What is the County’s Reassessment Policy?

Based on the statements made by the County Chief Executive this week in response to when the next reassessment will come, we can probably say the outlook is "read my lips: no new assessments". The Exec, a longtime opponent of reassessments in general and the 2012 one in specific, said "We’re not going to be reassessing. We’re using a base-year plan like every other county…It’s tough to look 10 years down the road. It’s my hope that the Legislature will deal with this issue." That quote was taken this week but it could have been written at any point over the last decade.

We know where things stand at the state level-the Legislature has shown no desire to pass a law that mandates when reassessments have to happen and the Supreme Court has said a base year in and of itself is not bad but that eventually the assessments will become "stale" and violate the uniformity clause of the Constitution, thus necessitating a reassessment (when that happens exactly will vary). Could things be different by 2023? Maybe. The point here is to determine what the County has on their books and what it will have in the future.

The Administrative Code (Article 210) reflects the language of a base year plan, notwithstanding the fact that something funny happened on the way to the implementation of the last base year. An ordinance passed in October 2005 established the base year and another ordinance in early 2006 was enacted to clean up language that would"…otherwise impede the orderly administration of a base year…" Subsections deal with special provisions for 2003, 2004, 2005, and 2006 and the most recent section applying only to 2013 states only that appeals for 2013 had to be filed by April 1st of this year. If the County is intent on keeping a base year it might have to tweak some of that language or continue adding transitionary provisions as it has.

There is separate language on reassessments written into the County’s ordinances (Article VIII of Chapter 475 on taxation) reflects the plan to have values ready for 2006 which came from a ordinance passed in 2002 prior to the base year plan, but it seems clear that this section is no longer valid and could be stricken from the code.

Two years ago when we put together a report on some of the critical issues facing Allegheny County as a guide for office seekers and we recommended that a new policy be established after the completion of the court ordered reassessment based on the IAAO recommendations that a physical examination of property be done at least once in a six year period. The Executive and the members of Council who were on Council in 2005 and 2006 and voted for the base year would obviously be opposed to that recommendation. It could lead to another court challenge as alluded to by some in the news article, and given present conditions a court would have to determine whether the County’s base year had reached the point where it violated uniformity.

County Gambles on Show

An article over the weekend (in which the Institute was quoted) revealed that the County, through its Redevelopment Authority, awarded $225,000 to a non-profit spearheading the filming of a reality show. It is not the first time the County put some money into the filmmaking business: most recently it did so in 2006, and that foray was described in a newspaper account at the time as such: "The movies would provide up to 120 local jobs, pump money into the economy, return the county’s investment (to seed future projects) and build on the city’s reputation as film-friendly". Much of the same offshoots were touted in the 2013 article by those in favor of the venture.

Rather than having a seed fund at the County level for movie making, the $225,000 grant came from the Community Infrastructure and Tourism Fund, a fund that holds money from legalized gaming and was not available at the time of the first grant. The state statute that authorized the disbursement noted the money was "to fund construction, development, improvement, and maintenance of infrastructure projects". The "tourism" in the County fund name somehow materialized after the fact.

Even so, a quick read of the program’s guidelines leaves one befuddled as to how a film project could get approved by the Authority board for CITF money. The stated purpose of the Fund, noted under the bolded "purpose" states it "is intended to provide financial assistance to entities to facilitate economic development through infrastructure assistance, stabilize or correct existing infrastructure problems, or plan and prepare sites and buildings for future use". The "eligible activities" section of the guidelines mentions only infrastructure, site planning and preparation.

That the Authority chairman, while defending the grant, noted that the money is "…used to promote businesses that serve the purpose of promoting the region, creating jobs, promoting tourism – which this clearly does – or enhancing the lives of the residents of Allegheny County" ought to invite scrutiny. Perhaps it is acceptable if nine out of ten grants from the fund go for infrastructure: time will tell on that one since the money is not going to be disbursed indefinitely unless the General Assembly extends the agreement. Money spent on promoting the region means scarce dollars don’t go to projects seeking money under the clear guidelines of the program.

County Park Fee Examination

Of the $23 million in total revenues for the Allegheny County Parks Department in 2013, $18.4 million (80%) came from the Regional Asset District additional sales tax, and the remaining $4.6 million came from various fees on activities at the nine parks. The biggest chunk was represented by golf fees ($1.79 million), followed by swimming pool fees ($0.985 million) and park shelter and stable rents ($0.649 million).

The County Council is currently considering taking a hard look at these and other fees as a way to raise new monies (one estimate puts the goal at an additional $700,000) and one Council member noted that the goal is to "set a policy where there is no such thing as free". The County commissioned a study in 2007 on the park system which said this about fees countywide: "reassess all existing fees and charges and establish new schedule of fees that reflect both the market value and cost of providing the facility and/or program". The clear message of that recommendation is that there should be a close and recurring look at the fees the County charges to help maintain the 9,000 acre park system and its amenities. Of course, boosting fees may cause some users and prospective patrons to explore other alternatives for recreational activities.

The responsibility of parks lies with the actual parks department ($8 million in expenditures), facilities management, which was broken off from Public Works and from budget narratives assumed the responsibility for parks maintenance (a share of a total of $21 million in expenditures) and the parks division of the County police ($5 million in expenditures). If the Councilman’s statement that he wants the park system overall to be more "revenue neutral" is taken to mean he wants it to be a breakeven operation, then the maintenance costs must be greater than $10 million a year based on the revenue of $23 million and the stated parks and police expenditures.

Parcels Move from Exempt to Taxable…Maybe

Six years after County Council enacted an ordinance saying they wanted properties receiving a tax-exemption as an institution of purely public charity to be reviewed periodically and seven months after County Council held a hearing involving the region’s largest non-profit health provider, about 20 owners of parcels that were deemed exempt have indicated that those parcels should indeed be taxable.

Recall that, as we noted in a Brief at the end of 2012, the County Chief Assessment Officer was given the job of conducting a review of properties that qualified as tax-exempt under the state’s Institutions of Purely Public Charity Act once every three years to determine if the exemption was justified. Lo and behold three years after the ordinance was passed no review was done. Same deal four years later, five years later, etc. County Council chose to conduct a hearing regarding the status of UPMC, and soon after the County Executive told the Assessment Office to get moving and carry out the dictates of the 2007 ordinance.

Inquiries on 2,800 parcels were sent out. The value of the 20 properties comes to $8.7 million: at the County millage rate of 4.78 mills, the County would collect $41,000 in real estate taxes. Twelve of the parcels are located in the City of Pittsburgh, meaning the City and the Pittsburgh Public Schools would collect money from those properties. The remaining eight are spread throughout other municipalities and school districts. It should be noted that several of the parcels that appeared in the article now indicate that something is in error and they should not be on the list.

When the Controller’s office looked at this issue last June in a Taxpayer Alert they estimated that the County had around $23 billion in exempt property post-reassessment. That means the value of the 20 properties moving to the taxable side represents about 0.03% of the total exempt value. Realizing that much of that total is owned by various levels of government which would not be scrutinized under the ordinance, the percentage of these properties as part of what is left over would rise, but without seeing how much of the total is accounted for by state, Federal, and authority ownership it is not clear by how much.

County Data Collection Moves Forward

Recall that near the end of 2012 County Council held a hearing on the tax-exempt status of UPMC even though, under County law, that is not the Council’s job and soon after it was declared that the Office of Property Assessments would begin doing what it was supposed to do under the 2007 ordinance. Under a three year time frame as set out by that ordinance this would be the third time that the County would have a handle on whether tax exemptions granted to charitable organizations would be justified-instead, since the process fell by the wayside, just about two-thirds of the County’s charitable organizations have responded to a letter from the County on the issue.

Some have asked for an extension. The County’s solicitor noted "…If we got a good faith request, we gave them more time." And why shouldn’t they? To reiterate, Council passed the ordinance calling for the review once every three years in 2007. When the condition of the County’s tax-exempt files and the failure to do the scheduled review was revealed the only answer was that things "fell through the cracks". What is the County going to say to non-profits taking their time? Hurry up and get things done?

Eyes Focused on Pupil Costs in the Burgh?

Consultants engaged by the Pittsburgh Public Schools at the beginning of 2013 released a finding that the per-pupil cost in Pittsburgh is about $7,000 more than similar districts in Pennsylvania. Reacting to the finding, the Superintendent noted that the school board needs to “…have the facts on the table”. 

 

 

It is not clear if the implication is that the board had heretofore been in the dark about per-pupil costs in the District-the Annual Financial Report always contains data on student operating statistics and duly reports the cost per-pupil in 2011 was $21,177.  None of this will come as a surprise to readers of Allegheny Institute Policy Briefs that have made these points many times.  Likewise the state Department of Education regularly makes such information accessible and reported that identical amount for 2010-11, making Pittsburgh the eighth highest in the Commonwealth out of 500 public school districts.

 

The consultants, as reported in a news article, looked at spending and made adjustments to the data (removing special expenditures such as payments to charter schools) to produce a figure of $18,400.  Compared to “similar districts in the state” that produced an average cost of $11,600, the resulting difference was $6,800.  A later article identified the peer districts as Allentown ($11,952), Erie ($12,913), Hazelton ($10,917), Lancaster ($14,606), Reading ($12,559), and Scranton ($13,792). 

 

Give the consultants some credit for at least identifying the per-pupil cost and comparing it to other districts.  Let’s hope the report drives some discussions about the District’s budget and the impending arrival of insolvency that has been predicted to arrive sometime around 2016.  Previous consultants missed real opportunities to look at the data they had produced on per-pupil costs and therefore missed real opportunities to make hard recommendations for the District.

 

For instance, in 2005 (see Policy Brief Volume 5, Number 25) a consultant was paid $250,000 in taxpayer money for a report telling the District it needed to close schools and achieve other savings of $84 million over five years (combined operating expenditures for the District from 2005 through 2010 was $3.3 billion) and found that Pittsburgh’s per-pupil cost was 23 percent higher compared to five midwestern and northern districts. Lowering the Pittsburgh District’s per pupil costs toward the average of those districts would have produced savings on the order of $100 million per year. 

 

A year later (see Policy Brief Volume 6, Number 61) another group brought in to help the District also presented a review group of other school districts (across the country) but never calculated per-pupil spending even though they had expenditure and enrollment data.  The Allegheny Institute calculated Pittsburgh spending to be 59 percent higher than the average of the other districts. We recommended the District reduce per-pupil costs to around $12,500 with adjustments for inflation and enrollment, something the consultant should have done based on the data available but did not.  

 

No matter how you slice it, Pittsburgh spends an exorbitantly high amount on a per-pupil basis. 

 

If student population (average daily membership) is chosen as the basis of comparison, Pittsburgh spent more than Philadelphia ($14,132), Central Bucks ($13,811), Allentown, and Reading, a group that, along with Pittsburgh, represents the five largest districts in the state from the 205,000 students in Philadelphia to the 18,000 in Reading.

 

If the comparison is based on the relative wealth of the District-using Pittsburgh’s ranking of 386th on the state’s market value to personal income aid ratio list to compare (1st being “poorest” and the 21 districts tied at 480th being “wealthiest”)-we find per pupil spending at similarly ranked districts was lower. Districts included Fairview in Erie ($12,552), Schuylkill Valley in Berks ($15,618), Upper Perkiomen in Montgomery ($13,882), Dallas in Luzerne ($11,154) and Keystone Oaks in Allegheny ($17,929). 

 

If the comparison is based on geography and is limited to Allegheny County, districts including Duquesne ($20,564), Brentwood ($20,693), Wilkinsburg ($20,569), and Quaker Valley ($20,046) nudge up against Pittsburgh’s level of spending per-pupil. The average per-pupil expenditure of all districts in the County not including Pittsburgh was $15,500. 

 

With this new consulting report set to be finalized toward the end of the year along with a hefty reshaping of the school board with four of the nine school board members not returning in 2014, perhaps the board will finally get serious about reducing costs-and improving academic performance.

Legislature Restarts County Pension Reform Effort

Is this the year changes come to Allegheny County’s Retirement System, a self-insured defined benefit plan covering more than 7,400 non-uniformed employees, jail guards, deputy sheriffs, and County police officers?

 

 

If that question sounds familiar, it should: in the 2011-12 session the House version of a reform bill passed that chamber unanimously but never got past the Senate Appropriations Committee (it made it there just about this time last year).  Earlier attempts were likewise made in recent legislative sessions but the changes sought by proponents have proven elusive. We noted in a Brief in December (Volume 12, Number 61) that the proposal might come back.

 

Because Allegheny County system’s guidelines are codified in the Second Class County Code, any substantive change has to come from Harrisburg. The General Assembly has done plenty of tinkering with the County’s retirement statute over the last forty years. Consider that the statute as it existed in the 1950s required all employees to reach age 60 and have 20 years of service to attain normal retirement benefits.  Amendments lowered the age of retirement for police to 50 (in 1974) and to 55 for the sheriff and deputy sheriffs (in 1989), prison guards (in 1992), and probation officers (in 1998).     

 

Thus far, legislation has passed the House and is now in a Senate committee (there is an identical Senate companion bill that is in the same committee) and, based on a reading of the House’s fiscal note on the 2013 bill, not much of the tenor has changed from earlier versions of the legislation.  Should the reforms become law, new County hires would no longer be able to count overtime into their pension, would have to work more years for the County to be qualified for a pension (25 years instead of the current 20), would have a period to vest of ten years instead of eight, and would calculate final average salary from the highest two years of the final four to the highest four years of the final eight.  With interpretation of the state’s Constitutional language on the impairment of contracts taken to mean pensions for current workers cannot be touched, so savings are gradual and obtained by changes to future employees. As employees under the current system retire and new hires eventually replace them, there would be a corresponding decrease in the normal cost for the pension system (both the County and the employees contribute at the same rate) that would reach $16 million twenty years after the enactment. 

 

It is easy to see how the argument is going to shape up.  Those in favor of the reforms from the County government as well as the County’s legislative delegation are looking at a system that was 85 percent funded in 2005 that is now 58 percent funded as of 2011 and have probably taken note of the pension problems encountered by the City of Pittsburgh and may want to head similar problems off before things get really bad.  Every year that passes before changes apply to new hires postpones the time when cost savings would arrive.

 

Those opposed to the changes, on the other hand, have to make a convincing argument that employees who are not yet even employed by the County, don’t bargain with the County, and have no standing should not have a different pension than the one in place.  This is what happened in 2009 when a House committee took testimony in Pittsburgh on the changes and heard from heads of bargaining units.  One made an argument about a “two-tier” system which “…is a dangerous thing between workforces, unions in the workplace in general. You have certain people that are able to benefit from something and others that are not.  They do the same job, work the same hours, complete the same task…”  Presumably the insinuation was that there might be intra-union conflict if employee A could count overtime into his pension and retire after 20 years of service while employee B could not. Of course anyone taking the job would be willingly accepting the differential-no one would be compelled to work for the County. 

 

Maybe time will bear that out. In the intervening years since that testimony was taken several substantial changes have been made at the state and local level to differentiate new employees hired by the public sector:

 

  • The state passed Act 120 in 2010 that created two new tiers of school employees hired after July 1, 2011 with a lower multiplier rate on final average salary, a longer vesting period and a higher retirement age (to 65 from 62) and a new tier in the state employees retirement system for those hired after January 1, 2011 which did the same with the multiplier and increased retirement age by five years (changing most to either 55 or 65 years of age).  People hired since those dates are working alongside others who are not under those benefit structures.
  • The Port Authority made changes to its plans for non-represented and IBEW employees where new hires are in defined contribution plans, with those employees working alongside employees in defined benefit plans.  The Authority also negotiated a new contract with the ATU where new hires will only be eligible for three years of post-retirement health care, with those employees working alongside of current employees who are in various tiers of benefit qualifications tied to age and service requirements.
  • The Act 47 recovery plan for Altoona eliminates retiree health care for employees hired on or after January 1, 2014 and Harrisburg’s plan eliminates it for those hired after the adoption of the plan. 

 

That’s standard operating procedure: if pension benefits for current employees are viewed as sacrosanct and there are limitations for bankruptcy filings for local governments in steep trouble with generous retirement packages made by officials in previous years, then the gradual process of nurturing pensions back to health falls on new hires.

 

Whether the proposed changes to the County’s system makes it through the legislative process this year will provide insight as to the Commonwealth’s appetite to take on wholesale pension reform.

Should We Be Concerned About County Debt?

The County Controller released the 2012 Comprehensive Annual Financial Report last week and foremost among the Controller’s concerns is the debt, which, when examined by the "net bonded debt" marker was $825 million, up from $747 million in 2011. The County administration stated that 2012 was a bit of an outlier, "the result of the county squeezing two years’ worth of new loans into one". If that is the case, it is worth looking at data prior to then to see if there is a trend.

From 2003 to 2011, net bonded debt grew 14.7% (from $651 million to $747 million) while population fell 2.9% and, as a result, the per capita debt level increased nearly $100 from $517 to $611. Compared to the City of Pittsburgh’s per capita debt, the County is in great standing. The ratio of debt to assessed valuation has remained around 1% or fractions above 1% for most of those years and, if we treat things in terms of legal debt limit, the County was in 2011 and has been since 2003 using 80% or more of that limit. Debt service as a percentage of non-capital expenditures is a tad over 4% and has been about that percentage over the time frame.

The previous Controller in 2010 called for a long-term debt policy that would act as "…a strategic tool for determining affordability and setting priority for financing capital projects".

Pittsburgh Taxpayers’ Debt Load Getting Lighter

In 2011, the debt per capita in Pittsburgh was $1,901, based on the Census count of 306,000 and $581.8 million in general obligation debt of the City.  A decade earlier the average resident carried a much heavier debt load of $2,651.  Both the debt and the City’s population were higher in 2001 but debt has fallen faster than population in the intervening years resulting in the per capita debt drop. 

 

 

It is no small feat what the City has accomplished with regards to its debt.  Over that time frame it resisted issuing new obligations and set a target for bringing down the ratio of debt outlays to general spending (which has been running around 20 percent) over the coming decade.  When the Act 47 team examined debt service as a percentage of operating expense in 2009, Pittsburgh’s 21 percent was well above Newark (4.6%), Buffalo (7.6%), St. Louis (7.9%), and Cleveland (11%). The City wants to get the level down close to 12 percent.

 

Beyond the obligations of the City government, Pittsburgh taxpayers are liable for various other debts issued by related governments that perform functions such as owning sports stadiums, land, parking facilities, and schools.  City financial data shows that City taxpayers are responsible for all the debt or a portion of debt for some of the other borrowers. A look at the decade from 2001 to 2011 shows that some shares have increased, some debts have disappeared, and some have increased.

 

2001

 

 

2011

 

 

Debt

(Direct and Overlapping)

Percent

Obligation of City Taxpayers

$ Amount (millions)

Debt

(Direct and Overlapping)

Percent

Obligation of

City Taxpayers

 

$ Amount (millions)

Pittsburgh General Obligation

100

885.7

Pittsburgh General Obligation

100

581.8

Stadium Authority

100

22.7

Stadium Authority

0

0

Auditorium Authority

50

13.5

Auditorium Authority

50

1.4

Urban Redevelopment Authority

29

64

Urban Redevelopment Authority

61

40.2

Parking Authority

100

83.9

Parking Authority

100

93.4

Pittsburgh Schools

100

399.4

Pittsburgh Schools

100

451.7

Allegheny County

25

176.3

Allegheny County

25

192.9

Total

 

1,645.5

 

 

1,361.4

 

While the City government’s debt was falling, so too was the debt of the authorities related to stadia and the URA.  The percentage of URA debt attributable to the City rose while the amount of URA debt fell. It is reasonable to assume the City has agreed to back more of that agency’s debt and, should it incur more obligations, the City would be on the hook for a larger share than in the past. By way of explanation, note that if the City were still responsible for only 29 percent of URA debt in 2011, the dollar amount of the obligation would have been $19 million rather than the actual $40 million it now actually has.

 

Going in the opposite direction by taking on more debt from 2001-2011 was the Parking Authority ($9.5 million), Allegheny County ($16.6 million), and perhaps most surprisingly, the Pittsburgh Public Schools ($52 million).  The School District has been losing enrollment and is currently being advised on what to do with twenty school buildings no longer in use. Some are in the process of being sold.  The District is expected to be “insolvent” by 2015 by some observers, so it’s puzzling as to why the debt was issued and why the District has not put itself on a self-imposed “debt diet”. 

 

In total, all the debt obligations City taxpayers are responsible for amounted to $4,926 per capita in 2001, falling by about 10 percent to $4,449 in 2011.  Note that much of the property tax in the City is paid by commercial and industrial properties, many of which are owned by non-residents who pay a large share of taxes collected in and by the City.

 

How does Pittsburgh compare to other cities?  As we noted in our recent Benchmark City report, the per capita debt in Pittsburgh was 64 percent higher than the Benchmark City just on general obligation debt, and that the gap between Pittsburgh and the Benchmark shrank since we did our first Benchmark report in 2004 (it was 233% higher then).  But how about Pittsburgh compared on the total direct and overlapping debt to another city that is very similar on population and square mileage?  The City is Stockton, located in the San Joaquin Valley of central California.

 

The City has a lot of debt applicable to it in varying shares: school district, community facilities, and its own general fund and pension obligations, and the total comes in at $1.065 billion, just about $300 million less than Pittsburgh’s direct and overlapping total, and with a population of 296,000, the typical Stockton resident’s share of the debt is about $850 less than Pittsburgh’s ($3,601 to $4,449).

 

It is worth noting that Stockton’s pensions are in better shape than Pittsburgh’s (88% funded combined for police, fire, and non-uniformed employees compared to 62% combined for Pittsburgh) and it has slightly less accumulated in unfunded liabilities for other post-employment benefits like life insurance and retiree health care ($416 million in Stockton vs. $488 million in Pittsburgh).  Despite all the foregoing, the City of Stockton has been walloped by the effects of the recession and the housing bubble and it was successful in its Chapter 9 bankruptcy filing with a favorable ruling from a Federal judge in March. 

 

But the Stockton case does point to the absolute necessity of restraining municipal spending and being very prudent in agreeing to overly generous compensation and pension packages.  A lesson that Pittsburgh must keep in mind as it works its way out of distressed status and seeks to have the state appointed financial oversight board removed. 

 

Road Work

Allegheny County’s Department of Public Works fielded fewer calls to repair the bane of nature’s fury, also known as the pothole, this year, according to a news article. As to how reliable the science of tracking complaints are (for instance, when a driver hits a pothole, do they know whether to call PennDot, the county, or the municipality and does the recipient of a wrongly-placed call tell the caller to redirect their ire to the proper place, and, if so, does that indeed happen?) but the article says that the County itself took 59 calls this winter, 54 in 2012, and over 100 the two previous years, including 2010 when the blizzard hit.

The County’s CAFR provides operating indicators and capital assets for Public Works’ functions (they are way in the back of the document) and that data shows that from 2002 to 2011 the County did not add a lot of infrastructure: it had the same amount of lane mileage (818), the same mileage of paved streets (395), the same number of bridges less than 8 feet in length (181), the same number of bridges between 8 and 20 feet in length (149), and added 1 bridge greater than 20 feet in length in 2006, bringing its inventory to 192. It has 9 fewer vehicles than it did in 2005 (130 now), and added 59 pieces of heavy equipment since 2005, bringing the total to 430.

The operating indicators show that in 2011 the Department spent 298k man hours on winter road maintenance (all activities) and purchased 19k tons of salt to melt snow. The high water mark (maybe the high snow mark is more apropos) was in 2010 when the man hours for winter road work topped 374k and nearly 27 tons of snow melting salt was purchased (based on the tonnage bought and the price paid by the County a ton averages about $50).