluating its subsidized Pittsburgh service because of financial woes. As with OneJet, this deal calls into question what kind of due diligence was performed on WOW’s financials.

Part of Cassotis’ ancillary defense of her failures is that, hey, passenger traffic is up at PIT and the Findlay Township facility is on track to host the most travelers since 2007.

But as the number-crunching scholars at the Allegheny Institute have pointed out (in Policy Brief Vol. 18, No. 41), in the least some of that is more due to a national economy improving following the Great Recession than to anything Cassotis has done.

But there’s another aspect to the P-G story that is bothersome. And that’s the continuing oddball pronouncements of aviation consultants observing the mess at Pittsburgh International.

One applauded the authority for suing OneJet to recover the bulk of a $1 million subsidy. As the newspaper reported, the strategist said it sent a message to the industry that if incentives are awarded for a flight, the airline has to deliver. “I think that was bold and right move,” he said.

Odd, considering the first no-brainer, bold and right move would have been to better investigate OneJet’s financials. Perhaps the discovery that the airline was a federal excise tax deadbeat would have raised some red flags? Of course, the better move would be to not subsidize any airline.

Another consultant who, in the past has repeatedly lauded announcements of subsidized “progress” at PIT as nothing less than slam-dunks, was chastened a bit in the P-G story. He used a baseball analogy to defend Cassotis.

When you swing for the fences, “you strike out sometimes,” he said. “But if you don’t swing, you’re not going to hit anything. I look at it as being a positive thing and an airport that isn’t afraid to try anything.”

As if trying the same thing over and over again and failing, and then doubling-down on the failure isn’t bureaucratic insanity?

“There are a lot of opportunities still to be tapped,” Cassotis told the newspaper. “I’m incredibly bullish on the market.”

Whether that refers to the free market or the market perverted and rendered dysfunctional by Cassotis’ subsidies is the question.

Which brings this At Large to a final point: Last March, Cassotis was awarded a bonus of $146,020 for her 2017 “performance,” on top of her annual salary of $325,000. By contract, she’s eligible for an automatic bonus of 15 percent, or nearly $49,000, each year.

But by any reasonable standard, Cassotis’ strikeouts outpaced her hits in 2018. Should the Airport Authority board award her anything above what it, sadly, is contractually obligated to – a string of pearls, you might say, for a string of failures – the perversion will be complete.

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

 

Where does Pa. rank on property taxes?

The state’s Independent Fiscal Office (IFO) just released “State and Local Taxes: A Comparison Across States” which utilizes data from the Census Bureau, Internal Revenue Service and Bureau of Economic Analysis to produce state rankings of various taxes-to-personal income, which the study defines as “tax burden.” Rankings are produced for income and sales taxes, corporate taxes, fuel taxes and so on.

The ranking of property tax burden places Pennsylvania 24th with a ratio of 2.94 percent. That is below the U.S. average (3.10 percent) and U.S. weighted average (3.20 percent) according to the study. The state-by-state tax burden ranks from a high of 5.55 percent in New Hampshire to a low of 1.46 percent in Alabama.

The Allegheny Institute produced a somewhat similar measurement of property taxes collected-to-dollar of personal income in 2007 for counties in Southwest Pennsylvania which showed variation from county to county, so there could be property tax burdens at the local level in Pennsylvania that are higher than the overall ratio in the more recent data.  In the measurement from a decade ago the collections ranged from $0.54 cents (Washington County) to $0.97 cents (Westmoreland County).

In terms of property taxes collected, Pennsylvania, in fiscal year 2015-16, collected $18.8 billion. Six states (California, New York, Texas, New Jersey, Illinois and Florida) collected more in that fiscal year.  But the tax burden was lower in California (2.81 percent, 28th overall) and Florida (2.69 percent, 31st overall). New Jersey, New York and Illinois ranked in the top 10.

In a recent Brief we wrote about a separate Tax Foundation analysis of the state’s tax system and that report produced an effective tax rate of property taxes paid as a percentage of owner-occupied housing value. In Pennsylvania the rate was 1.48 percent. The foundation’s report went much more in depth on the shortcomings of the state’s local tax system and made recommendations on assessments and collection methods whereas the IFO report does not.

WOW, what a turn of events at PIT

Summary: Bad news continues to come for Pittsburgh International Airport in 2018—from airlines not meeting expectations or others canceling flights or ceasing operations.  The common thread for these events is the presence of subsidies which were offered that distort the marketplace.

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Pittsburgh International Airport (PIT) is having a very tough run.  At the end of November the Allegheny County Airport Authority announced that Qatar Airways’ cargo flights from PIT failed to generate their projected levels of cargo carried and thus obligated PIT to pay a “support fee” to the airline.  Then it was announced that WOW Airlines, another airline collecting PIT subsidies, is not offering flights to Iceland and from there to Europe after mid-January 2019.  This comes on top of the news just a few months ago that PIT is suing OneJet to recoup a loan. Shortly after that suit was filed, OneJet suspended all flights.  Then Delta announced it was cancelling its seasonal flights to Paris.  It’s fair to say that PIT has been hit with a run of very bad news during the second half of 2018.

We weighed in on the OneJet saga (Policy Brief Vol. 18, No. 32) and the decision of Delta to stop its seasonal flight to Paris (Policy Briefs Vol. 18, Nos.31 and 41) which occurred shortly after the Airport Authority announced it was giving a $3 million subsidy to British Airways to provide service to London beginning in the spring of 2019.

The Qatar Airways case is a bit different in that instead of receiving a subsidy to transport passengers to destinations previously unserved by other airlines—the Airport Authority’s justification for subsidizing OneJet, WOW, British Airways, Condor, etc.—Qatar was subsidized to carry cargo.  Before Qatar began operating at PIT in October 2017, the announcement of the added cargo service was accompanied by the usual enthusiasm and the promise of turning PIT into a logistics center.  News coverage of Qatar’s cargo service even mentioned that it might aid in attracting Amazon to the region.  Evidently, it was not a factor since Amazon is not coming to Pittsburgh.

Consider this:  in terms of cargo tonnage, PIT is ranked as the 53rd largest airport in the country by the Federal Aviation Administration, based on landed weight in 2017 (470.1 million pounds—roughly 235,000 tons).  Ten years earlier, in 2007, the airport ranked as the 48th busiest with 492.2 million pounds (246,100 tons) of landed cargo.  While things may be looking up2017’s landed cargo weight was 4 percent better than in 2016it still has not caught up to where it was before the last recession.

The Airport Authority took a gamble on Qatar Airways being able to boost PIT as a cargo center and lost.  From the news report in September 2017 it was claimed that Qatar planned to transport 200 tons of cargo to and from Pittsburgh each week from Doha to Luxembourg to Atlanta and then Pittsburgh.  Bear in mind that at the 2017 tonnage level, PIT averaged over 4,500 tons of landed cargo per week. So at the planned 200 tons per week Qatar would account for about 4 percent of PIT cargo handled.

Under the arrangement the authority was obligated to pay Qatar a “support fee” of $744,000 every six months if the carrier failed to average 480 tons of cargo per month—about half the planned 200 tons per week. It never came close to 480 tons. The authority paid the airline two installments for a total of $1.48 million for the year.  According to recent news, the best month for the airline netted only 180 tons (October 2018) and before that 163 tons (October 2017).  In June 2018 only 99 tons were carried with a further drop to only 61 tons in September.  The route was even changed to go through Chicago instead of Atlanta and two sales agents were hired to boost cargo totals and it still was not enough.

While Qatar is still operating at PIT, presumably without the subsidy, there have been news reports stating “that could potentially change if another deal is reached between Qatar and the authority.”

The authority still has dreams of being a logistics center—but at what cost?  The other, non-subsidized cargo haulers such as FedEx and UPS are at PIT and offering service because the market is strong enough they can do so profitably and without subsidies.  How will they react if Qatar is given additional subsidies to compete with them?  Will they ask for subsidies as well? The Airport Authority may have painted itself into a corner in their attempt to manipulate the market.

WOW Airlines’ decision to stop offering flights past mid-January was not a surprise but speaks to the lack of real demand for flights to Europe.

WOW has already stopped flying out of Cleveland and Cincinnati, with service lasting only from May to October from the latter, and will cease operating out of St. Louis in January, again after a brief stay of just eight months.

According to a Cleveland news report, WOW’s statement noted that the routes did not perform as well as hoped and that load factors were not achieving target levels.  Similar reasoning was used when pulling out of St. Louis while high cost and low profits were reasons for leaving Cincinnati.

WOW committed to Cleveland in August 2017, shortly after committing to PIT (June 2017).  Both airports subsidized the airline.  Cleveland offered $1 million over two years while PIT offered $800,000 over two years. St. Louis also offered $800,000 over two years but due its short time in that city, WOW failed to qualify for the agreed-upon subsidy.  News concerning the cessation of Cincinnati flights did not mention whether subsidies had been given to the carrier.

In Cleveland, WOW competed head-to-head with Icelandair with bad results.  According to another Cleveland news article, Icelandair was in talks to purchase WOW but those talks failed and the merger was called off in late November, just before WOW announced it was cancelling service at PIT. The article notes that with the failed merger, WOW’s “future is up in the air.”

So after an aggressive expansion campaign in 2017, and collecting taxpayer subsidies, WOW’s future is very much in doubt at the end of 2018.  It seems unlikely the airline with resume flights at PIT anytime soon—if ever.

Propping up business enterprises with public funds is not only a high-risk practice but it represents interference in the marketplace and begets ever more subsidies undermining the role of markets. This is especially egregious in the effort by PIT to artificially create travel to certain destinations by underwriting the cost of the fares.

It is folly on its face. Because to be truly successful in terms of sustaining adequate passengers loads for the flights, the subsidies would have to go on forever given that the real underlying demand is not there.   Perhaps the Airport Authority will learn a valuable lesson from 2018’s embarrassing failures and all the money that it has wasted.

Pittsburgh Mills TIF comes back to bite

Once upon a time, in a universe far, far removed from reality, developers and government jurisdictions were wont to argue that “But for the TIF, this project would not be possible.”

But as time is telling more and more often, TIF, or tax-increment financing, perverted how projects came to fruition that simply were not sustainable to begin with. Thus, the “but for” argument takes on a new, and more accurate, import.

TIF long ago became a common (though too often imprudent) way to finance new developments. The “too often imprudent” part is applicable when TIF proceeds – from bonds sold to be paid off by respective projects’ expected increased property tax-generating capabilities – are used to subsidize the fickle, churning world of retail development that has little or no multiplier effect.

Which brings us to the Galleria at Pittsburgh Mills mall in Frazer. It was built nearly two decades ago along Route 28 north of Pittsburgh with the aid of $50 million in tax-increment financing.

“But for” this TIF, backers argued the mall could not be built and, oh, the region would lose out on multiple millions of dollars in direct and ancillary economic development.

Paraphrasing one editorial writer of the day, the new mall would change life as it had been known in the Alle-Kiski Valley. But not as that scrivener imagined.

And never mind that the massive new retail complex was opening as the mall form of retailing already was on a trajectory to reach its nadir.

Long story short, Pittsburgh Mills never performed as touted. And by 2015, it was a certified bust. Wells Fargo foreclosed on the property. Last January, the bank took possession of the badly struggling mall for $100. And the TIF mess is a mess that only begets new messes.

As the Post-Gazette detailed in a painstakingly reported Nov. 30 story, property owners that are part of the mall and nearby retail developments “could be facing a total of $5.4 million in special assessments next year if property tax revenues fall short of what is needed to make the debt payment on the TIF bonds that were floated as part of the mall’s development.”

In a Catch-22 nutshell, the values of the mall-related properties have fallen with the fortunes of the mall. Property owners have appealed their high assessments. Should they win those appeals, there will be less money generated to pay off the outstanding TIF bonds, now valued at about $23 million.

One real estate mogul with skin in the game laments that the special assessment that could be coming – a requirement of an ancillary neighborhood improvement district established to guarantee TIF bond repayments – could have further devastating consequences, the P-G reports.

And then there’s this hardly unexpected spate of hubris from the same real estate retail broker: He hints that perhaps “the state and/or county step in to assist with these impending special assessments.”

But taxpayers at large have no business being expected to come to the rescue. Those who entered into this TIF deal knew the risks – or at least they should have – and agreed to the guaranteeing neighborhood improvement district.

The Allegheny Institute has pointed out the inherent problems with retail TIF over the years. Yet, simply put, backers chose to swim with the TIF sharks and they alone should be held responsible.

As the Allegheny Institute again noted in September 2016, when it was becoming evident that the fortunes of Pittsburgh Mills were flagging, “This just calls into stark relief the problem with subsidizing retail ventures.”

And it was prophetic about market values being reduced and the ability to repay the TIF bonds being in doubt, noting such a scenario “should serve as a warning to development officials seeking to go down this road again.”

But as so often, too often, happens, the warning will be ignored and taxpayers, in one form or another, will be left holding the bag.

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

 

Hubris run amok is not ‘public policy’

There is a valuable economics tutorial in an Investor’s Business Daily (IBD) editorial on General Motors’ forthcoming restructuring that Pittsburgh and Allegheny County officials should heed.

They won’t, of course. And their failure to do so raises serious questions about their fitness to prosecute public policy.

The crux of IBD’s strident point of order is that GM’s move is “a tragedy caused by embracing government subsidies, not markets.”

That is, the government (i.e. taxpayers) propped up a money-losing operation and, by the perverted government-GM financial nexus ignoring the supply-and-demand signals of the marketplace, “it only made GM’s problems worse.”

Now consider the editorial’s reiteration of some fundamental economic truisms in a narrative that should be mandatory reading for every government official, if not children from a young age:

“Government shouldn’t pick winners and losers. Period. And that’s especially what subsidies are: the government substituting its judgment for that of the marketplace. Why do we do it at all?

“It never works as expected. It can’t. The government, despite delusions to the contrary, can’t possibly know what people want and need. Yet, a perpetual leftist dream remains an economy run and funded by government ‘experts.’”

Now, let’s juxtapose those economic truths with the Allegheny County Airport Authority’s obsession to attempt to command the air-services marketplace at Pittsburgh International Airport. It has spent millions of dollars as of late in public money – tax dollars, shale gas dollars and gambling dollars – to bribe airlines (passenger and cargo) to fly in and out of Pittsburgh International Airport.

And it has not discriminated when it comes to throwing around the public’s money. To wit:

One recipient, OneJet, already was a federal tax scofflaw when it was awarded millions of local and state grants and loans anyway. These days, well, it hasn’t been flying for months, faces numerous legal challenges and most assuredly is headed for bankruptcy (if not already there).

Then one airline, Delta, armed with money from a community development group (gee, where’s that money come from), reduced its overseas flights when those dollars ran out. It then pulled out of the market all together when government threw millions of public dollars at an overseas competitor, British Airways.

Now comes WOW Air. Recipient of $800,000 in a two-year slide through the public-dollar trough, it suddenly has stopped booking flights after mid-January.

Perhaps it’s collateral damage from the British Airways subsidy, too. Or perhaps its financials are suspect, as were OneJet’s. After all, it has given up two big Airbus jetliners “in cooperation with its lessors.” You read between the lines.

Yet Allegheny Chief Executive Rich Fitzgerald says the WOW experience “is and has been a huge success for Pittsburgh” and that “the market has proven that (WOW) works here”?

Then there’s the unbelievable cargo deal with Qatar Airways – paying nearly $1.5 million to a company that, by contract, can fail (and fail miserably) but still reap a massive amount of public dollars and its benefactors pulling a positive spin out of a tar pit that’s hiding a pool of quicksand.

Worse, the architects of these deals are not chastened by their failures but double, triple and even quadruple down on them. Why? In their hubris, they can’t possibly concede the lie that recidivist attempts at commanding the marketplace represents.

But as surely as the swallows return to Capistrano and the buzzards return to Hinckley, Ohio, each spring, Pittsburgh and Allegheny County officials will continue to believe they know better. And, despite their long record of failures, they continue to misappropriate public dollars to prove their point – a point already and repeatedly disproven.

Simply put, it is a manifest failure to govern.

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

Airport Authority’s ‘house of cards’ collapsing

Spinning. Dodging. Bobbing. Weaving. Rationalizing. Dissembling. They are all apt words to describe Allegheny County officials as they scramble to defend indefensible public subsidies to airlines that have been playing them for suckers.

In one 24-hour span this past week, it was revealed that two government attempts to command the air-service marketplace with large dollops of public dollars – to Qatar Airways and WOW Air – have, by any proper measure, failed.

No one should be surprised. For what a tangled web government and its acolytes weave when first they practice to intercede.

The first self-inflicted slap came when the Allegheny County Airport Authority revealed on its website Monday last that, as the Post-Gazette correctly captured the perverted dichotomy:

“Qatar Airways has been paid $1.48 million in subsidies after its twice-weekly cargo flights from Pittsburgh International Airport (PIT) failed to generate anywhere near the volume needed to avoid them.”

In a nutshell, the authority entered into a contract that obligated it to subsidize each Qatar flight to the tune of $15,500 for the first six months of the deal. And that’s no matter whether Qatar met its “goal” of 60 tons of cargo per flight.

As if that’s not outrageous enough, Qatar was, by contract, incentivized to not meet that goal in the second six months of the deal. To wit, as the P-G further chronicles it:

“During the second half of the year, the support fee would have decreased ‘based on calculations agreed to by the parties’ if the 60-ton-per-flight goal was met.

In other words, it was in Qatar’s best financial interests, at the public’s expense, to not meet any goal. In fact, the P-G notes that Qatar “never came close” to moving the average of 480 tons monthly to decrease those subsidies.

That one-year deal ended in October. The Airport Authority says Qatar continues to fly out of Pittsburgh International, now subsidy-free. But, a spokesman says, talks are underway “about what, if any, contractual relationship would exist moving forward.”

Airport Authority CEO Christina Cassotis pretty much telegraphed that the possibility of a new deal when she called Qatar a “good partner.” As did the headline on the authority’s grossly spun announcement of the success of the Qatar failure on its blog: “PIT cargo: In for the long haul.”

On what planet? The public kitty has been smacked around for $1.48 million and Cassotis is hearing it say “Thank you, ma’am, may I have another?!”

Really?

The rationalization continued on KDKA Radio on Thursday morning with Allegheny County Chief Executive Rich Fitzgerald’s claim that Qatar had invested $20 million into its operations at Pittsburgh International Airport.

Thus, he argued, the public dollars are “a very small part of the cost of doing business” here. But why were they a part of this deal at all?

And what of fellow cargo carriers UPS and FedEx, apparently unsubsidized and who, by the Airport Authority’s own admission, carry about 90 percent of the cargo that moves through PIT? They certainly can’t be happy that such a minor cargo carrier as Qatar has been incentivized by contract to fail and rakes in public cash.

Then there’s this gem from the Airport Authority’s blog:

“Still, an economic impact study commissioned by the authority found that the Qatar flights could produce nearly $43 million of economic output ($23 million direct) through increased trucking revenue from the additional activity in and out of PIT, increased demand for the warehousing/distribution center and reduced transportation costs for businesses using the service, which they can then reinvest.”

“Could” being the operative word in that passage prompts this logical question: “Well, did it?” Not likely, given the public heavily incentivized Qatar to fail.

What, if only we give Qatar more public money? How absurd.

The second self-inflicted slap came mere hours later when it was reported that WOW Air, subsidized at PIT with $800,000 over two years to fly to Iceland (and, supposedly, a gateway to Europe) had halted bookings past mid-January.

Whether it’s OneJet all over again – another publicly subsidized debacle that raises serious questions about the Airport Authority’s due diligence practices – remains to be seen. But the indicators are not good.

As the P-G also reported:

“Wow tied the (bookings moratorium) move to a decision to reduce its jet fleet by two Airbus A320s and two Airbus A330s ‘in cooperation with its lessors.’”

Sounds like a euphemism for not finding enough demand to warrant those jets, even heavily subsidized. And don’t forget that WOW ended also-subsidized service in October after only five months in Cincinnati and Cleveland. Flights to St. Louis will end in January.

Incredibly, Fitzgerald use this fact to set up his defense of PIT’s subsidies. Paraphrasing here, he told KDKA that all three of those cities subsidized WOW and lost service.

Again, really? That’s actually the argument against such subsidies.

PIT is competing with everybody else, Fitzgerald added. In a race to the economic bottom? Which brings to mind that old line about the adolescent doing something stupid because all his peers are doing it and the father asking “Would you jump off a cliff if your friends did?”

Allegheny County and county Airport Authority officials apparently have decided to hold hands and jump off the cliff together.

Further in putrid defense of this airline subsidy racket, Airport Authority spokesman Bob Kerlik reminded that no matter what happens with PIT’s Wow Air flights, British Airways will be starting nonstop service to London in April.

That would be the very same British Airways about to be paid $3 million in public subsidies to begin those flights, a subsidy that likely drove Delta Air Lines out of PIT’s overseas flights equation.

In a stark, but quite apropos, observation, Jake Haulk, president-emeritus of the Allegheny Institute, poses this pertinent question: “How much crapola do they think the public will swallow?”

Simply put, this all is a textbook example of how government interventionism begets more government interventionism. In order to attempt to save face, government intervenes more hoping to cover up the lie that the last interventionism somehow worked.

But in the case of the Allegheny County Airport Authority and Pittsburgh International Airport, the practice has become a wicked caricature in which newly publicly subsidized airlines are driving out prior publicly subsidized airlines.

The irony “is unbelievably rich,” says Haulk, a Ph.D. economist.

And incredibly tragic from a public policy standpoint.

No matter how county and authority officials attempt to spin it, this practice, a house of cards, is collapsing. And there must be serious consequences for the junior engineers who constructed it.

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

 

PPS budget boosts per-pupil spending

In a 2016 Brief we noted “for several years the Pittsburgh Public Schools (PPS) has had total outlays near or above $20,000 per student, ranking it among the highest spending districts in the state.”  For certain, PPS audited finances show general fund expenditures rising from $532.4 million to $598.8 million from 2014 to 2017.  Over the same time frame, enrollment fell from 25,504 to 23,711.  With expenditures climbing 12 percent and enrollment falling 7 percent the per-pupil amount rose 21 percent to stand at $25,254.

Based on the 2019 preliminary budget not much will change. PPS’ general fund expenditures are $643.7 million, which is 3 percent greater than what was budgeted for 2018 ($625.1 million).  If PPS enrollment listed currently on the Future Ready PA Index site as well as the PPS Facts at a Glance page is accurate (22,370 students) per-pupil general fund expenditures this coming year will be $28,774.

When examining expenditures by function, $390.6 million (61 percent) is accounted for by instruction, an increase from $372.9 million this year.  Instructional support and support services are also increasing while debt service will decline by $4.5 million to $44.7 million.  When measured by object, salaries and benefits, special education and charter schools are projected to increase in 2019.

On the revenue side, local, state and other sources will raise $615.4 million.  There will be a $28.3 million transfer from the fund balance to cover the expenditure amount.  There are no planned increases to the rates of the three main taxes levied by PPS (property, wage and deed transfer) but the budget expects local sources to grow in 2019 with $9.5 million of the increase coming from property tax receipts.

Without a reassessment or a millage hike, PPS has to be counting on new construction and improvements or is going to be very active in appeals to raise that much money.  State sources are not expected to grow significantly ($267.3 million to $268.8 million) with the largest dollar increase ($2.4 million) for retirement contributions.

While the budget does not mention “insolvency” as previous ones did, how can Pittsburgh Public Schools continue to see rising expenses, falling enrollment and produce lackluster results and not be in a critical situation?