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Pittsburgh: Financial and economic changes 2013 to 2018

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Summary: In several respects the financial situation in Pittsburgh made significant and important positive strides over the period 2013-2018. However, there are still substantial concerns about the city’s economic and financial structure. Debt outstanding is down but retirement benefit problems remain. Revenue gains and spending increases have outpaced employment gains. However, spending and revenues per resident are far higher than comparable cities and getting worse.

Audited numbers for 2019 will not be available for several months. An update of this report through 2019 will be forthcoming when the audited data are made available.

The Comprehensive Annual Financial Report (CAFR) for 2018 provides detailed statistics for spending and revenues and the balance sheet entries from 2009 to 2018 as well as estimates of the number of workers (resident and non-resident) on payrolls in the city. The Bureau of Labor Statistics (BLS) provides city labor force and number of residents employed figures back to 1990.

Employment and Labor Force

First, a look at labor force and employment data. Note that the average monthly labor force in 2000 was 156,650 and in 2018 stood at 156,476, virtually the same level after 18 years. In 2012, the labor force reached 160,000 but has since retreated, falling to 158,861 in 2013 and sliding further through 2018.  The non-existent growth in labor force is consistent with a flat, to slightly lower, population. Nationally, the labor force climbed 4.3 percent over the 2013-2018 period.

The number of employed city residents stood at 149,662 in 2000, the highest level of the 2000s until 2018. After 2000, employment of residents was quite weak in the 11 years before 2012 when a recovery period began and by 2013 the count had risen to 148,111. Over the following five years, resident employment crept slowly upward until 2018 when it rose to 149,994 (up 1.3 percent over the five years) and surpassed the 2000 level in 2018 for the first time during the 18-year period.

Nationally, household employment climbed 8.2 percent between 2013 and 2018, over six times faster than Pittsburgh. Better news for the city is that the improving trend continued in 2019. The city’s unemployment rate fell to 4.2 percent in 2018, its lowest level since 1990, and through October 2019 had fallen further to 4.0 percent.

Payroll employment data that count all the jobs in the city whether held by residents or non-residents is, and has been, much larger than the number of residents working. Indeed, there are twice as many payroll jobs in the city than city residents with jobs.  According to Pittsburgh CAFRs covering the 2000s, there were 325,318 jobs in the city in 2000. That count fell for a number of years and in 2004 had dipped to 301,671. Jobs began to grow slowly and reached 307,678 in 2013 and rose further to 311,881 (a 4,100-job increase, or 1.4 percent).  

It must be noted here that unlike the BLS household survey data for employed city residents there are no BLS payroll data for the city.  The job counts reported in the CAFRs are based on figures constructed by the city controller’s office.  That methodology is not explained in the CAFR. If the CAFR numbers are reasonably accurate, the city’s job total remains well below the 2000 level, unlike the residents-working count that in 2018 surpassed the 2000 number. Moreover, the CAFR measure is quite volatile year-to-year. Nonetheless, by either measure, there was some modest employment progress from 2013 to 2018.

Finally, it is important to bear in mind the city’s population fell by almost 30,000 between 2000 and 2010 to stand at 305,000.  This after 60 years of nearly continuous losses since 1950 when the population peaked at 676,806. With a 2010 Census population of around 305,000 the city has 16,000 fewer residents than the 321,000 in 1900—simply stunning.

Finances

As far city finances are concerned, they have improved somewhat between 2013 and 2018 with revenue gains outpacing spending growth by a five-year cumulative total of $239 million—measured on an accrual accounting basis in the table showing Changes in Net Position. From 2013 to 2018 revenue from taxes—measured on an accrual basis—grew from $399 million to $489.2 million, a 22.6 percent increase. All tax categories were up, with greater than 15 percent gains in all except the local services (11.8 percent) and Miscellaneous (6.7 percent). Still, the local service tax revenue, paid by those working within the city, rose much faster than the jobs reported in the CAFR grew (1.4 percent). Better collections perhaps or underestimation of employment?   In any event, tax revenues per resident climbed from $1,299 in 2013 to $1,624 in 2018, a jump of 25 percent as population fell by 4,000 to just over 301,000, according to the Census Bureau inter census estimate.  

It is important to bear in mind how Pittsburgh compares to other cities. To that end, the Allegheny Institute has constructed a benchmark city – a composite of Omaha, Charlotte, Salt Lake City and Columbus—to contrast Pittsburgh’s performance with others. For 2018, Pittsburgh’s per resident tax revenues were 70 percent higher than the benchmark city average (see Policy Brief, Vol. 19, No. 25).  In 2013, taxes per resident were 57 percent higher than the benchmark. 

The two largest sources of tax revenue, real estate and earned income, accounted for over 40 percent of the $90 million rise in tax revenue. The biggest percentage increase occurred in the deed transfer tax that climbed $16 million, an increase of 78.5 percent. An increase in the tax rate in 2018 played a significant role.  Payroll preparation and parking taxes accounted for another $21 million pickup in revenue. The RAD tax and amusement tax posted a 20 percent plus gain over the five years.

Note that the 20 percent increases in earned income tax and the payroll preparation tax are much greater than the 1.4 percent estimated rise in the number of workers in the city.  This gap points to significant gains in wages and salaries and proprietor incomes.

Meantime, revenues from government programs—fees, charges, licenses, etc.—were essentially unchanged over the five years, rising from $140 million to $143 million. Adding these revenues to the tax collections puts the total revenues at $539 million in 2013 and $632 million in 2018, still a $90 million plus increase but in percentage terms only a 17 percent rise compared to 22.6 percent for tax revenues.

Meanwhile, expenditures (accrual basis) during the 2013-2018 period climbed from $535.7 million to $580.5 million, a rise of $44.8 million (8.3 percent), a considerably smaller increase than revenues.  General government outlays were up $23 million, public safety was up $20.9 million and highways and street spending rose $17.2 million while sanitation outlays were up by $4.8 million. Two categories saw large expenditure cuts: economic development was cut by $9.9 million and interest payments were down by $9.7 million. Culture and recreation spending was down $1.5 million bringing total spending cuts to $21 million. These reductions provided a significant offset to the $65.9 million increase in the categories where spending climbed very rapidly.

Unfortunately, even with expenditure growth rising more slowly than revenues over the five years, an estimated drop of 6,000 residents combined with the expenditure pickup lifted the spending per resident to $1,925, a 10 percent increase compared to 2013’s per resident outlay of $1,751. The total 2018 spending per resident in Pittsburgh was 57 percent higher than the benchmark city average.

As for the city’s balance sheet, some notable changes occurred during the five years.  The CAFR for 2018 shows that as of December the city had a net negative position of $1.458 billion dollars.  In 2013, the reported net position was a negative $423 million and in 2014 negative $421 million. However, the government accounting rules were changed to require other liabilities including pensions that resulted in a restatement of the 2014 figure to $1.324 billion (as posted in the 2015 CAFR). In 2015 the net position as reported in the 2018 CAFR was a negative $1.291 billion. The restated 2013 figure is not available.  Thus, from 2014 to 2018, the net position worsened by $134 million and from 2015 is worse by $167 million.

The good news is that the city’s debt outstanding fell sharply from $575 million in 2013 to $406 million at year end 2018—a decline of $169 million or 29 percent. Unfortunately, net pension liabilities rose by $128 million and other post-employment benefits (OPEB) liabilities rose significantly as well to stand at $408 million up by over $300 million compared to the figure reported in the 2013 CAFR. Then, too, the accrued workers’ compensation liabilities in 2018 stood at $118 million.

The 2018 ratio of funds in the pension trust to liabilities was only 31.8 percent ($428 million to $1.347 billion), down from 32.6 percent in 2014. However, because the city has pledged $26 million in parking tax revenue through 2041 and is allocating $10 million in gaming tax revenue, the present value of those revenues is sufficient to put the actuarially determined asset to liabilities funding ratio above the 50 percent the state requires to avoid a takeover of management of the pension funds. Meanwhile, city employee payroll count has remained fairly flat at just over 3,300 and the covered payroll has been quite level at just over $200 million per year.  Including state pension aid of $21 million, Pittsburgh spent $116.8 million (does not count $12 million paid by employees) on pension and OPEB in 2018. However, the $116 million in taxpayer funds expended on retiree benefits amounts to 56 percent of the covered payroll.  The pension problem is not over and with no defined contribution plan in the offing; the city could eventually face another pension crisis and be forced to find additional funds for the pension plans.

The Parks Tax & Peduto’s games

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The Pittsburgh Parks Conservancy has spent about $714,000 in promotion of a Nov. 5 ballot referendum that would raise property taxes to fund the parks system.

While some have questioned the prudence of a group that’s been begging for money turning around and spending no small chunk of change to obtain tax dollars, there’s another, larger, question in play.

Here’s what will appear on Tuesday’s ballot:

    “Shall the Pittsburgh Home Rule Charter be amended to establish a dedicated Parks Trust Fund beginning in 2020 to improve, maintain, create and operate public parks; improve park safety; equitably fund parks in underserved neighborhoods throughout Pittsburgh; be funded with an additional 0.5 mill levy ($50 on each $100,000 of assessed real estate value); secure matching funds and services from a charitable city parks conservancy; and assure citizen participation and full public disclosure of spending?”

Of course, the question leaves some vital things up in the air, as usually is the case. Topping the list, as some opponents have noted, is how the money’s overlords, the city and the conservancy, formally would divvy up the proceeds.

Another issue is that catch-all but typically hard-to-define clause (on purpose?) “equitably fund parks in underserved neighborhoods throughout Pittsburgh.”

What, pray tell, does that really mean? Who defines “equitably”? Who defines “underserved”? And how? What metrics are to be gauged?

It long has been the practice du jour,  in most government jurisdictions, to write enabling legislation that enacts an adopted ballot referendum.

But, that said, the process leaves the door open for voters getting the kind of pig in a poke that they never intended. What kind of pigs will City of Pittsburgh voters find in their pokes post-Tuesday should the Parks Tax be approved?

An Allegheny County Common Pleas Court has struck three Pittsburgh gun-control ordinances for the simple reason that they are in contravention of state law.

Of course, the Peduto administration has developed something of a cottage industry of passing legislation either prohibited by state law and/or the city’s home rule charter.

That has led to a number of lawsuits, defeats, appeals, defeats and then finding (or hoping to find) a sympathetic “progressive” majority on the Pennsylvania Supreme Court to, and in circuitous (if not tortuous) fashion, rule that we should pay no attention to the rule of law behind that curtain.

And in true fashion, Peduto & Co. say they’ll appeal the latest court rebuke. The mayor has vowed to take the issue to the U.S. Supreme Court if necessary. As the fictional cartoon dog Astro might say, “Rots o ruck rif rat run!”

Peduto acolytes like to remind that, in this case, taxpayers are not on the hook for the legal challenge; some legal eagles are doing the work gratis. But there’s still a steep cost.

The scheming still clogs the courts with debate on an ordinance that relied on the dishonesty of parsed phraseology, one that blows raspberries at a prohibition that clearly says what it means and means what it says.

Judge Joseph M. James called out the city for that very machination; Peduto claims James is tone-deaf to nuance. Please.

Were Peduto & Co. sincere in their efforts, instead of the politically expedient grandstanding in which they’ve been engaged, they’d be lobbying the Legislature to consider amending what’s known as the commonwealth’s “pre-emption” law.

But knowing that won’t happen, they continue to play children’s games.

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

PA’s overtime over-reach

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Summary: Governor Tom Wolf is proposing to raise the amount salaried workers can earn and still qualify for overtime pay from the current federal base of $23,660 to $45,500.  This new regulation just adds to the burden Pennsylvania businesses already face and could have a detrimental effect on the state’s economy. ____________________________________________________________________

In early October, Kiplinger’s magazine rated Pennsylvania as one of the least-tax-friendly states in the country, ranking as seventh worst.  While Kiplinger’s methodology can be debated, those of us living in Penns Wood are all too familiar with a high tax climate that continues to stymie job creation. 

But what rarely gets mentioned in the media is the burden businesses face due to high-cost regulations coming out of Harrisburg.  Governor Wolf recently rolled out another one, seeking to change the overtime rules which businesses must follow regarding salaried employees.

In a Pennsylvania Department of Labor and Industry news release, the governor’s plan will “expand eligibility for overtime to 143,000 people and strengthen overtime protections for 251,000 more.  In total, 394,000 workers may benefit from the updated overtime rules.” 

The issue is to define the maximum salary level for which a worker qualifies for overtime pay, which is typically time-and-a-half.  The current level, set by the federal government, is $23,660 per year, meaning that any salaried worker earning up to $23,660 per year is eligible for overtime pay.  The federal government is set to increase that threshold by 50 percent on Jan. 1, 2020, to $35,568 and, of course, the commonwealth will follow suit. 

The governor is proposing to raise that threshold even further to $45,500 by 2022—92 percent over the current level. 

According to a Pittsburgh Post-Gazette (PG) report, the new state regulation will not apply to “public employees, including those at state-affiliated entities, counties, municipalities and public-school systems”—just private employers. 

As mentioned above, by going beyond the new federal mandate, the state estimates that 143,000 people will now be eligible for time-and-a half and more clearly defined rules will be in place for 251,000 more workers—apparently, as the news report clarifies, there are those who may qualify for overtime but weren’t aware they could.  So, the new regulation is estimated to immediately affect 394,000 workers. 

Over the last decade (2009-19) the commonwealth’s job growth has failed to keep pace, not only nationally, but with neighboring states as well.  In September 2009, the beginning of the recession, total non-farm jobs in the state were 5.6 million and by September 2019 (the most recent non-seasonally adjusted data available) had climbed to 6.07 million—a rise of 8.4 percent.  The national non-farm growth came in at nearly double Pennsylvania’s increase (16.4 percent). 

Bear in mind that Pennsylvania’s economy was not hit as hard by the recession as some of the fast-growing states because the over building of construction and sub-prime mortgage debacle had less of an impact in the commonwealth.  So its weak performance since 2008 is even more telling. Neighboring states Delaware (13.2 percent), Maryland (10.0 percent), New Jersey (8.5 percent), New York (15.4 percent) and Ohio (11.1 percent) all out-grew Pennsylvania over the last decade.  However, West Virginia lagged well behind (3.3 percent). 

Interestingly, in the Kiplinger’s ranking of tax-friendly states both New York as third worst and New Jersey as fifth worse had higher tax burdens than Pennsylvania (7th). Meanwhile, Ohio was slightly better at eighth worse. Yet all three states had better non-farm job growth than Pennsylvania over the last 10 years. 

According to the PG report if the governor’s proposal is put into effect, the $45,500 threshold would put the state “on par with the highest thresholds, including California, New York and Alaska.”  Each has significantly higher average wages compared to Pennsylvania.  This would put Pennsylvania at a further economic disadvantage with the majority of its neighbors and other business-friendly states in its efforts to convince new businesses to locate in the commonwealth. That could incentivize some to leave.  

While the political rhetoric of helping “the working people” of Pennsylvania makes for a nice sound bite, there are unintended consequences of such a mandate.

As mentioned above, this will only apply to private firms, not public employees, including those at state-related entities, counties, municipalities and public-school systems.  Does the phrase “state-related entities” cover the public colleges in the Pennsylvania State System of Higher Education and the larger state and state-related universities such as Penn State and Pitt? 

This mandate would lead to a lot of screaming from some private schools, especially small, financially shaky ones.  This clarification was likely done to let voters know that taxes will not go up to cover the anticipated labor cost increases had government been covered under the mandate.  For affected firms, costs—direct costs of paying overtime to the expanded employee base as well as indirect compliance costs—will increase. 

How will private firms react?

Some firms will be able to pass along the higher costs to their customers through price hikes.  Others who are forced to internalize those costs will resort to cuts, either to hours worked, jobs or other benefits currently enjoyed by employees.  They may forego hiring new employees and instead rely more on those they have chosen to keep and pay.  These are the seen consequences. 

One of the unseen consequences could be a lack of advancement for an employee.  Employees who jump from hourly to salaried are often on a management track which could lead them to greater salaries down the road, either with the current firm or another.  This mandate could take that opportunity away from workers or push it further down the road, perhaps suppressing wage growth.   

Imposing yet another costly mandate on Pennsylvania businesses will further hamper job growth.  Considering how anemic growth has been over the last decade when compared to the national pace and neighboring states, Pennsylvania can ill afford to go down this path.  If nothing else, it sends a message to any firm thinking of moving to Pennsylvania that the government is happy to help run their business.  And that could be enough to keep them away, further hindering the state’s economy.

Regional Greenhouse Gas Initiative is wrong for Pa.

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Summary:  Gov. Tom Wolf has announced plans to have Pennsylvania join the Regional Greenhouse Gas Initiative (RGGI). He wants to use the proceeds from its cap-and-trade program to fund his $4.5 billion “Restore Pennsylvania Infrastructure” initiative. But Wolf ‘s desire to join RGGI seems to be more about imposing a carbon tax and little to do with actual environmental concerns. A closer look at RGGI reveals that the cooperative is more of a taxing entity and less of the environmental proponent it claims to be.

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The RGGI is the first mandatory “market-based” program in the United States to implement a cap-and-trade regimen aimed at decreasing greenhouse gas emissions. Initially 10 states—Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, Vermont and New Jersey—joined in January 2009. New Jersey left the cooperative in 2011 but will rejoin in 2020. The RGGI sets the emissions cap for all states within the cooperative.

RGGI rules require fossil-fueled electric power generators with a capacity of 25 megawatts (MW) or greater to buy allowances equal to their carbon dioxide emission caps. RGGI Inc., the group responsible for overseeing the program, determines the cap and each plant must purchase allowances to equal its carbon dioxide emissions over a three-year compliance period. Each state sells the emissions allowances via auctions and is supposed to invest the proceeds in energy efficiency, renewable energy and other consumer-benefit programs. Currently, 165 facilities are governed by RGGI emissions allowance rules.

RGGI has several key features: three-year compliance periods, emission allowances, emissions auctions and cost-containment procedures. Each state is responsible for ensuring compliance.  RGGI Inc. has no enforcement powers.

The specific carbon dioxide cap is in place for a three-year period. The goal is to offset price fluctuations caused by short-term market volatility. RGGI distributes 80 percent of allowances at quarterly auctions. Each state is responsible for implementing these auctions.

RGGI mandates a price floor for the emissions allowances. It determines the lowest price that an allowance can be sold for (i.e. in 2008 the price floor was $1.86 per allowance; in 2019 the price floor was $2.26 per allowance). RGGI permits emission allowance banking, allowing facilities to save allowances for future use in order to prevent potential allowance price volatility.  Facilities are also able to sell their unused allowances on secondary markets.

However, in 2014 a cost-containment program was established so that reserve allowances can only be sold if the prices exceed the predefined price levels. In effect, the facilities are only able to sell if emission reduction costs are higher than projected. Each year the cost-containment reserve price will increase by 2.5 percent through 2020.  

This is anti-market at best.

In 2017, seven RGGI states (Maine and New Hampshire declined to participate) added an emissions containment reserve (ECR) program. Beginning in 2021 the RGGI will use a trigger price of $6/ton (to rise 7 percent per year after) as a mechanism to manipulate the secondary market.  It will force states to withhold emission allowances to keep them from being resold, unless the secondary market price is greater than the trigger price, thus, effectively lowering the cap.

RGGI maintains that its cap-and-trade program is market-based.  But the mechanisms it uses—such as setting a minimum price called the “reserve price” and other market interventions like “cost containment reserve” and “emissions containment reserve” —are not characteristic of free-market mechanisms. Given the complexities of the program, one wonders—why not tax electricity use to deter consumption rather than going through the elaborate auction and cap-setting process?   

RGGI’s success and effectiveness are questionable. A very conspicuous failure of the program occurred in 2009 when RGGI’s cap exceeded actual emissions.  In 2009 actual emissions were 44 percent below cap emissions.  Which meant RGGI effectively did nothing to decrease emissions, only taxing them. The first emissions cap from 2009 to 2014 used assumptions based on 2005 emissions levels under the erroneous assumption that emissions would rise from that level and, as a result, set the cap far above actual emissions.

During the 2009 to 2014 period, carbon dioxide emissions decreased in large part due to a move to less-carbon-intensive fuels (i.e. natural gas replacing coal) and the economic downturn.  In 2012 the program was amended; a revised lower cap was established in order to be more effective following the “failure” of the first cap. The new cap—which went into effect in 2014—was 45 percent lower than the original level in order to match actual emissions.

The second review in 2017 required the 2012 cap to be reduced by 2.5 percent per year through 2030. Note that from 2009 to 2016 (the most recent data available) emissions in the RGGI states stay below the emission cap. During 2009, RGGI’s first year of implementation, emissions were 44 percent below the cap. In 2012 the cap was lowered but emissions were still 44 percent below the cap. In 2014 after the cap was decreased by more than 50 percent from the original level, emissions were still 5 percent below the cap. In 2016, the most current data available on emissions, emissions in the RGGI states were 8 percent below the 2016 cap.  

Only by setting an artificial price floor could the system work in a situation where supply exceeds demand.  Moreover, the scheme is little more than a tax-revenue generator as emissions have fallen below the cap-constrained market.  So much for having an impact on the environment.

In a news release this year announcing New Jersey has rejoined the program, RGGI Inc. also touted the public health benefits of the program.  It claims avoided asthma attacks and lives saved.  But according to the Center for Disease Control and Prevention (CDC), Pennsylvania’s percentage of adults with asthma (10.1 percent) is lower than all the current RGGI states except New York (9.2 percent).  Pennsylvania’s death rate of 8.7 deaths per million persons from asthma is lower than the four RGGI states with data reported on these deaths (New York, Maryland, Connecticut and Massachusetts).   

That same news release also noted that “net benefits to the RGGI states’ economies (are) on the order of $4 billion.”  The nine states currently in the program had a combined GDP of $3,250 billion ($3.25 trillion) in 2018 (quarterly average).  Thus $4 billion represents a mere 0.12 percent of that total—hardly a statistically reliable benefit.

To date there have been 43 state auctions totaling $3.2 billion in proceeds. From 2008 to 2016 states used auction revenues for the following purposes:  50 percent to energy efficiency; 19 percent to energy bill-assistance; 7 percent to greenhouse gas abatement; 4 percent to renewable energy projects; 6 percent to state budget reduction; 4 percent to state administration costs; and one percent to RGGI Inc. for program implementation.

However, there is no explanation for the remaining 9 percent (of the $3.2 billion). Where does that 9 percent go?

The 19 percent allocated to bill-assistance reflects the need to provide “rebates” for the increased cost of electricity due to the requirement of electricity generators to buy emission allowances. Proponents of RGGI argue bill-assistance programs are needed to offset increased costs.  But even if it is distributed to customers, it is only for those with incomes low enough to qualify.  The rest of the customer base is left with increased energy bills, including businesses.

While RGGI maintains that auction proceeds should be used to promote energy efficiency, bill-assistance and renewable energy projects, the reality is very different. Both New York and New Jersey used RGGI proceeds to help pay down state deficits. This underscores the point that environmental concerns can be, and are being, used as pretext to garner support for taxation and government revenue.

By levying an additional cost on electric power generation, the price of electricity is artificially driven up and passed on to consumers, especially businesses. Consumers face increased utility costs and additional costs due to secondary effects of higher energy prices.

Business growth, especially in the manufacturing sector, which relies on large amounts of energy, will be hampered by increased energy prices resulting in job losses. In “A Review of RGGI” by David T. Stevenson, of the CATO Institute, concluded that RGGI state electric rates created a 35 percent reduction in energy-intensive industries (primary metals, food processing, paper products, petroleum refining and chemicals) and a 13 percent decrease in the overall goods-production sector. For comparison, Stevenson looked at five non-RGGI states (Illinois, Ohio, Oregon, Pennsylvania and Texas) and found that they had only a 4 percent decrease in energy-intensive industries and a 15 percent increase in goods production.

The CATO report also found increased electric rates in RGGI states. Using the weighted average nominal electricity revenue for multi-state groups, Stevenson found that from 2007 to 2015 electricity prices in RGGI states increased by 64 percent more than in the non-RGGI sample states. The review also found RGGI’s mandated allowances added $11 million a year to Delaware’s electric bills and $28.5 million for indirect costs due to RGGI rules.

Pennsylvania has experienced an impressive reduction in carbon dioxide emissions in recent years without joining RGGI. Natural gas, which emits less carbon dioxide than coal, has largely replaced coal as the leading fuel for electricity generation in the state. The EPA’s data for Carbon Dioxide Emissions in Pennsylvania showcases the extraordinary results: carbon dioxide emissions in the state from 2000 to 2016 fell by 26 percent.

Keep in mind the emissions data includes all emissions from fossil fuel combustion statewide and not just the electric power generators that RGGI would affect.  Pennsylvania has reduced carbon dioxide emissions through market solutions and without the tax burden that RGGI would levy.

The increased energy prices for taxpayers, loss of jobs due to mounting energy costs and second-order effects resulting from higher electricity costs are strong arguments against joining RGGI. Joining RGGI would be an ill-advised decision that would undermine much of the economic and environmental success the state has enjoyed in the last decade thanks to natural gas production in the electricity market.

The Rivers Casino after 10 Years

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Summary: In August 2009 the Rivers Casino had a long-over-due grand opening.  After a tumultuous start, it gained its footing and recently celebrated its 10th anniversary.  We have documented the casino’s performance over the years and, in this Policy Brief, offer a summary of its 10-year performance versus expectations.

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Gaming in Pennsylvania was legalized in 2004 when the state passed legislation allowing slot machines at horse racing tracks along with a few stand-alone casinos.  The first casino, Mohegan Sun at Pocono Downs, began taking wagers in November 2006. 

The fight for Pittsburgh’s stand-alone casino was documented in a series of Policy Briefs (Vol. 6, No. 11, Vol. 8, Nos. 27 and 48 and Vol. 9, Nos. 42 and 59).  There were questions about where the new casino would be located as three potential owners pitched their ideas for locations at Station Square, Uptown and the North Side.  The North Side was selected but the initial license recipient didn’t have the capital to complete the project (known then as the Majestic Star) and had to sell a majority stake to another investor.  The renamed and long delayed Rivers Casino had its grand opening in early August 2009.  

Even before it opened, there were grounds for being skeptical of revenue projections for the new casino.  Before the first slot machine wager was placed, ownership projected gross terminal revenues (GTR)—the amount of money wagered—would be $427.8 million annually.  The state Gaming Board’s estimate came in at $362 million for the casino’s first year.  Neither estimate was close to being correct.

And 10 years later, those estimates remain well above actual revenues. In its first 12 months, August 2009-August 2010, the Rivers took in just $222.3 million—an average of $4.3 million per week.  To reach management’s projections, the casino would have had to generate $8.2 million per week—almost twice as much as the GTR realized that first year.  

To put it in perspective, the only casino in the state that came close to realizing $8 million per week is Philadelphia Parx with a weekly average of $7.3 million over the last decade. The Rivers’ weekly revenue has improved and over the last 10 years averaged about $5.2 million. 

On a calendar-year basis, in its first full year (2010) the casino earned $242 million in GTR.  Of the nine casinos operating during the entirety of 2010, the Rivers’ GTR was sixth best—topping only the casinos at Mohegan Sun, Mt. Airy and Presque Isle.  The Rivers also finished behind neighboring Meadows Casino ($249 million) that first year. 

Annual revenues from slot machines gradually improved, reaching their highest yearly level to date at $284.3 million in 2013 before sliding back to $265 million in 2016, the lowest amount since 2010, and then rebounding to $281.4 million in 2018.  Keep in mind, of course, that the casino has failed to live up to the projections of either the Gaming Board or its own, even 10 years after opening.  However, of the 11full-sized casinos across the state, the Rivers typically finishes third in annual GTR behind only Philadelphia Parx and the Sands Bethlehem.

But these revenues are only from slot machines.  In 2010 Pennsylvania casinos were able to offer table games for the first time and the Rivers added them to the gaming floor.  Would this addition help push total revenues over the initial projections from just slot machines?

The first full calendar year of table games was 2011.  That year the Rivers realized $67.5 million in gross revenue from the table games. From 2011 to 2018 the annual table game revenues ranged from a low of $65.8 million (2017) to a high of $76 million (2018) with a yearly average of $69.6 million over the period 2011 to 2018. The Rivers casino had the fourth best table game revenue of any of the full-sized casinos.

Still, even when combined with slots revenues, the highest revenue year was in 2018 when gamblers played $357.4 million—slightly less than the Gaming Board’s prediction of $362 million but well short of casino management’s estimate (both were based on slots only and for the first year).  The lowest revenue total was collected in 2016 ($334.2 million) while the 2011-2018 average was $346.1 million. 

However, it is important to keep in mind these are not profits but only gross revenues.  Payouts and expenses must be accounted for before profits can be realized.  As Policy Brief, Vol. 10, No. 53 noted,table games require greater expenditures per dollar of revenue than slot machines.  Each table game requires several employees to operate and their salaries and benefits consume a significant portion of gross revenues, whereas only a handful of people could be responsible for maintaining dozens of slot machines each day. 

So, has the Rivers Casino been a “success” during this first decade?

It depends on how it is viewed.  The casino has met its civic obligations, which at the onset was in doubt.  This includes providing the annual $7.5 million payment to retire the debt on the new hockey arena and paying millions to government in both state and local share taxes. 

But it has not done much to aid the Pittsburgh region’s economy, at least in terms of jobs.  It has employed people in the leisure and hospitality sector, but it is not clear these are net new jobs added to the economy.  Total non-farm employment growth in the Pittsburgh metro area from July 2009 to July 2019 was just 6.2 percent. The growth of non-farm job levels at the state (8.3 percent) and nation (16 percent) outpaced the local level. 

Bear in mind, however, that much of that growth was a rebound from the low level reached in the recession year of 2009.  Indeed, private-sector jobs from the pre-recession level in July 2008 are up only 44,700 or 4.4 percent and 25,000 of those have occurred in the last three years after averaging a mere 2,500 per year from 2008 to 2016. Meanwhile, leisure and hospitality jobs in the Pittsburgh area have risen by 16,000 since July 2009 but 10,600 of those were in accommodations and food services, all fairly low-paying jobs. Arts, recreation and entertainment account for the other 5,400 jobs gained but that category includes museums, sports teams, concert halls and movie theaters in addition to casinos.

If the Rivers Casino was going to boost area job growth, it would certainly have occurred in the first seven years of operation.

In sum, there is little evidence to indicate the casinos (Rivers, along with the Meadows and the resort-based Lady Luck at Nemacolin) had a significant impact on job growth in the metro area. 

Also, it helps to remember that for every dollar spent by area residents on gambling at a casino, is a dollar that was not spent on other goods or services, be they necessities or luxuries, at area businesses.  And casinos have not been much of a draw for gamblers from out of state as our closest neighbors, Ohio and Maryland, legalized gaming not long after Pennsylvania.  West Virginia, where gaming was already legal, added table games to keep pace.  In fact, the gaming arms race has been in full force as the next level of gaming, legalized sports betting, has been available in Pennsylvania since late 2018.  The other states are likely to follow suit. 

One thing is certain: gaming is now part of the fabric of Pennsylvania’s economy and the Rivers Casino is part of the Pittsburgh landscape.  The economic impact of gaming on the Pittsburgh area, and the state, will be debated and we will continue to monitor it.

What’s in store for police regionalization?

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Summary: Cheswick Borough and Springdale Township in Allegheny County have opted to dissolve their individual police departments in favor of consolidating their resources into a regional police force—the Allegheny Valley Regional Police Department (department). In April 2019, municipal leaders approved the proposed collaboration with July 1 as the start date.

A study of the department was conducted by the Governor’s Center for Local Government Services (LGS) and delivered to the municipalities in October 2018. It noted Article IX, Section 5 of the Pennsylvania Constitution provides the basis for police cooperation and consolidation. Regional policing is an option for municipalities that have difficulties providing a full range of service to meet increasing demand. Other alternatives include contracting to another municipality or relying on state police.

Based on data from the state Department of Community and Economic Development (DCED), most municipalities in Allegheny County have their own police force.  Three are covered by state police and 16 contract out to another municipality and one to the county. Cheswick and Springdale Township’s formation of the department is the second regional police force consolidation in Allegheny County since Northern Regional was established in the late 1960s by three municipalities (a fourth joined in 2006). Statewide, 122 municipalities are part of a regional police force.

Municipal Police Service, 2019

The study outlined data on the municipal departments involved in the then-prospective consolidation, which it affirmatively recommended. 

The study noted advantages of regional policing including improvement in uniformity and consistency of enforcement; coordination of law-enforcement services; recruitment, distribution and deployment of police personnel; training and personnel efficiency; management and supervision; career enhancement opportunities and in reducing costs. Disadvantages of consolidating services include loss of local services; loss of local control; loss of citizen contact and loss of personnel rank. In a 2014 report by the Pennsylvania Legislative Budget and Finance Committee (LBFC) on police consolidation, loss of municipal control was the main obstacle identified in forming regional police departments with labor issues close behind.

The study indicated that Cheswick’s and Springdale Township’s populations (1,746 and 1,615, respectively) were similar. Collectively, the municipalities cover a 2.95 square-mile area with a population density of 1,139.3 occupants per square mile. Full-time police totaled three with a police chief in Cheswick, two officers in Springdale Township and between seven and 13 part-timers providing coverage as well in both municipalities.  No civilians performed clerical functions. Police costs stood at $324,945 in Cheswick and $373,364 in Springdale Township, totaling $698,309. Not included in the study was that both police pensions were well-funded and that the neighboring communities were moving toward cooperative fire protection. 

Regarding crime, the study documented Part I Offenses (serious crimes such as homicide, robbery, aggravated assault, auto theft and arson) and Part II Offenses (less severe crimes that do not include wrongdoings, such as moving traffic or parking violations). In 2016, the two municipalities’ crime rate per 100,000 residents averaged to 684.32 and 2,969.81 for Part I and Part II offenses, respectively, which were lower than state averages.

Based on a police force with a chief, two full-time officers, and four part-time officers, a proposed full-year operating budget was estimated at $499,998. In a letter sent to residents of Cheswick in March 2019, it was stated that the municipalities would fund the department on a 50-50 basis.  The letter estimated the borough would be required to pay $233,258, which would be approximately $90,000 less than 2018 budgeted police expenditures.  A news article noted the savings in Springdale Township would be $130,000 per year—representing 28 percent and 37 percent of municipal police budgets, respectively.

The official budget for 2019, adopted in June 2019 with staffing of a chief, a patrol officer and six part-time officers, was $449,839, or $224,919 per municipality. In order to cover the remainder of 2019 (July to December), total expenses of $238,583—$119,291 per municipality—were approved.  This includes payroll of $134,709 (56 percent), taxes and insurance totaling $57,914 (24 percent) and vehicle costs of $17,250 (7 percent).

The Allegheny Institute has advocated for service consolidation (along with mergers and privatization) to be explored and encouraged in order to save taxpayer dollars. Not all consolidations go forward—a proposed regional force involving Sharpsburg, Aspinwall, O’Hara and Blawnox was not recommended because it would have meant higher costs.  Another in the Mon Valley is currently being studied.

The LBFC report found that a sample of regional police departments cost approximately 25 percent less than stand-alone departments but some had increased costs in initial years after formation. As such, residents of Cheswick and Springdale Township ought to keep a vigilant eye to see if the savings occur and ultimately translate into lower taxes.

Although intergovernmental cooperation can be complicated, the study indicated that, in this case, the benefits outweighed the challenges. As the department continues in operation, the Institute will monitor the consolidation to see if it works as planned and the savings materialize as projected. 

Pittsburgh’s costly and counterproductive sick leave law

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Summary: The Pennsylvania Supreme Court has upheld a City of Pittsburgh’s ordinance requiring private employers to offer paid sick leave to full- and part-time employees. But the mandate likely will impose significant costs on businesses, many of which already operate on thin margins.  There also are serious questions about the efficacy of the measure’s stated goal of improving the public health.

Effective Jan. 11, 2016, the City of Pittsburgh’s “Paid Sick Days Act” (Title VI, Article VII, Section 626, of the Code of Ordinances) required private employers to provide paid sick time to full- and part-time workers.

“The ordinance is intended to improve the public health by ensuring that employees can use accrued time when they (or their family members) are sick,” a city overview of the policy states.

All employees who work within the geographical boundaries of the city are covered. Those not covered are federal and state employees; independent contractors; construction workers in a collective bargaining unit and seasonal workers employed for 16 weeks or fewer who have been notified in writing at the time of hire of their start and end dates.

Per the ordinance overview, one hour of sick time is accrued for every 35 hours worked, up to 40 hours per year (five days) if their place of work employs 15 or more people, and up to 24 hours per year (three days) if their place of work employs fewer than 15 people and only accrue unpaid sick time in the first year after the effective date.

Challenged by the business community, both Allegheny County Common Pleas and the state Commonwealth courts struck down the ordinance as being barred by the state’s home rule charter law. But the state Supreme Court, in a 4-3 ruling on July 17, upheld the law in what one dissenting justice called a “circuitous” spate of legal rationalizing.

That said, the validity of the ordinance now is a case of settled law.

Sans any legislative action to amend the home rule charter law to disallow any municipalities from enacting regulations not expressly permitted by the state—that is, minus any legal wriggle room that invites judicial contortions—the practical challenges and effects of the sick leave ordinance now must be dealt with.

And those are as myriad as they are problematic.

As now-Allegheny Institute President-emeritus Jake Haulk detailed when the ordinance first was proposed in 2015 (Policy Brief Vol. 15, No. 35), mandatory paid sick leave represents “added regulatory costs (that) will hasten the demise of (small, start-up businesses) that might have otherwise made it and grown into a business that could offer, on its own volition, paid sick leave.”

Furthermore, asked Haulk:

“How does the city know if a certain business with 18 employees can better afford the greater paid leave requirements than other businesses with 14 employees?

“This is government hubris at its absolute worst. Businesses with plans to boost hiring beyond the 15-employee level might well ditch the plans because of the escalation in paid leave benefits for all its employees.”

Additionally, prices could be forced up or affected businesses could be forced to move outside city limits.

Enforcement and fairness are other tricky issues. Some employers might find it cheaper to pay the $100-per-offense fine than offer paid sick leave. Sanctions against employees who abuse the sick leave law are left to the employer.

Thus, the sick leave bill “is not fair, is anti-business and amounts to paternalism at its worst,” Haulk said.

Aside from what Haulk later noted (Policy Brief Vol. 17, No. 6) was government taking “upon itself the power to impose political or social desiderata on businesses,” there’s an even more troubling question regarding mandatory paid sick leave:

Does it improve the public health? A 2014 study suggests not.

The Freedom Foundation, a Washington state think tank, evaluated what it said were 10 of the most important and widely cited studies from both supporters and opponents of mandatory paid sick leave.

Not only did it conclude there were consistent “moderate negative consequences for affected businesses … such laws do not produce the benefits promised by supporters.”

“Government sick leave mandates even fail to prevent employees from coming to work sick, ostensibly the most basic goal of such requirements,” concluded study author Max Nelsen.

“Critically, no evidence indicates that paid sick leave regulations noticeably reduce presenteeism,” he continued. “If the policy fails to achieve a reduction in the frequency of employees coming to work while sick, then all of the public health justifications offered by labor activists, however persuasive, are invalid.”

As Haulk noted four years ago, Pittsburgh’s sick leave bill offers a “profound insight into an ideological wasteland in which the state and its big cities are immersed.”

If not its highest court, it must be added.

Train drain & a PNC payback?

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There’s talk of attempting to improve passenger train service between Pittsburgh and Altoona. But it’s difficult to imagine the effort would fare any better than it did over a two-year span 35 years ago.

That’s when the Pennsylvania Department of Transportation (PennDOT) subsidized Amtrak with $547,000 in public money. But the service attracted only 30 or so daily passengers. The plug was pulled in 1983.

As the Post-Gazette’s Brian O’Neill recently reminded, that $547,000 would be $1.4 million in today’s dollars.

PennDOT now will spend $200,000 on a private consultant to gauge demand along the 117-mile route. Amtrak’s Pennsylvanian takes just under 3 hours to make the trek. One can drive to Altoona from Pittsburgh in just under 2 hours.

And lest one forget, it takes a painfully long 5 ½ hours to Amtrak it between Pittsburgh and Harrisburg. It’s a 3-hour drive.

The train consultant claims there surely must be greater demand these days along the Pittsburgh-Altoona corridor because of what she described to the P-G as a “passenger rail renaissance” in eastern Pennsylvania.

Never mind that rail always works best in the most densely populated areas, not in the largely rural western half of the Keystone State.

It’s never been good public policy to throw good money after bad. But, sadly, government officials keep doing their darnedest to do so.

PNC Financial Services has sold its 185-room Fairmont Pittsburgh hotel in downtown Pittsburgh for $30 million. The buyer is Xenia Hotels and Resorts, based in Florida.

The hotel was incorporated into the heavily taxpayer-funded 23-story Three PNC Plaza, of which the hotel took the top 10 floors.

You might recall that the project cost $178 million to build. But taxpayers subsidized construction with $48 million. There was $30 million from the commonwealth and $18 million in tax-increment financing.

Of course, taxpayers never should have been turned into venture capitalists for this or any other such project. And it was a particularly galling situation, considering it was a giant and most profitable banking corporation constructing the complex.

All that said, it should strike reasonable people as apropos to expect at least a modest return on their 10-year-old “investment.” After all, one can assume PNC is turning a profit on this deal. (Conversely, if it’s not, tax dollars were conscripted to help underwrite a very suspect deal.)

Interestingly, back in 2006, Bill Peduto, now the mayor of Pittsburgh, was the only member of City Council to oppose the such corporate wealthfare for the banking behemoth. PNC didn’t need the help, he said then. No kidding.

We should all trust that Mayor Peduto now will spearhead the effort to return some of the profit that PNC made on the backs of taxpayers to those taxpayers.

Yeah, right.

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

Weekend essay: ‘Spring’ cleaning

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Spring arrived just the other day; it came into the world in the usual way – with great ambiguity.

Indeed, we are in both meteorological and calendar spring now. And the bulbed flowers — most not merely peeking above the soil line but shouting “We’re baaaack!” – are the most manifest affirmance.

But as more often than not can be the case, winter can be the loath-to-leave dinner guest we grow to loathe. Just ask the gardener itching to work some soil in a March that came in like a lion with few lamb-like proclivities to be found.

Thus, Project Raised Bed Reconfigurance is on temporary hold. After all, it’s darn difficult to move snow-covered frozen dirt. And it’s just as difficult to move bed frames that are frozen solid to the ground, no matter the persuasion of sledge hammers, handles short or handles long.

So, a good ol’ fashioned spring cleaning has commenced inside. Oh, the “finds” and, oh, the exclamations of “Why this was saved is beyond all rational thought.”

To the former, elder daughter Taylor’s little-girl rocking chair was rediscovered, covered in dark plastic and tucked underneath the basement steps for at least 27 years.

And then, there was the dust-covered old garbage bag. Inside, the wooden baby carriage in which many a doll baby (if not a few pet cats) enjoyed many a ride. She’s been reunited with both treasures.

To the latter, that garbage bag of old clothes inducted into the Rags Hall of Fame, closed tight with its red plastic tie, appeared to have last been opened the day it was first closed.

A review of the contents affirmed as much. Think of, among other things, a pair of pants with a waist size that mocked “Of course, they still fit me” credulity now, let alone two decades ago.

Assorted odds and ends rounded out the basement spring cleaning spree. Seven large garbage bags all told were lugged through the basement door, out to the garage and out back to await “garbage night.”

And how sobering it was to have to clear away a heavy layer of snow just to get those bags to the curb on the second day of spring.

Poet Samuel Taylor Coleridge once wrote of the Lake District in Northwest England that “the spring comes slowly up this way.”

Over this way, too, Sam. Over this way, too.

Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).