Allegheny County’s household employment lagging

Summary: As 2020 began, Allegheny County Executive Rich Fitzgerald touted the economic performance of the county since 2000.  As noted in late 2019, an Institute Policy Brief (Vol. 19, No. 44) reported that the seven-county Pittsburgh Metropolitan Statistical Area’s employment growth has fared quite poorly recently compared to similar-sized metros. Allegheny County makes up about half the population of the seven-county region.

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The Policy Brief findings were based on surveys of employer payrolls. These surveys cover only metro areas and do not report data by county. However, U.S. Bureau of Labor Statistics does collect household employment and labor force data at the county level through phone surveys.   

In the earlier Brief, the Pittsburgh metro area was compared with the Charlotte, Cincinnati, Cleveland, Indianapolis and San Antonio metro areas. This Brief looks at household employment data for the counties that host the cities for which the metro areas are named. They are Mecklenburg, N.C. (Charlotte), Hamilton and Cuyahoga, Ohio (Cincinnati and Cleveland), Marion, Ind. (Indianapolis) and Bexar, Texas (San Antonio).  Additionally, this study will include the performance of the nation and state. 

Household employment for Allegheny County in 2000 stood at 612,461 people (all figures are the 12-month average for the year cited).  In 2019 employment had increased to 625,287—a rise of 2.1 percent. In the sample of counties, it ranks as fourth best ahead of Cuyahoga (-11.4 percent) and Hamilton (-1.4 percent), but well behind Mecklenburg (57.5 percent), Bexar (45.7 percent) and Marion (7.8 percent).  Nationally household employment rose 15 percent and Pennsylvania’s count moved up 6.5 percent. 

The first decade of the new millennium ended just as the deep recession was drawing to a close with four counties having lower household employment in 2010 than 10 years earlier (Allegheny, Cuyahoga, Hamilton and Marion).  Pennsylvania also saw a drop while nationally household employment posted a very small 1.6 percent gain.  Meanwhile, Mecklenburg and Bexar (16.4 and 18.4 percent, respectively) recorded solid growth. 

With a rebound from recession levels and ongoing strong gains in recent years, the national household employment count climbed 13.2 percent between 2010 and 2019 while Pennsylvania posted a 6.5 percent rise. Unfortunately, Allegheny County, at 6.4 percent, trailed well behind the national gain and managed to surpass only Cuyahoga’s 1.8 percent. Allegheny’s growth fell far behind Mecklenburg (35.3 percent), Bexar (23 percent), and Marion (17.7 percent). Hamilton County, at 8.9 percent growth, was marginally better than Allegheny County’s gain. 

Another measure of the economic vitality of an area is labor force growth. The labor force consists of those who are employed and those who are actively seeking employment.  It does not count members of the population under age 16, retired or in an institution such as a school or hospital. 

From 2000-19, labor force in Allegheny County ticked up from 638,137 to 650,557 or barely 2 percent.  Over the same period the national labor force rose 14.7 percent, while the commonwealth rose by 6.5 percent.  Among the counties reviewed, Mecklenburg County’s labor force jumped by 58.9 percent followed by Bexar County at 44.3 percent and Marion County at 8.4 percent.  Both Ohio counties, Hamilton and Cuyahoga, had losses of 1.5 and 10 percent, respectively. 

While better than two Ohio counties, Allegheny County’s very slow 19-year labor force gain does not signal strong economic vitality in comparison to the nation and many counties across the country.  

As mentioned above, labor force is dependent upon the population at large—generally speaking, a growing population allows for a growing labor force.  While the next decennial Census will be taken in 2020, recent county population comparisons can be made using annual population estimates, with the 2018 estimate being the most recently available from the U.S. Census Bureau.

In the 2000 Census Allegheny County’s population was recorded as 1,281,666. By 2010 the count had fallen by 4.6 percent to 1,223,348.  The losses slowed to just 0.4 percent between 2010 and the 2018 population estimate of 1,218,452.  Over the time frame 2000 to 2018, Allegheny County’s population fell by 4.9 percent. 

By contrast, Pennsylvania’s population count over the two decades increased by 4.3 percent.  The bulk of that increase happened in the first decade (3.4 percent) before cooling off to less than one percent between 2010 and 2018. 

From 2000 to 2018, Mecklenburg led the six-county sample with a jump of 57.3 percent to the population (695,454 to 1.1 million) and will likely surpass Allegheny County in the next Census count.  Bexar County’s population climbed 42.3 percent to 1.99 million people, up from 1.4 million in 2000.  Marion County grew 11 percent over the period. However, Hamilton County and Cuyahoga County each saw population losses. Hamilton’s drop of 3.4 percent was smaller than Allegheny County’s.  But Cuyahoga was very hard hit with a population loss of 10.8 percent. 

In short, Allegheny County’s economic performance, as measured by household employment and labor force gains in comparison with the nation and state and several counties, has not fared well over the last two decades.  Of course, part of that story is tied with the loss of population.  But it all comes down to the availability of jobs and the business climate.  Job availability draws people to a county and boosts labor force and employment levels.

As many earlier Policy Briefs have noted, the business climate in Allegheny County has been less than ideal for job growth.  It is not free market-oriented or business friendly. A large part of that is the stifling regulatory climate coming not only from the state level but also from the county’s core, the City of Pittsburgh.   

It also has a lot to do with burdensome taxes, such as the additional one percent Regional Asset District sales tax, the drink and rental car tax and the very high level of school real estate taxes within the county.  Until the county reverses course and becomes more welcoming to businesses—without using public subsidies to draw them here—the slow growth that characterized the first two decades of this millennium will continue.

Details on the Port Authority’s Extremely Costly Bus Service

Summary: A recent Policy Brief (Vol. 18, No. 13) demonstrated the Port Authority of Allegheny County’s (PAAC) very high bus operating expense compared to five comparably sized transit agencies. This Brief expands the number of agencies compared and looks at additional measures of efficiency and pay levels to develop a thorough understanding of the key differences that lead to PAAC’s extremely expensive bus operations. The news is not good. PAAC’s bus service is inexcusably costly and imposes far too heavily on taxpayers and Turnpike users.

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As noted in the March Policy Brief, the most comprehensive measure of operating cost effectiveness for comparison purposes is operating expense per revenue hour. That is, the non-capital outlays required to deliver services divided by the hours buses are actually on routes picking up and discharging paying passengers.

Total operating expenses per revenue hour data for 2016 were gathered from the National Transit Database for 28 transit agencies across the country. Of the 28 only one, New York City at $226, had higher operating cost per revenue hour than PAAC’s $189.69.  Boston ($185.14) and San Francisco ($186.54) were close to PAAC. The next most expensive were Newark, N.J. at $167.47, Seattle at $159.41 and Southeastern Pennsylvania Transportation Authority (SEPTA) in Philadelphia at $158.40. D.C. Metro was $152.30 and Los Angeles was $153.73.

No other agency in the group of 28 had total cost per revenue hour over $150. Several were in the $140s including Cleveland, Minneapolis, Miami, Syracuse and New Orleans. Chicago was $139.14. The remaining 14 bus systems had costs per revenue hour ranging from $101 to $130, including Phoenix; Buffalo; Jacksonville; Dallas; Charlotte; Milwaukee; Columbus; Salt Lake; Denver; Indianapolis; Cincinnati; St. Louis; San Antonio and Atlanta.

For detailed comparison with PAAC, a group of 10 systems were selected:  Charlotte; Cincinnati; Columbus; Cleveland; Milwaukee; Minneapolis; St. Louis; Atlanta; San Antonio and Salt Lake.

Operating expense per revenue hour is made up of several expenditures and factors, including operator wage expenses; wages of other employees necessary to produce bus services; fringe benefits of all employees involved in bus service delivery and nonemployee expenses (fuel, etc.), the percentage of vehicle hours that are actually on revenue-producing routes and any time for which drivers are paid while not actually operating a vehicle.

For purposes of this analysis the ratio of operator wages paid, other employee wages and fringe benefits for all bus-related employees to revenue hours and to vehicle hours were calculated for each of the comparison agencies. Recent estimates of average hourly wages for drivers for each agency were collected.

PAAC had a total operating expense per revenue hour of $189.69 while the 10 agency comparison group averaged $117.42, making PAAC 62 percent more expensive than the 10 system average.  Of the 10 agencies, Cleveland had the highest cost per revenue hour at $148.86 followed by Minneapolis at $145.57. The lowest operating cost agencies were Charlotte ($101.31), Milwaukee ($101.28) and San Antonio ($103.28).

Calculated on the basis of cost per vehicle hour, PAAC stood at $161.58 and the average for the 10 was $107.44 making PAAC 50 percent more expensive than the group average. Note that PAAC’s 62 percent greater operating expense per revenue hour compared to the 10 systems is significantly higher than the 50 percent difference in the cost per vehicle hour. This results in part because only 85 percent of PAAC’s vehicle hours are actually revenue hours while the average of the 10 comparison agencies was 91.5 percent.

A look at the components of operating expenses reveals the underlying problem with PAAC’s extremely high relative operating expense per revenue hour.

The most obvious comparative cost measure is driver wage rate.  PAAC’s average of over $25 per hour is 32 percent above the 10 system average of $18.98. The highest wage rate agencies are in Milwaukee, Minneapolis and Cleveland with average hourly wages of between $24 and $25.  The lowest hourly wage agencies were in Atlanta, San Antonio, St. Louis, Cincinnati and Salt Lake with wages between $15 and $17 per hour.  Among the very large transit systems reviewed, Chicago’s driver wage was just under PAAC’s while Boston’s was slightly higher. New York and San Francisco at $31 plus per hour were much higher.

Total operator wages expended per revenue hour to deliver bus service were $37.48 at PAAC and averaged $28.77 for the 10 agencies, a difference of 30 percent. The highest wages per revenue hour for the 10 systems were in Minneapolis at $36.19, followed by Cleveland $32.12 and Cincinnati at $32. The lowest operator wage expense per revenue hour was in Columbus ($23), followed by Atlanta ($25.45); San Antonio ($25.88) and Salt Lake ($25). The remaining three systems had expenses ranging from $28 to $30 per revenue hour.

Note that PAAC’s total operator wage payments per vehicle hour were $31.92, reflecting the fact that only 85 percent of vehicle hours are actually revenue producing hours. Still, the operator cost per vehicle hour is about $6 higher than average driver wages per hour.  This occurs because of overtime pay and pay for time the operators are not driving but are still on the clock.

For the remaining analysis only per revenue hour figures will be discussed since the relation of those costs to cost per vehicle hour has been established.

The second cost component examined is wage expense for bus service employees other than operators. For PAAC the wage expense per revenue for non-operator employees is $39.85 while the average for the 10 comparison agencies is $24.73 making PAAC 61 percent more costly than the group for this cost component. The highest expense among the 10 agencies was in Cleveland at $36.80. The lowest non-driver wage expense agencies were Charlotte ($17.20); Columbus ($22.88); St. Louis ($19.99); San Antonio ($20.54) and Milwaukee ($12.31).

The final component of employee cost is the fringe benefits for all bus service employees. At PAAC fringe expense per revenue hour in 2016 was $72.76 and the average for the 10 systems was $36.27 making PAAC’s costs per hour 100 percent greater than the group. Cleveland had the highest fringe expense per hour at $47.57, followed by Minneapolis at $46.58. Charlotte was lowest at $22.47. The rest ranged between $31.50 and $39.

Total employee cost per revenue hour at PAAC was $150.08 compared to an average of $89.77 for the 10 systems making PAAC employee costs per hour 67 percent higher than the group average.  The highest employee cost system in the group was Cleveland at $116.50 and Minneapolis at $116.07. Lowest employee cost was posted by Charlotte at $68.59. The other systems’ employee costs ranged from $78 to $91 with most in the $80s. In short, PAAC’s employment expenses are enormous compared to these similar sized agencies.

Finally, the cost comparison analysis looks at non-employee costs. PAAC’s non-employee expenses per revenue hour were $39.61. The 10 system average was $27.65, making PAAC’s non-employee costs per hour 43 percent more expensive than the average.

All told, the operating expense per revenue hour was $189.69 at PAAC.  None of the 10 similar size systems came anywhere near that close to that figure with Cleveland the closest at $148.90.

PAAC’s costs are not just a problem for Allegheny County for matching funds and fares, the agency also receives substantial state funding.  For many years, the management and boards at the authority succumbed to union pressures in order to avoid strikes.

Consider that if PAAC had the same cost per revenue hour as the 10 similar size agencies, it would have cost $114.8 million less than the $301 million PAAC actually spent for the 2016 level of service. Just lowering PAAC to SEPTA bus costs per revenue hour would save $48 million per year at current operation levels. Then, too, finding ways to raise the ratio of revenue hours to vehicle hours to the level in the 10 system average would save a lot of money.

Public transit system funds have to come from the fare box or taxpayers, and in PAAC’s case, from tolls paid by Pennsylvania Turnpike users, thanks to Act 89 of 2013. The decision made by the Legislature to allow unionized transit workers to strike and the unwillingness of management to face down unions threatening to strike has resulted in a cost structure that is far outside the norm. Then too, PAAC’s non- employee costs are much higher than those expenses at comparison transit systems.

The PAAC situation demands action to correct the egregious costs PAAC is incurring. Why does the Legislature countenance this glaringly overly expensive transit system and make no effort to rein in the spending and at the very least remove the right of transit workers to strike?

Municipalities’ Share of RAD Tax Revenue

In 1994 Allegheny County imposed a one percent local sales tax allowed under 1993’s Act 77, the legislation creating the Allegheny Regional Asset District.  Act 77 mandates that 25 percent of the revenue collected be distributed to the County and 25 percent to its municipalities with the requirement that it be used primarily to reduce other taxes, with a few other permissible uses.

 

For most of the 1994-2015 period, 128 of the 130 County’s municipalities have received a share of the funds. Two municipalities, Trafford and McDonald, do not participate. Over the period, a total of $801 million was shared by the municipalities. All sales tax and municipal distribution data are taken from the RAD board web site.

 

The share of the revenue a municipality receives is calculated by multiplying the total amount available for distribution by a factor designated as the ratio of its weighted tax revenue and the sum of the weighted tax revenues of all municipalities.  Weighted tax revenue is specified as the municipality’s total tax revenue from all sources divided by the ratio of the per capita market value of real property in the municipality and the per capita market value of all County property. All population figures are taken from the latest Census figures available, currently the 2010 numbers.

 

In simplest terms the formula means that a municipality’s share factor will, all other things equal, be larger the greater its tax revenue and will be larger the smaller its per capita market value of real property.   Thus, municipalities with large tax revenues will tend to receive more than municipalities with small revenues.  However, the weighting formula will boost the share of municipalities that are poorer in terms of market value of real estate per resident above what it would be if its tax revenue alone were the factor and conversely the formula will act to reduce the share for municipalities that are wealthier in terms of market value of property per capita.

 

To investigate how accurately the formula is being applied this report examined the details of the sales tax revenue distribution. The first step was to calculate each municipality’s share of the sales tax revenue distributed over the last five years as well as the for the cumulative shares for periods 1994-2010 and 1994-2015. One interesting fact emerges quickly. The City of Pittsburgh received 52 percent of all the dollars distributed during the first 17 (1994-2010) years of the program and 50 percent of all the money distributed over the 1994-2015 period. However, the City’s share has been falling in recent years and by 2015 stood at 42 percent.

 

For the entire period 1994-2015, the municipalities with the seven highest per capita sales tax allocations include Braddock Borough, Clairton, Duquesne, McKeesport, Mt. Oliver, Pittsburgh, and Rankin.  All had per capita cumulative distributions over the 22 years of over $1,000 with Braddock, Rankin, and Duquesne above $1,400, Pittsburgh at $1,321, Clairton $1,200, McKeesport $1,121, and Mt. Oliver at $1,003. At the low end, the seven lowest per capita cumulative distributions went to Ohio Township, Pine Township, Sewickley Hills, Frazer, Franklin Park, Marshall and Robinson.  All received totals of under $200 over the 22 years except Robinson which received $209.  Of the remaining municipalities, 40 received between $500 and $1,000 while 74 received between $209 and $500 per capita.

 

 

Note that the per capita taxable property averaged $25,000 for the seven highest per capita RAD tax recipients (only $18,000 if Pittsburgh is excluded) while the seven lowest per capita recipients had average per capita taxable property of $155,000.  Thus, the impact of the distribution formula’s weighting scheme is readily apparent.

 

The simple average per capita cumulative for all 128 municipalities was $483. The weighted average (actual total dollars distributed divided by all 128 municipality residents) per capita was $655. This gap is due largely to the fact Pittsburgh received over half of all the sales tax revenue distributed during the period since the beginning of the program and its tax revenue and population count are so large relative to the other municipalities—larger than the ten next largest municipalities combined.

 

The next task was to evaluate whether the per capita distributions were close to what the legislated procedure should produce.

 

By using the formula in a reverse fashion, that it is to say, using it to solve for the effective sum of weighted tax revenues as opposed to calculating the amount to be distributed, it is possible to evaluate whether a municipality is receiving more or less than it should be—or the right amount.  The four other   components of the distribution formula are easily obtained for the seven municipalities that rank at the top of per capita distributions and the seven with the lowest.

 

Using this procedure reveals that for the 2015 allocations, results for two of the 14 municipalities examined suggest they received more than the legislatively mandated formula entitled them to. But they were fairly small boroughs and the amounts of money were small compared to the total amount distributed. The one municipality getting significantly fewer dollars than the formula says it should was tiny Frazer Township. Interestingly, the Frazer distributions since 2010 have been roughly a third of the average distribution from 1994 through 2010.

 

The remaining municipalities in the 14 selected for study had 2015 allocations that were within ten percent or so of the amount an accurate application of the mandated formula would be expected to produce. Bear in mind that deviations from ideal results are inevitable due to inaccuracies in estimates of market value of real estate caused by the County’s frozen assessments, self-reported municipal tax revenues, and the use of five year old population counts. Ironically, the RAD distributions are included in the tax revenue used to calculate the share factor. Inevitably, this will create serious distortions over time, especially in the cases of poor, small municipalities whose RAD tax distribution is a large fraction of their total tax revenue.

 

Finally, it is important to note the changes in municipal shares that have occurred starting in 2011 through 2015. Overall, dollars available to distribute rose 11 percent from $41.9 million to $46.6 million.  There were some big winners in dollar amounts and some big winners in the percentage increase in dollars received.

 

The most dramatic change was in the distributions going to Pittsburgh. Although the dollar amount for the City rose $98,000 (0.5%) from 2011 to 2015, the share of total funds distributed fell by ten percent.  If the City share had remained at the level of the first 22 years, Pittsburgh would have received $23.5 million in 2015, instead of the $19.98 million it actually received. This would have left only $23.1 million for other municipalities instead of the $26.6 million that actually occurred, a difference of $3.5 million.

 

The diminution of the Pittsburgh share over the last several years has been accompanied by significant gains in shares for some municipalities and large dollar increases for some. Clearly, the weighted tax revenue of the City has fallen relative to the sum of weighted tax revenue for all municipalities. This cannot be blamed on the County reassessment because the Pittsburgh share was declining before the reassessment.  And since population numbers are set to the 2010 Census they cannot be the explanation.  It is possible however that the significant declines in City population from the Census of 1990 to 2000 and then from 2000 to 2010 could have lowered the City’s weighted tax revenue from the 1994 to 2000  period to 2000 to 2010 and then again in the years since 2010.

 

Penn Hills, with an increase of $408,425 or 30 percent over the 2011 to 2015 period, was the biggest gainer in dollar terms. Clairton was second with a gain of $201,752 or 50 percent during the period.  Bethel Park posted the third largest dollar rise at $ 180,000 or 40 percent.  Six other municipalities enjoyed distribution gains of over $100,000 including; Moon (up 41%), Mt. Lebanon (up 20%), Munhall (up 32%), Rankin (up 66%), Upper St. Clair (up 34%), South Fayette (up 59%) and Ross (up 41%). Thus, each of these experienced gains well in excess of the overall 11 percent growth in total tax revenue distributed.

 

106 municipalities had increases in distributed funds from 2011 to 2015 of over ten percent. Of these thirteen municipalities received increases of over 50 percent, but none reached the $100,000 dollar mark in actual dollar increases. Ninety three of the municipalities had gains in the range of ten through 49 percent.  Eleven saw their allocations rise from one percent through nine percent while three had no change in share. Meanwhile, five municipalities saw their distribution amounts fall led by Braddock at 28 percent and Duquesne at 17 percent.

 

A table with all the dollar values and share changes has been posted on the Institute web site.

 

In summation, while the formula for distributing the sales tax revenue is apparently working reasonably well, it has a major drawback. To wit, much of the data used is outdated or subject to errors.  Failure to keep market values of property up to date and using Census data that can be as much as ten years out of date are real problems for accurate calculations. A new, simpler formula that uses more up to date data is needed to rectify these problems.  That will be the subject of a future Policy Brief.

A Lesson that Never Gets Learned

As of August 30th, the USAirways’ (now American) flight operations center, subsidized by taxpayers, will close.  Around 650 jobs will either move to Fort Worth or disappear altogether—the result of the airline’s merger with American Airlines.  Such is the nature of business.  Firms are constantly being created, closing their doors, and /or moving.  Government placing expensive bets on the success or retention of specific businesses is problematic on several levels.

 

The first and foremost is that taxpayers should not be bankrolling private investment and second is that there are issues of favorable treatment for some companies and third there is the moral hazard issue. Yet politicians seem to be unable to stop doing it. So many examples of recent memory come to mind; Solyndra and other solar energy companies, Kvaerner Shipyards in Philadelphia, and locally Sony, Lazarus, Lord and Taylor’s to mention a few prominent ones.

 

Recall that USAirways in 2007 asked three cities to put together a financial package to bid on getting a new flight operations center.  USAirways had just merged with America West Airlines, who had such a center in Phoenix but deemed it too small (150 people) to accommodate the new combined airline’s needs.  Pittsburgh, which at the time had the USAirways’ flight operations center, was asked to compete against Phoenix and Charlotte to host the new center.

 

Naturally the news reports of Pittsburgh’s victory were glowing. The center was to cost $25 million and employ 600 people—with 450 coming from USAirways’ current center with 150 new jobs although as reported in the news “the 150 employees in Phoenix will have the option of moving to Pittsburgh once the consolidation is complete.”  The financial aid package put together by the state and County totaled more than $16 million which consisted of $3 million in grants, $12.5 million in loans and $750,000 in state tax credits tied to the number of jobs created by the project.

 

We asked at the time (Policy Brief, Volume 7, Number 54) “will government officials ever learn that lavishing tax dollars on firms is not an antidote for market trends?  It seems a simple lesson, but one that currently escapes them.  The Pittsburgh region suffers dreadfully from this affliction…”  We noted the inexplicable loyalty to USAirways from elected officials.  “Still the most galling case is the region’s support for USAirways over the years.  Allegheny County built the airport facility, designed to accommodate 50 million passengers per year at a cost of half a billion dollars largely to house the USAirways hub and the anticipated surge in traffic through the airport.”

 

Unfortunately, the highest passenger count since completion of the new airport occurred in 1997 (20.7 million).  All Pittsburgh travelers received from this new hub was a strong USAirways’ monopoly, and, for years, the highest airfares in the country.  For a long time, the Allegheny County Airport Authority was stuck trying to make huge debt service payments until money from new external sources (gaming and Marcellus Shale production) came along.

 

In 2007, the time of the bidding process, O&D traffic came in at just over 9.8 million but was slipping and recently has settled in at about eight million origination and destination passengers.

 

We also noted in 2007 regarding the airline’s financial difficulties:  “Almost continuous financial problems arising out of extraordinarily high costs at the airline finally led to bankruptcy in 2002 and again in 2004.  Those bankruptcies eventually resulted in a merger and a dramatic drop in the airline’s presence at Pittsburgh International Airport with flights falling precipitously from well over 500 per day to just over a hundred currently.  USAirways’ employment in the region fell in concert with the decline in flights from 12,000 in 2001 to below 3,000.”

 

Another red flag was raised not long after the announcement Pittsburgh had won the rights and the expense to host the new center.  Flights were again cut from 108 daily to 68 beginning in January 2008.  These flight reductions came with 450 local jobs being lost and the relocation of 500 pilots and flight attendants.  Employment at USAirways in Pittsburgh fell to 1,800.  As we commented, “so the more than $16 million in subsidies used to guarantee 450 flight operations jobs, for which ground was also broken in September, will not offset the loss of 450 jobs and the relocation of 500 others.”  The CEO of USAirways at the time commented that the cuts may continue while the then Allegheny County Chief Executive responded, “the flying public makes that decision. I wouldn’t hold my breath until they figure out how to be competitive in Pittsburgh.”

 

And of course he was correct.  Upon the announcement of the merger with American Airlines in March 2013, the CEO told the media that the flight operations center would close “a couple years from now.”  News reports place the final cost of the 72,000 square foot flight operations center at $32 million and employed 650 people.  It opened in 2008 and lasted seven years.  It is not clear if USAirways repaid the $12.5 million in loans used to build the center, but state and county money ($3.75 million) and the gamble using taxpayer money did not reap the rewards for which elected officials had hoped.

 

As we concluded in that Brief from 2007: “The ongoing USAirways saga should be an object lesson for government officials.  Stop using taxpayer money to support private firms in decisions that are not financially viable absent the subsidies. It is far better to keep taxes low and create a favorable labor climate. But of course if those were present, all this doling out of subsidies would not be necessary to persuade companies to invest in the region and state.”

 

And we might add in this case that given the awful experience with USAirways in the first few years of the new century, the decision to reward them again for a chance at some jobs that were likely to be gone in a few years anyway—not to mention the other significant cuts that were already scheduled—was ill advised at the time and the repercussions are now in full view.

Updating Municipal Spending in Allegheny County

Recently the Allegheny Institute released its annual report on municipal spending in Allegheny County (Report 15-03).  This year, the data has been updated by looking at 2013 spending reports submitted to the Pennsylvania Department of Community and Economic Development.  All data are available on the Institute’s website.

 

We examined the annual financial reports of 125 municipalities in Allegheny County.  The City of Pittsburgh is excluded, as it is frequently analyzed in other Briefs and Reports; neither Springdale Township nor Wall Borough submitted an annual report for 2013; McDonald and Trafford Townships straddle two counties and cannot be considered solely in Allegheny County.  We analyzed only general fund accounts and present a weighted average for each category for comparison purposes.  Since we focus on per capita amounts, we used data from the U.S. Census Bureau for the most recent population counts.

 

For these municipalities, the weighted average expense per capita for the year 2013 was $696 with the weighted average revenue per capita of $712.  The range for total expenditures went from a low of $221 per capita in South Versailles to nearly $2,500 in Sewickley Heights.  The range for total revenues was a low of $216 per capita in South Versailles to $2,489 in Sewickley Heights.  From 2008-2012 municipal expenditures increased each year—rising from $629 in 2008 to $699 in 2012.  Thus the current level represents a slight drop of less than one half of one percent.  The weighted average per capita total revenue figure had also experienced an upward trend over this time frame rising from $621 in 2008 to $720 in 2012—an increase of 16 percent.  However, this trend was also broken in 2013, with a decrease of one percent.  It is worth keeping in mind that this time frame covers the national recession and subsequent sluggish recovery which undoubtedly played a role in a municipality’s ability to raise revenue.

 

Among the expenditures categories, public safety represents the largest outlay.  The weighted average per capita spent on public safety for 2013 by the municipalities was $245, an increase from $242 and $239 in 2012 and 2011.  This category covers specific areas like police, fire, ambulances, and zoning.  Twelve municipalities spent more than $400 in these areas and four municipalities spent less than $100.  Public safety also had the strongest correlation to total expenditures of any of the individual categories in the 2013 study.  Spending in this category exceeded spending in other notable categories including: sanitation, recreation, administration costs, and public works.

 

Public works are also a major expense item in municipal budgets. This category references all expenses put towards cleaning of streets, winter maintenance, bridge/road repair, street lighting, and virtually anything else that has to do with highway and road maintenance.  The weighted average per capita spent by municipalities in Allegheny County on public works in 2013 was $126.  Nine municipalities spent over $300 per capita in this category, with two spending over $700.  On the reverse side of the spectrum, six municipalities spent under the $50 mark, and forty-seven were under $100.

 

On the revenue side, property tax was the largest source of income for Allegheny County’s municipalities.  The average amount collected per person from the property tax in 2013 was $238, an increase from $229 and $228 in 2012 and 2011.  In addition, eleven municipalities brought in over $500 per person in revenue by using this tax.  Unlike public safety, property tax did not have the highest correlation to total revenue. The earned income tax has the highest correlation with total revenue.

 

The earned income tax brought in a weighted average of $183 per person across this sample for 2013.  The municipalities collected $167 million in revenue through this tax and twenty-eight municipalities collected over $200 per person. On the reverse side of the spectrum thirty-three municipalities collected less than $100 per person showing a large range throughout Allegheny County.

 

Our report also found a continued increase in the average debt per person in these municipalities.  Weighted average per capita debt is up to $716 per person in Allegheny County.  This is an eight percent increase from 2012 ($663) and a 39 percent increase since 2009 ($514).  It is important to note that debt per person has increased each of the past five years, and unlike the average revenue and average expenditure trends, this one has continued unbroken.

 

In total, the municipalities in our study raised more money than they spent.  However, of the 125 municipalities, forty-seven did not have a balanced budget for 2013, spending more than they received in revenue.

 

The key findings mentioned above provide a brief snapshot of the municipal finance situation in Allegheny County. Local government is often overlooked by many citizens, yet it is the closest to them.  It is responsible for providing many of the basic services, such as public safety and public works, which enable residents to function on a day-to-day basis.  It requires revenues to carry out these functions through sources such as property and earned income taxes.  Our report and the data, available on our website, chronicle the spending and revenue for 125 municipalities within Allegheny County. It is hoped this will help residents better understand the financial performance of their local government.

The Lung Association’s Latest Bogus Air Quality Report on Allegheny County

Right on schedule, the American Lung Association is out with its annual report on air pollution in the EPA’s Pittsburgh attainment region that includes several counties in Southwest Pennsylvania, two in West Virginia and one in Ohio. As usual it portrays the region as one of the worst in the country, ranking 9th worst among metro areas for particulate matter and 10th in ozone. Based on the Lung Association report, Allegheny County was targeted for particularly strident criticism for having unsafe air in a press release from the Clean Air Council and PennFuture.  However, there are many problems with the methodology used in the report, and more importantly, it fails to point out just how clean the air in the region actually is, especially in Allegheny County.

 

In the first place, the Association report uses data averaged over the three year period 2011, 2012, and 2013 according to EPA standard guidelines.  Therefore the oldest data is now four years old and the newest is from almost 18 months ago. Air quality in the County has improved significantly since 2011. For fine particulate matter (PM2.5—the subject of most of the press release’s criticism) the average concentration level measured at the 11 monitors (at nine locations) throughout Allegheny County and reported to the EPA fell 13 percent from to 2011 to 2013. Indeed, in 2013 not one of the 11 monitors had an annual average level of PM2.5 above the EPA’s standard of 12 micrograms per cubic meter (all data taken from EPA website).  Not only did the average for the monitoring sites in the County fall from 2011 to 2013, each and every monitoring location for which EPA keeps records including Avalon, Oakdale, Lawrenceville, Liberty, McCandless, Harrison, North Braddock, and Clairton reported lower PM2.5 levels in 2013 than in 2011—the Avalon reading was down 25 percent.

 

As noted above, the EPA standard for attainment is based on an average of three annual sets of readings of the concentration levels for PM2.5. Based on the three year criterion, only the two monitoring stations in Liberty Borough near the coke plant violated the EPA standard. Monitor one at Liberty averaged 13.4 micrograms per cubic meter, while monitor two averaged 12.9.   All other monitors in the County averaged below 12 for the three years 2011, 2012, and 2013, ranging from 8.8 in McCandless to 11.7 in North Braddock. In the City, the two monitoring stations in Lawrenceville averaged 10.3 and 9.9, both in what is classified as the green or good range.

 

So, in order to classify the entire County as having bad air in its 2015 report, the Lung Association has to rely on the Liberty monitor readings of 2011and 2012 because they caused those monitors to be above the three year average standard—note that the Liberty monitors averaged under 12 in 2013. But since all other monitors in the County were in three year compliance with readings in the good range (under 12) for the three year period, the Lung Association’s pillorying of County air quality is completely irrational. Did they even consider reviewing data from other monitoring sites?  If 95 percent or more of the County’s area has good air, what useful purpose is served by trying to make people in good air areas believe they are in danger from the one small area?  This is especially true considering the one small area has moved in to the good range in recent years.

 

Moreover, if the Lung Association is serious about their methodology and their research, before they put out a report that talks about air quality as if it had not changed in four years, they might want to look at some recent data. The County Health Department maintains six PM2.5 monitoring facilities at four daily reporting sites in Allegheny County, Liberty and Lincoln in the Mon Valley, as well as in Lawrenceville and Avalon. The data from these six monitors are reported daily on the Health Department website.  Since April 23 of this year there has been only one 24 hour average reading of PM2.5 above 12 at any monitor in the County and that occurred at the Lincoln monitor on April 29 when a measurement of 13 was recorded. The above 12 reading at Lincoln was preceded by several days in the 6 to 9 range and was quickly replaced by another reading of 9 on the 30th. In other words, this reading was no cause for alarm or even concern except among those who look for any chance, no matter how insignificant in the grand scheme, to issue dire warnings.

 

In short, as far as particulate matter is concerned in Allegheny County, 2015 has improved over the 2013 readings, which was itself significantly improved from 2011. And bear in mind that from the standard set by the EPA, the entire County has been deemed to have unhealthy air by virtue of nothing more than the Liberty readings of 2011 and 2012.

 

This latest Lung Association report qualifies as junk science since it goes on at length to make it sound as if people living in any part of Allegheny County are at very high risk of lung diseases and severe aggravation of other diseases.  When will the air ever be clean enough for them ? And when will they stop using flawed analysis to push an agenda?

 

Here’s a final question. With his strong environmentalist views, is the City’s Mayor worried about air quality in Pittsburgh?  Apparently not.  If air quality was as bad as the Lung Association and the Clean Air Council claim it is, then it would be imprudent and ill-advised for the Mayor to allow the marathon to be held in the City and certainly he should not be encouraging large numbers of people to ride bicycles on all the miles of bike paths he is creating.  Imagine the lung and other respiratory damage to those people if the City’s air quality actually matched the level claimed in rhetoric spewed out by the groups who never stop complaining about air pollution.

What’s the Deer Lakes Park Drilling Proposal Worth?

Perhaps one of the most contentious issues facing the Allegheny County Chief Executive and Council is whether or not to allow natural gas drillers access to reserves located in the Marcellus Shale formation under Deer Lakes County Park.  As expected, there is plenty of opponents citing environmental concerns, but little has been mentioned about the potential economic benefits of such a venture.  This Brief will look at the potential economic benefits to the County if it permits natural gas under the Park to be extracted.

 

Deer Lakes Park, one of nine in the Allegheny County parks system, covers 1,180 acres.  According to news reports, the plan put forth by the County Executive would permit drilling on private property roughly one quarter of a mile outside of the Park to send horizontal arms stretching beneath Park property. These arms would tap into the Marcellus Shale formation approximately one mile below the surface.  There will be no drilling rigs within the Park itself.

 

The financial details of the plan include a $3 million donation from the drilling firms to a parks improvement fund, $4.7 million in an upfront payment to the County and an 18 percent royalty payment on all gas extracted from beneath the Park for twenty years. Keep in mind that Pennsylvania law (Act 60 of 1979) sets the minimum royalty at 12.5 percent.  Depending on the contract, it can reach as high as 20 percent (see Policy Brief Volume 13, Number 27), thus 18 percent is on the upper end of the range.  While the upfront payments are self-explanatory, how much royalty money can the County expect?  To answer this question, we can look to the experience of wells in the vicinity of the Park in Frazer Township.

 

Using production reports from the Pennsylvania Department of Environmental Protection (DEP) we will examine fourteen horizontal wells spud (drilled) in Frazer Township since 2011 (from the Yute, Schiller, and Bakerstown Road properties).  Five wells actively produced for the entirety of 2012 and produced an average of over 1 million Mcf (thousand cubic feet) of gas from the Marcellus Shale formation.  In 2013 that number swelled to fourteen with production averaging slightly below one million Mcf.  Thus it is reasonable to assume that if the County were to allow a well to retrieve gas from under the Park, it would produce about 1 million Mcf annually (the production range of these fourteen wells in 2013 was approximately 500,000 to just over 2 million Mcf).

 

Royalties are paid on the basis of gas value which means the price of gas will be an important factor in determining the amount to be paid. The price most commonly used is the trading price on the New York Mercantile Exchange, also known as the Henry Hub price, usually specified at a particular day of the month.  As outlined in Act 13 of 2012, this is also the price that sets the state imposed per well impact fee.  In 2012 the average annual price was $2.7933.  At this price, a well producing 1 million Mcf would bring in more than $2.79 million.  A royalty payment of 18 percent would generate more than $500,000 for the recipient.  In 2013 the average annual price increased to $3.749 meaning that the royalty payments would rise to about $675,000 annually per well assuming the same production volume.  Of course this would be a gross payment as the gas companies are allowed to deduct transportation fees (post-production costs), but cannot deduct well fees, such as the impact fee, from royalties.

 

Newspaper reports indicate that the drillers could sink up to four wells into the Marcellus Shale formation under the Park.  The implication is that the County could realize a gross of anywhere from $2 million to $2.7 million annually if the four wells each produce an average of 1 million Mcf and the price of natural gas ranges from $2.79 to $3.75.  Obviously if production and price increase it could realize more in royalty payments—or less if prices and volume trend downward.  Only if the wells are unable to produce a significant volume will the County fail to receive a sizable royalty payment.  Reportedly, the County’s lease would run twenty years.  However, depending upon the size of the reserves under the Park, it could vary one way or another.

 

The upfront payments and royalties are of course the direct monetary benefits of entering into this lease.  But the County would gain indirectly as well.  As we outlined in a previous Brief (Volume 14, Number 13) the County and its municipalities will also gain through the impact fee collected under Act 13.  Two provisions in the Act provide money to the County through the Marcellus Shale Legacy Fund, one of which allocates money to the Commonwealth’s 67 counties based on population.  In the first two years of the impact fee, Allegheny County received the second highest amount, over $1 million in each year.  As more wells are spud and paying into the Fund, that amount may climb higher.  Another section in the Act allocates money to the counties using a formula that uses the number of spud wells in a county as a percentage of total wells in the state.  As more wells are spud in the County, this amount could increase.  In 2011, with only nine spud wells, the County realized $79,000.  In 2012 the number of spud wells rose to 22 and the County was awarded $145,000.  Another four wells should raise this total further.

 

If Council and the Executive allow gas under Deer Lakes Park to be extracted there could be a substantial monetary gain to the County.  Directly, the upfront payments of $4.7 million to the County and $3 million for Park improvements and the projected $2 to $2.7 million in annual royalty payments, along with the indirect payments via the impact fee, can be quite a financial boost to the County treasury.

 

Obviously the parks are an asset for County residents through their enhancement of the quality of living and they deserve to be protected.  At the same time however, as long as the gas extraction can be done in a responsible and safe manner—and reports indicate that there will be strict environmental and safety rules in the lease proposal—taxpayers and residents should be able to benefit financially from them as well.

Dealing with Municipal and School District Assessment Appeals

A few weeks ago (Policy Brief, Volume 14, Number 15) the Institute called attention to the Mt. Lebanon policy of appealing property tax assessments of homeowners who had recently purchased homes with sales prices far above the County’s latest assessment.  The municipality’s appeals have engendered understandable anger among the folks affected.   But Mt. Lebanon is not alone in challenging under assessed properties; several school districts in the region and state also pursue such efforts.

 

As the earlier Policy Brief noted, court decisions have upheld the right of taxing bodies—other than the assessing body, i.e., the county—to appeal assessments of properties for which the assessments are well below the market value, presumably as indicated by a recent sale. Indeed, in July 2008, Governor Rendell vetoed bills from both the House and Senate that were designed to end “spot” reassessments. The Governor argued that the need for taxing bodies to ensure fairness in taxation required that they be able to appeal county assessments that have not been adequately updated and accurate.

 

That being said, the court rulings should not mean municipalities and school boards can arbitrarily set their criteria for launching appeals. Nor does it absolve realtors from the responsibility of informing home buyers of the possibility of a municipal or school board assessment appeal and a substantial upward adjustment in their tax liability.

 

A recent news report enumerated the criteria used by Mt. Lebanon for appealing assessments as follows: (a) property must have sold for more than $100,000; (b) sales price must exceed assessed value (same as appraised value in Allegheny County) by $58,000 or more and; (c) the assessed value to sales price ratio must be 85 percent or less. Meanwhile, Pine-Richland school district uses the criteria that a successfully appealed value will bring in at least $1000 or more in tax revenue from the property.

 

These criteria for challenging assessments raise serious questions regarding fairness in the municipal or school district appeals of recently sold properties.  For example, setting a minimal price to assessed value gap such as $58,000 and coupling that with the minimum 85 percent assessed value to sales price ratio has the potential to create clearly discriminatory outcomes.

 

Consider a home that sold in 2012 for $358,000 and is assessed by the County at $300,000. With an assessment ratio of 0.84, it would be subject to a municipal appeal. Now consider a home that sold for $590,000 and is assessed at $510,000. The $80,000 gap between sales price and assessed value would raise the red flag but the assessment to sales price ratio at 0.86 would be too high to place the property on the list of properties to be appealed. Assuming total millage (county, municipality, school) at roughly 30 mills that means the $358,000 home could be paying $1,740 more in real estate taxes (a near 20 percent increase) annually after a change in assessment while the $590,000 house is still underpaying by $2,400.   How is that fair? And the comparison gets markedly worse for even higher sales price properties such as, say a million dollar sale with an assessed value of $860,000.

 

Or consider a home that sold for $155,000 and is assessed at $100,000. It does not meet the $58,000 requirement even though it is assessed at only 64 percent of market value.  Its taxes would remain $1,650 (35 percent) below its fair share based on market value.  How is this equitable when compared to a $250,000 home assessed at $190,000 that would be appealed and could lead to a tax hike of $1,800?

 

Finally, consider a home that sold for $356,000 and is assessed at $300,000. It would escape the municipal appeal by $2,000 even though, in any meaningful sense, the home has virtually the same market value as the $358,000 home that gets put through the appeal process.

 

Obviously, the criteria established by the municipality are arbitrary and can result in highly discriminatory treatment of properties. If the aim is to ensure fairness, the Mt. Lebanon plan fails in its objective. The criteria could be improved by using, say, a $40,000 price to assessed value gap or (not and) less than 85 percent ratio of assessed value to sales price ratio as the trigger. That would eliminate the very expensive homes, selling for a million dollars but assessed at $870,000, from escaping a municipal appeal. It would also prevent $155,000 sales price homes with $120,000 assessments (77 percent ratio of assessment to price) from escaping appeal. There would still be some opportunities for unfairness, but the range would be much smaller than the current criteria permit.

 

The problem is that once any numbers for the sales price–assessed value gap or percentage undervalued are chosen there will always be some sales gap or assessed ratio properties that lie just outside the criteria and escape the municipality appeal.

 

The Pine-Richland criteria outlined above in which any appeal that generates $1,000 in additional revenue for the school, which for the district and its 19.2 millage rate means any property with a sales price–assessed value gap of $52,000, will be assessed regardless of the assessed value to sales price ratio. Here again, the unfairness is obvious. Those with assessment to sales price gaps of $50,000 would escape the appeal and might well be grotesquely under assessed in percentage terms—say $130,000 assessed and $180,000 selling price.

 

All this is precipitated by the failure of the County (and many other Pennsylvania counties) to keep assessments up to date and accurate. This failure, along with the need and desire of other taxing bodies to make taxation within their jurisdiction as fair as possible, means the taxing jurisdiction must have the right and power to appeal assessments prepared by the county.  The question is how is that need served in a non-discriminatory manner as required by the Constitution and ordinary ethical standards?

 

First of all, the Legislature should revisit the issue of taxing body appeals of assessments. Rather than trying to do away with the right to appeal completely as was attempted back in 2008, new legislation should establish methodologies for establishing the basis and criteria that municipalities and school districts can use to challenge assessments. There was an effort in 2012 to address this, but it was flawed and failed to pass the House.  As was shown above, setting criteria that will insure that the properties being appealed are not singled out arbitrarily is not an easy task but one that must be addressed. Of course, the Legislature could all but eliminate the need for municipal appeals by passing assessment reforms that require counties to carry out frequent and regularly scheduled reassessments.

 

Moreover the Legislature should enact a provision (assuming one is not in existence) that would require realtors to make clear to persons buying properties priced well above the county’s appraised or assessed values that they could well see an appeal of the assessment by the municipality or school district. If buyers agree in writing to that stipulation the realtor is absolved of any liability or legal action should a successful appeal occur. It is interesting that realtors have not been sued already even without such a law.

 

Finally, the Legislature should mandate that 90 percent of any windfall revenue (after covering appeal expenses) stemming from assessments being raised through a municipal or school district appeal should be used to lower the millage rate to compensate for the higher revenue. Fairness should be the issue, not more revenue.

First Appointment to Revamped PAT Board

Under Act 72 of 2013, the size of the Port Authority (PAT) board of directors is to increase and the appointment power to the board is to shift from nine appointed by one official to eleven appointed by six officials. Readers can get details here.

It was announced recently that the first appointment to the new board has been made by the Senate Minority Leader. Per the statute, the term of this appointee is to be a four year term with opportunity to be reappointed twice. Other appointments will have shorter first terms so as to stagger times of reappointment going forward.

While much has been written and discussed about the diminished power of the office of County Executive vis-à-vis the makeup of the board-dropping from nine appointments to six, with four of those being "free" selections and two being drawn from lists submitted by community groups-it is worth mentioning the position of the County’s legislative body, the fifteen member County Council, as it relates to the PAT board.

Prior to Act 72, the Council confirmed appointments and was guaranteed one seat on the board. Earlier versions of the Act would have given appointments to the Council, but that was omitted during the legislative process. Now Council will only confirm the two Executive appointments drawn from lists. There is nothing that prevents any of the appointing officials from choosing a Council member to serve on the board. They are all County residents (required of all appointees with the exception of the Governor’s choice) and would seem to meet the background requirements of having experience in finance, transportation, or economic development as a prerequisite for serving on the board. It could even be possible that now or in the future more than one member of Council could end up on the board.

Any Closer on Parks Cooperation?

Whenever the topic of merging or consolidating City and County services comes up, there is a regular recitation of what has been done (think 911 and purchasing) and what could be relatively easy to do in the future (think parks). Since both the County and the City have park land this has always been mentioned as a slam dunk.

Earlier reports that have extolled the elimination of duplicative services (the 1996 Competitive Pittsburgh report, and the 2008 merger report come to mind). The 2009 Act 47 plan instructed the City to "explore the creation of a non-profit park commission to oversee all City and County RAD-supported parks". There has been some talk that the current County Executive and one candidate for the Mayor’s office would like to see cooperation on parks.

Since the 2009 directive the County has created its own non-profit to help the County parks separate from the non-profit that assists with fundraising for City parks and the City is working on its OpenSpace plan under its 25 year planning document. The document has a section under "Policy Framework" and the "need for partnerships" but there is no mention of partnering with the County. It is possible that should an accord between the City and the County come to fruition that there might be changes to the planning document, the relationship between the separate non-profits, the respective departments that provide services to the parks, etc. but that seems a long way off.

What exactly would be up for grabs? The nine County regional parks have a combined 12,014 acres. The City’s four regional parks have 1,972 acres: adding in the acreage of community, neighborhood, riverfront, and special use parks the total acreage is 2,887. Only the County parks and the four regional parks receive RAD funding and it is those parks that are usually included in discussions.

The Trust for Public Land measured the City’s parkland, added in Point State Park, and calculated that Pittsburgh had 10.1 acres of parkland for every 1,000 residents, which was third highest according to the Trust’s segmentation of cities based on population density. Producing a similar measurement for the remainder of the County (895,000 people) and not including the acreage that exists in municipal parks in the County and outside the City the acreage per 1,000 non-City residents in Allegheny County would be 13.4.