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?

 

 

Municipalities to cooperate on fire service?

Pennsylvania has plenty of volunteer fire companies.  As of 2018 there are 1,837 companies with 94 percent of them staffed by volunteers. However, there has been a decrease in the number of volunteers in the past few decades.  According to one estimate the number of volunteers stands at around 50,000, much lower than the 300,000 volunteers in the 1970s.  Time commitments to other activities and jobs, an increase in required training and fundraising are cited as core reasons for the decline.

In an effort to try and boost volunteer ranks, the state in 2016 approved Act 172 to enable municipalities to offer a tax credit for wage or real estate taxes paid by active volunteers of fire companies. This incentive is now offered by South Strabane Township in Washington County, which the township’s board of supervisors approved in October.

The township is also involved in very preliminary discussions to explore the creation of a multi-municipal fire district with two other municipalities. They are Canton Township, which has volunteer-only service, and the City of Washington, which has paid firefighter service.

The process, should it move forward, would be coordinated by the Department of Community and Economic Development (DCED).  There were 20 successful mergers/consolidations of 49 volunteer fire companies that DCED was involved with from 1997 to 2004, according to a 2005 study on the feasibility of regionalizing fire service in Pennsylvania.  Eight of those involved more than one municipality and the remainder were intra-municipal combinations.

It is quite possible that the same issues that are raised with school district consolidations–cost-sharing, taxes, capital assets and community pride–that we noted in a recent Brief could also be present with the proposed fire company combination in Washington County and across the state.

 

Act 44 lawsuit could affect 44 Port Authority projects

A lawsuit pending in federal district court in Pennsylvania filed by truckers against the Pennsylvania Turnpike Commission over the rates and use of turnpike tolls as directed by Act 44 of 2007 might affect the Port Authority’s capital budget.

The lawsuit argues that by raising tolls year-after-year and handing the money over to the Pennsylvania Department of Transportation (PennDOT) for “non-Turnpike-related state projects” there is “an undue burden on interstate commerce in violation of Article I, Section 8, Clause 3 of the U.S. Constitution” and the plaintiffs are seeking relief.

Act 44, as amended by Act 89, requires the Turnpike Commission to make payments to PennDOT totaling $9.65 billion through 2057. The annual payment is scheduled to decrease from $450 million to $50 million in fiscal year 2022-23.  While the lawsuit is pending the turnpike has not made two quarterly payments to PennDOT and, in turn, the money from the Commission and PennDOT to other entities, including the Port Authority, has been delayed.

The capital budget adopted in June for the Port Authority’s current fiscal year is $145.7 million; $104.9 million of it is provided for by state sources.   The 44 capital projects proposed to be put on hold total $65 million, according to a newspaper article.  An authority committee considered the amendments to the budgets last week and the entire board is supposed to vote in early December. Interestingly the article noted that SEPTA (Philadelphia’s transit agency) does not anticipate putting anything on hold even though it receives subsidies through the Act 44 scheme.

If the truckers’ association wins its suit against the Turnpike Commission that stops or rolls back tolls, the state will once again be looking for alternative sources of revenue to subsidize mass transit.

PSERS financials for 2018

The comprehensive annual financial report for the Public School Employees’ Retirement System (PSERS) for fiscal year 2017-18 was recently published.  PSERS covers public school employees working for the state’s 500 school districts.  The report shows 256,000 active members (about 8 percent are from the Philadelphia and Pittsburgh school districts) and 233,000 retirees and beneficiaries receiving benefits with just over 12,000 retirees added to the rolls in FY 2017-18).

According to the report the funded ratio (assets divided by liabilities) was 56 percent.  If ranked on the distress scale applicable to municipal plans in the state, PSERS would be in the moderately distressed category.

A total of $9.9 billion was added to the plan in FY 2017-18, with employees contributing $1.0 billion, employers (the state and school districts) contributing $4.2 billion and investment income producing $4.7 billion.  Total deductions from the plan were $6.7 billion.  In PSERS’ analysis of the past two decades of contributions, an average 60 percent of the funding has come from investments, 24 percent from the employer and 16 percent from employees.

The employer contribution rate last fiscal year rose to 32.57 percent from the previous year’s 30.3 percent; projections show the rate going up to 36.32 notwithstanding the Act 5 reforms that will affect new hires beginning next July.  No longer will stand-alone defined benefit plans be offered to new employees who will instead select from two hybrid (defined benefit and defined contribution) plans and a defined contribution plan.

As we pointed out in July 2017 “some of the risks associated with investments, longevity changes and inflation are shifted to employees in their defined contribution component. Longer term, the plan becomes more fiscally stable—absent legislative tinkering that reverses the advantages offered the government by the defined contribution component.”  The longer term is likely a decade or so at the very least before the funded ratio begins to rise significantly from its current low level.  By 2030 the projection is for a ratio in the low 70s and by 2040 for a 95 percent ratio.  Until that time expect plenty of school districts that apply for Act 1 exceptions to their property tax limit to cite pension obligations as the reason.

Education funding conflict or harmony on the way?

According to a newspaper article, education advocates are hoping that the results of last week’s gubernatorial election will pave the way for a boost in education spending  in the next few years.

One proponent stated “[the governor] has to create a narrative and a context for a ‘yes’ vote for revenues. He can do it now. I think this election gives him the ability to do that.”  However, a spokesman for the majority party in the General Assembly noted “that simply providing more tax dollars does not necessarily make more scholars.”

Since fiscal year 2015-16, funding for education has increased $1.5 billion from $11.1 billion to $12.6 billion (these figures do not include appropriations to Pennsylvania State System of Higher Education or state-related schools or for higher education financial aid.)  Of the 14 percent increase, half has been accounted for by contributions to the school employees retirement system, PSERS. After that come the boosts to basic education funding, which is driven through the student-weighted formula in Act 35 of 2016 which we wrote about in a Brief this summer.

So maybe there will be political wrangling and deal-making between the Democratic executive and Republican-controlled legislative branches. The article mentioned that school building capital needs may be an area that gets increased attention.  If a decision comes in the William Penn v. Pennsylvania Department of Education lawsuit in the next few years, that could even raise the possibility of an executive-legislative-judicial conflict if the courts try to grant itself a role in determining how to spend basic education dollars.

 

Allegheny County’s mid-year pension performance

At the most recent meeting of Allegheny County’s pension board the members received the investment report for the period ending June 30, 2018.  The report shows that the total fund composite of investments stood at $915.5 million.  That is an increase from $894.1 million on June 30, 2017.  It is slight decrease from the $922 million reported in March.

The largest class of investments for the county are in public equities–U.S., non-U.S. and global–with just about 40 percent of the fund composite invested in these categories.  The remainder is divided between private equity, fixed-income, private real estate, public real assets, hedge funds and cash.  From June to June, the market value of total fixed-income, total private real estate and total public real assets increased in value while the other categories fell.

That is similar to the investment makeup of the City of Pittsburgh’s comprehensive pension trust fund that we wrote about earlier in 2018.  Whereas Pittsburgh’s pension ratio had a substantial upswing due to its pledge of parking taxes to the pension plans ($735 million in total annual payments through 2041) the county has not taken a similar action of that magnitude.

While we have made the recommendation that new public sector hires be placed into defined contribution plans, the reforms that were made by the county five years ago was to make changes to final average salary, overtime calculations, vesting period and length of service time in order to try and achieve savings.  The most recent valuation for the pension system was 55 percent funded with $1.555 billion in liabilities and $857 million in assets.

Port Authority’s 2017 performance

Mass transit performance and financial data for 2017 has been released by the National Transit Database.  The data for the Port Authority of Allegheny County show that, on all modes of transportation (bus, light rail, inclined plane and demand response) annual unlinked trips stood at 63.2 million.  That was a slight decrease from 2016’s total of 63.8 million trips (0.9 percent).

Fare revenues, which transitioned from zone pricing to a single fare, fell from 2016’s total of $101.8 million to $99.8 million (1.9 percent).

On the expenditure side, total operating expenses were $400 million, up from $397 million in 2016 (0.7 percent).  The largest component, salary/wages/benefits, stood at $301 million, up from $290 million in 2016.  The authority’s largest union is in the middle of a four-year contract agreement.

An Institute Brief from May analyzed the bus operating expense per vehicle revenue hour in comparison with other systems (a 62 percent difference).  In 2017 that figure fell for the Port Authority from $189.69 in 2016 to $187.02 (1.4 percent).  The database shows that, year-over-year, bus operating expenses fell slightly, the annual vehicle revenue hours increased as did the number of buses operated in maximum service.  Interestingly, even as the number of annual vehicle revenue hours increased the number of passengers fell slightly from the year earlier level.  It is doubtful that even with this slight decrease that the gap between the authority and the peer group has closed at all.

Land bank adds a dozen properties

At its board meeting this past week the Pittsburgh Land Bank considered a “request for transfer of properties” to add to its inventory which consisted of one parcel.  All of the properties the board deliberated upon at the meeting are owned by the City of Pittsburgh. All are vacant land with the exception of two that have structures and one of those is condemned and one is in poor condition according to the land bank summary of the properties.

A cross-reference of the parcel identification numbers with the Allegheny County assessment database shows that the assessed value of the parcels ranges from $400 to $39,000; combined the assessed value is $159,400 for all of the parcels.

Since the city owns all of the parcels, the properties are not currently producing property tax revenue.  At current millage rates for the three taxing bodies, $3,605 would be raised annually with $1,284 of that going to the city.

The purpose of the land bank is to get these properties onto the tax rolls; how long that will take is unknown.  At least two of the parcels have been owned by the city for a long time since 1948 and 1959.  It is a wonder why the city or one of its related authorities has not been successful in what is now the land bank’s goal.  How hard an attempt was made by the city prior to having a land bank is unknown.

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.

 

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.