Will the State Act on Allegheny County’s Mass Transit Situation?

The wolf is sitting on the doorstep at the Port Authority of Allegheny County (PAT).  A little over six months from now the agency will be staring into the abyss of a $64 million budget shortfall for the fiscal year beginning July 1, 2012. 

 

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Time for Port Authority to File for Bankruptcy

Once again the Port Authority chief executive is warning of disastrous cuts in service if the state does not come through with more funding; something the Governor has suggested is not on the front burner for discussion at the moment. According to the Tribune Review of November 2, the legacy costs of the Port Authority are now a fourth of its total expenditures and slated to rise even further in coming years. The Allegheny Institute has warned of this preposterous situation for years as nothing meaningful has been done to address the problem.

Instead of cutting into these costs and lowering current compensation costs the Authority has engaged in service cuts to lower spending. And while some early service cuts were useful in eliminating costly low volume routes, recent reductions have cut into service affecting large numbers of riders. That action is all management can take in the face of union intransigence and bargaining power backed by the threat of strikes.

The time has now arrived to face the bitter truth. Taxpayers should not be asked to ante up ever more money to pay benefits to people who are retired and not providing any service. It does not matter if previous boards were too generous or whether union bargaining power was overwhelming, the situation must now be dealt with in the only manner possible-bankruptcy relief. Unless the monstrous burden of legacy costs are reduced, there is no future for Port Authority other than continued shrinkage of service offerings or ever increasing taxpayer subsidies to cover benefits that produce no product.

Authorities are not allowed to declare bankruptcy in Pennsylvania so it will be necessary for the legislature to change the law governing authorities to allow PAT to file for bankruptcy. Then it needs to create an oversight board with the power to order the bankruptcy to be filed and then to oversee the implementation of the terms of the bankruptcy judge’s ruling.

This fiasco has to end. Concessions by current and retired employees would be a good start but are so unlikely that it makes no sense to continue hoping for that to happen. Drastic corrective measures are called for. Only Harrisburg can do what needs to be done. It could start by eliminating the right to strike as a quick step in the right direction.

One Last Chance for Harrisburg

Distress, and receivership, and bankruptcy, oh my! The continuing effect of Harrisburg’s Resource Recovery Facility-the incinerator-turning the capital city’s finances to smolders continues on as the Governor signed into law what is now known as Act 79, providing for fiscal emergencies in cities of the third class, of which Harrisburg is one.

According to the Governor’s press release, the act gives the City "a final opportunity to develop or agree to a financial recovery plan that is acceptable to the DCED secretary". The City has thirty days altogether, but the plan must be completed and sent to DCED within twenty days. That leaves the remaining ten for review and time to pass an ordinance codifying the plan locally.

If the Council opts not to take that opportunity, then the law triggers an emergency action plan that ensures public safety and other municipal services are carried out at the discretion of the DCED secretary.

Pending behind these two separate courses of action is a Chapter 9 municipal bankruptcy filing, an action that is supposed to get a hearing sometime in November depending on what happens with the provisions of Act 79. One Council member stated "We’re going to be bankrupt in five years anyway" and that "Under the state’s receivership plan…the city would likely have to sell water and sewer assets as well parking garages, but filing bankruptcy now could prevent such drastic measures." That’s taking a leap of faith in that the bankruptcy court could call for remedies that could be quite similar to what the state would attempt; it is unknown, but the Council members advocating for bankruptcy might be hoping to see something similar to what happened in Westfall Township where a $20 million debt was negotiated down to $6 million in bankruptcy court.

But what is being talked about is a $310 million debt and a rather rapid timeline to get something done. The previous Governor said there was "no Santa Claus" riding to rescue the City but then released money to help them make a bond payment. This time things look different, and no one is going to eat the outstanding tab.

Supreme Court Undermines Act 47 Coordinators’ Authority

A recently announced momentous decision of the Pennsylvania Supreme Court has severely limited the power of Act 47 to impose steps aimed at helping financially distressed municipalities return to fiscal stability.

 

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Port Authority Staring into the Abyss—Again

In what is fast becoming an annual rite of fall, the Port Authority (PAT) has issued an advisory telling one and all that disastrous service reductions are coming unless state taxpayers come up with tens of millions of additional dollars to support its spendthrift ways. 

 

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For Lease or Sale: Parking Garages

No, this is not an advertisement from the City of Pittsburgh, who spent much of 2010 debating a long-term lease of Public Parking Authority assets to solve its pension woes. Instead, it is a recommendation made by the Act 47 coordinator for the state’s capital city, Harrisburg, which faces a significant debt burden due largely due to its involvement with a trash incinerator. Annual debt service is $18 million a year and there is $220 million outstanding on the facility.

Avoiding a Chapter 9 bankruptcy filing, according to the Recovery Plan, requires the patience of the parties the City owes money to, a consensual debt solution, and a reopening of the three labor contracts the City has.

With a structural operating deficit 19 jobs are slated for elimination and the only way out of the debt problem is to sell the incinerator and sell or lease the assets of the Harrisburg Parking Authority. We wrote in a blog last October about a plan for Harrisburg that would have involved issuing new debt to help the City with its incinerator issue. Now it appears the 8,300 plus spaces and possibly 1,200 metered spots could go up for sale or lease. That’s about half the spaces that would have been involved in a Pittsburgh lease proposal. Harrisburg also has a revenue sharing arrangement with its Parking Authority akin to the one here in Pittsburgh, with the HPA transferring anywhere from $3.5 million to $4.0 million per year to the City in the past few years.

Bankruptcy for PAT? Councilman Agrees with Institute

A member of County Council plans on introducing a resolution this evening that, if approved, would call upon the Governor and the General Assembly to permit the Port Authority to file for Chapter 9 bankruptcy. Right now, under Pennsylvania law only municipalities are able to file for bankruptcy, so it would take an act of the Legislature to extend such ability to an authority like PAT.

It is an idea the Allegheny Institute first raised in a Policy Brief this past November (see Volume 10, Number 65) for the reason that the legacy cost burden for PAT was so severe "benefits" would soon be outpacing "wages". With transit workers preferring layoffs to benefit concessions and enjoying the right to strike, PAT management is left with the choices of cutting service and/or raising fares. The resolution states that "…the best interests of the Port Authority of Allegheny County and the County’s residents may be served by seeking the protections afforded by Chapter 9…"

Federal bankruptcy law allows states to permit or forbid bankruptcy filings by their local governments and to place as many pre-conditions on filing as they wish, including defining which types of local governments can file. In Pennsylvania filing is restricted to municipalities and the conditions are laid out in Act 47. Philadelphia and Pittsburgh have additional pre-conditions upon them. Since the PA Constitution prevents revocation of already granted benefits by ordinance or statute, the bankruptcy court would be an avenue under which the Authority could get pensions and benefits under control.

So will Council pass the proposal? Who knows. Given the fact that the Council stands ready to implore PAT to spend all of its bailout money ASAP they seem content to think that the state will be ready to rush in with more money. Unfortunately, recent history has proven that line of thinking to be accurate.

County Council Continues Its Irresponsible Voting

Hard on the heels of its repugnant and indefensible vote to smear W and K Steel by designating it as a “sweatshop”, County Council has added to its irresponsible record by voting unanimously for a resolution urging the Port Authority (PAT) to spend all the recently received bailout money by June 30 to avoid impending service cuts and layoffs.

 

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Act 47, 48, 49…

As the discussion over whether states should be allowed to declare bankruptcy heats up (they cannot do so now) several states are taking steps to make their oversight of local government finances stronger. A Wall St. Journal article notes that California, Michigan, and Indiana are among a group of states that is seeking to take steps to enhance oversight and distress statutes.

Pennsylvania is no stranger to distress provisions. There is Act 47, that has been in place for over twenty years, and oversight boards have been created specifically for Philadelphia and Pittsburgh. A national expert on the subject points out that "more than half of the states have some sort of active supervision or financial review of local governments" and the attention has only ramped up as bond defaults, bankruptcies, and fiscal stress becomes more of a reality for state and local governments.

If Pennsylvania can provide a lesson it would be that unless there are some very strict and possibly uncomfortable reforms, states can expect their local governments to be in oversight for quite a long time. Some Act 47 communities have been in for quite a long time and Philadelphia will be under oversight until bonds are paid off, which is sometime early in the next decade. The theory on strengthening distress is to stave off Chapter 9 bankruptcy, which may be the only real solution to many municipalities’ fiscal problems.

Op-Ed Misfires on Commuter Tax

A recent opinion piece in the Harrisburg Patriot News states "Harrisburg needs to have financial options to raise revenue. One of those options, despite the renewed opposition by some elected officials, is a commuter tax…If a modest commuter tax is part of a broader and comprehensive plan to finally get the city on the mend, then our local representatives should be out making the case for it…"

Harrisburg has serious financial problems, for sure. The city was declared distressed under Act 47 in December of 2010 and the specter of Chapter 9 bankruptcy is very real. The editorial points out that Harrisburg has already taken advantage, as many other cities and towns have, of the state permitting an increase in the Local Services Tax to $52 on every person who works in Harrisburg regardless of where they live. That boost came about in 2005 when Pittsburgh was a newly minted Act 47 municipality and complained that it was not fair for people who work in the City to be paying a $10 occupational privilege tax. The tax was increased, renamed, and the General Assembly allowed all municipalities that wanted to increase the tax up to $52 to do so. The proceeds of the tax were directed toward public safety and public works functions.

A "commuter" tax under Act 47 would be percentage based on wages, but if a court was to permit Harrisburg to levy the tax it would have to enact a commensurate increase on residents of Harrisburg by the same percentage. It does not fall exclusively on people living outside the city who work there. It would not be long before residents paying a higher wage tax would see that there is a bit of false advertising in the name of sharing the tax burden.

And besides, where is the proof that more revenue will solve the City’s problems? The close to two and a half decades’ history of Act 47 shows that there are twenty municipalities in Act 47, some for a very long time, and only six municipalities have seen their distress status rescinded. Chances are that many of these places had or still have a higher wage tax under Act 47 yet still linger under supervision.