Tag Archives: budget

Major Changes in the Makeup of the Port Authority Board

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The Governor has signed legislation that will dramatically alter the board of directors of the Port Authority (PAT).  What was a nine member body with members serving staggered five year terms and appointed solely by the Allegheny County Chief Executive will become an eleven member body with members eventually serving staggered four year terms with appointment power shared by six individuals.

 

 

The idea behind what is now Act 73 of 2013 began germinating a few years ago with recurring financial problems at PAT.  The argument was made that since the state put in a significant portion of PAT’s budget there ought to be state level appointees on the board.  The Auditor General’s 2007 performance audit of PAT called attention to our work (see Policy Brief Volume 7, Number 9) and that of the 2006 Governor’s Transportation Commission’s thoughts on the matter, and pointed out that “taxpayers from across the state have been providing most of the funds to operate [PAT] for many years…the governing structure of [PAT] must be changed to include permanent representation by the state on the behalf of state taxpayers”.  The Authority did not challenge the Auditor General’s argument in its response to the audit, noting that state law determines who serves on the board. 

 

Fast forward six years to this year’s legislative session.  A bill changing the PAT board was introduced in the Senate in early June.  Though the Act went through many changes, these items remained the same from the first proposal:

 

  • A new board would have eleven members.
  • The Governor and the legislative leaders of both chambers would make appointments.
  • Board members would be term limited and would have to possess a background in finance, transportation, or economic development.
  • PENNDOT would be charged with undertaking a study on what benefits consolidation and privatization can have on revenues and expenses.

 

Most of the changes dealt with how to apportion local appointments.  In earlier versions of the bill the County Executive would have had either one or four appointments to the new board.  The Mayor of Pittsburgh, County Council at Large members, and County Council members of the opposite political affiliation of the Executive would have had appointments but those were eliminated as amendments were adopted.  The final version of the Act gives the Executive six appointments in total. Here’s how those appointments will be made: four will be chosen freely by the Executive, and two will be drawn from a list compiled by four community-based organizations and confirmed by County Council.  There is no requirement that a member of County Council serve on the board as the law currently requires, but a member could certainly be appointed. 

 

The terms of current board members end in 60 days, and the law permits any of those members to be reappointed.  Once the new board is seated, the terms will be staggered so that expirations occur at various times.  Board members cannot serve more than three consecutive terms, including the initial appointment.  The table below shows when appointments would be made over the next decade.

 

Appointing Official

Years Making Appointments

Governor

2013, 2017, 2021

Senate Pro Tem and Senate Minority Leader

2013, 2017, 2021

House Speaker and House Minority Leader

2013, 2016, 2020

County Executive-2 free nominations

2013, 2015, 2019

County Executive-2 free nominations

2013, 2016, 2020

County Executive-2 nominations drawn from list and confirmed

by County Council

2013, 2015, 2019

 

Assuming all of the initial 2013 appointments serve for the maximum three terms, the appointees of the Governor and the Senate leaders will have served twelve years, House leadership appointees and two Executive appointees would have served eleven years, and four Executive appointees would have served ten years.

 

A quorum for meetings is six members, but it will require seven members to “take action on behalf of the Authority”.  That means it could require one state level appointee to join with the six County appointees on a decision, or, conversely, two County appointees to join with the state appointees to get business moving forward.   Obviously the point of this requirement is to ensure that the County-level appointees can’t do anything unilaterally without at least one state appointee consenting.

 

The state will exercise significant power on the board in two other ways. First, for adopting by-laws, appointing a CEO, authorizing bonds, borrowing, leases, and contracts in excess of $5 million the two board members appointed by the General Assembly who are not of the same political affiliation of the County Executive can move to table this business to stop it and/or second it to move it forward.  Under current partisan arrangements, that would mean the appointees of the Senate Pro Tem and the House Speaker would get important veto power over these areas. 

 

Second, the Governor’s appointment is the only one that does not have to be a resident of Allegheny County, only a resident of the Commonwealth.  This appointee might come from another part of the region or another part of the state and would provide a broader perspective should indeed the Governor not select someone residing in Allegheny County.

 

A statewide say on PAT business, board members with qualifications, and a study to determine what exactly privatization and consolidation can bring: is a new day dawning for PAT? While not as draconian as it might have been, the just enacted law will certainly offer opportunities to bring professionalism and business acumen to oversight of the Authority.

Philadelphia, Too

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Our Brief this week covered the efforts of consultants working with the Pittsburgh Public Schools who laid out per-pupil spending comparisons for Pittsburgh and a peer group of similar districts in Pennsylvania. We noted Allentown, Reading, Scranton, Erie, Hazelton, and Lancaster as being in that comparison group but failed to note that the state’s largest district, Philadelphia, was also in that group.

Based on the consultants’ data, Philadelphia spent about $6,000 less per-pupil than Pittsburgh before ($20,477 to $14,132) and after ($18,371 to $12,988) after they came up with an adjusted amount.

Imagine that: if Pittsburgh was to spend at the per-pupil level of Philadelphia, its budget would be more than $100 million less than at present. If Philadelphia-which is facing a $300 million shortfall and has plans for new taxes, higher taxes, and requests for state money-its budget would be more than $4 billion rather than the $2 billion it is today.

Are Consultants Finally Seeing the Light?

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In early 2013, the Pittsburgh Public Schools announced it was going to use a $1.2 million foundation grant to hire consultants who would help steer the District through a "large scale visioning process" leading to a strategic plan to be delivered to the Commonwealth by 2014. Some of the work completed by the consultants was reported in a newspaper article and, lo and behold, the consultants found that the District spends more per-pupil than comparable districts in the state (the article did not identify the other districts, and the findings are not on the District website) by a margin of $6,800.

We have written much over the years about per-pupil spending in the Pittsburgh Public Schools so the findings should not be much of a surprise. Based on the statement of the District’s Superintendent ("the board has to have the facts on the table") does this mark a turning point in how blunt consultants working with the District will be?

Consider that in 2005 an audit found that, when examined against various school districts in the northeast and Midwest U.S. consultant data revealed the Pittsburgh Public Schools spent 20-45% more per pupil and spent less than half of their budget on administration and instruction (meaning they spent money on other expenditures) and yet could only recommend closing schools (something that was being planned on at the time) and obtaining savings that would have amounted to less than 5% of the budget. Much was left unanswered.

A year later the Council of Great City Schools came to the Steel City and presented its own set of overly general recommendations and they too left out the critical measurement of per-pupil spending when looking at districts from Chicago to Boston to Orlando. The resulting 59% gap between Pittsburgh and the other cities would have led a consultant to recommend steep expenditure reductions until the gap was closed.

But here we are in 2013 with a new set of consultants still finding a gap in per-pupil spending and there is still a gap in time before recommendations will be delivered and then, possibly, implemented. The District has said it would like to "…cut that [$6,800] gap by $2,000 a student" (the consultants’ adjusted per-pupil amount for Pittsburgh was $18,400 for 2011-12) but based on the 2013 budget ($521.8 million) and the enrollment posted on the District’s fact page (26.4k) the resulting per-pupil amount is closer to $19,718. A decrease of $2,000 per pupil means the budget target would have to be $448 million (if enrollment holds steady) or enrollment needs to grow to 30,000 if the budget stays flat to arrive at per-pupil spending closer to $17,000. And then what? Does the District want to drive spending down past that or make it a one year goal to serve as a baseline for future increases?

RAD Creates New Category for PAT

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In the 2013 preliminary budget for the Regional Asset District (RAD), total proposed spending would top $88 million: $85.5 million from the half of the sales tax proceeds that go to the District to fund cultural, recreational, and sports facilities; close to $3 million from reserves; and the rest from interest.

The District allocates money to contractual assets (the zoo, libraries, the aviary etc.), multi year assets (money to the Sports and Exhibition Authority for debt service), annual assets (a group that includes a variety of organizations that make annual petitions) and a small share for administration. Next year marks the beginning of a new category-provisional-for $3 million requested by the Port Authority (PAT) as part of an agreement brokered by state, local, PAT officials and PAT employees to avoid service cuts in September. Recall that we pointed out in a Brief earlier this year that RAD had come to the aid of another authority from 2007 through 2010 (the SEA) but the SEA was lumped in with the annual grants along side groups like the Pittsburgh Symphony and the Civic Light Opera.

It is not clear if, by creating this new category, PAT will be required to be put in line for budgetary consideration each year or if the $3 million is guaranteed for a certain number of years. The preliminary budget, which was put together by the District’s allocations committee, notes that "the decision on this unique request needs to be made by the full board after review of the information that has been provided by [PAT] since the [initial] hearing and after public input is received". The committee pointed out that inclusion in the budget did not constitute endorsement, but to show what the budget would look like with it in.

Contractual assets are slated to get $1.8 million more in operating money next year than this year; the multi year debt service payments to the SEA are expected to go down slightly (by $44k due to a drop in arena debt service); annual operating grants are up by $209k, but there was some churn from 2012. This year, 77 organizations received annual RAD operating support; in next year’s preliminary budget six of those organizations are gone (they received a total of $74k in 2012), leaving 71 organizations that received 2012 operating support in consideration for 2013. Of those, 45 are to receive more money than they are in 2012 (increases vary considerably) and the other 26 are slated to receive the same as they did in 2012. There are three organizations that appear in the 2013 preliminary budget that did not get annual operating support in 2012 (the three combined will get less than $10k).

Pittsburgh: Exit Act 47, Enter Act 141?

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As City officials prepare to make their case to the state that they have progressed to the point where they can shed Act 47 distressed status, just up the road at Pittsburgh Public Schools’ headquarters they are asking whether the District is in such financially bad shape that it will be "bankrupt" in three years. One board member asked "By 2015, are we broke, out of business?" to which a consultant replied, "correct".

That’s a bit strong. Districts cannot go bankrupt in Pennsylvania as they are not permitted to file by the state (only municipalities can). But there are new provisions in state law under Act 141 that prescribe how the state, through the Department of Education, is to deal with school districts facing financial distress. We wrote about the legislation before it was singed into law this past June.

Act 141 applies to all districts in the state except for Philadelphia. A district can fall into either "moderate" or "severe" distress and for a district deemed as such (the law says there cannot be more than nine at one time) the state will appoint a Chief Recovery Officer who will write a recovery plan. The plan has to be approved by the district’s board, and there are procedures for what happens if approval is delayed. There are a variety of tools for getting a district back to sound financial footing from reopening of budgets, examining contracts, exploring charter schools, and other options. Exit from financial recovery depends on the progress of the district and the determination of the Secretary.

Is Pittsburgh headed here? Who knows? There might be other options on the table, but as the Superintendent noted "We believe there’s a way forward. It may not be something we thought of before. It may not be something that comes to the mind readily. It may not be something that’s easy to arrive at."

What to Make of 2013 County Budget?

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Tomorrow evening the County Chief Executive is expected to present the budget for 2013. This will be the first budget for the current Executive as this year’s budget was enacted in December of 2011 after he was elected but before he took office. The budget was unsigned by the previous Executive and contained a 21% property tax hike.

This year’s plan is expected to finish out at $784 million: the bulk of it, $676 million, is in the general fund, $76 million in debt service, $4 million in liquid fuels fund, and $27 million in the transit support fund.

2011’s budget dipped slightly from 2010: $767 million from $773 million. The coming year is going to be based upon new property values and the readjustment of the millage rate. Will the Executive propose a tax increase following the reassessment and the revenue neutral rate? It is possible for the County to take 5% more than it would collect in property tax revenue this year, but that has to happen in a separate vote. Going higher requires the permission of the courts.

Beyond that, the 2013 budget will be the first to receive money from the impact fee on horizontal drilling for natural gas. According to our estimates and those from the state the County is expected to receive $79,000 from drilling, and about $1 million set aside from the "legacy fund". The use of those revenue is spelled out in Act 13, with legacy fund dollars specifically tied to environmental purposes.

Pittsburgh Schools Staring at Huge Deficits

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In its recent proposed budget document for fiscal 2013 and the outlook through 2016, the Pittsburgh School District reveals rapidly expanding deficits over the next four years. Spending is projected to rise from $516.5 million in 2013 to $561.9 million in 2016, while revenue edges up a slim $6 million from $512 million to $518 million.

Causes for the $35 million jump in spending are listed as; salary increases, swelling pension payments, and expanding health care costs. Much of the rising costs is locked in by labor contracts and long term obligations entered into years ago. Realistically, significant savings can be achieved only through more personnel cuts or a large turnover in staff in which senior, high paid employees are replaced by entry level and lower compensated workers.

Layoffs of teachers can occur for only two reasons: one, declining enrollment and two, elimination of programs or some combination of the two. Thus, it is difficult to project declining employee compensation through layoffs. Eliminating entire programs is possible, but at some point program cuts can reduce the quality of the educational experience and make the District even less attractive. The state law that imposes the idiotic set of requirements needs to be addressed. It is far better to add a couple of kids to each class rather than eliminate a science program or foreign language courses.

But be that as it may, Pittsburgh schools are looking at serious financial trouble. There is one path to lower spending still open although it is not a desirable one. Note that enrollment continues to slide, dropping below 25,000 in the last school year. The decline in student count has been falling at a rate of over 1,000 per year for many years. The latest census shows a significant drop in the population in the numbers of children who will be of school age in the next years. There was also a big decline in the numbers of adults in the child rearing age groups suggesting that the Pittsburgh Schools are a major factor in outmigration.

Ironically, the District can cut spending growth only by continuous downsizing its operations. The tragedy is that spending per student is holding above $21,000 and will rise even further as enrollment drops. Expenditure cuts cannot match enrollment reductions because of the pension and health care commitments and the increases in costs they will entail.

The answer for education in Pittsburgh is-as it has always been-to adopt a voucher program and allow children and parents to attend schools of their choice. Maintaining the government monopoly schools to protect the teacher unions and the educrats who benefit from the state run monopoly that fails in its moral obligation to prepare students for life after school is disgraceful. The never ending string of excuses will continue unless or until Pittsburgh parents and residents demand change. The state could help with a voucher law, but the state has shown itself to be content to live with the status quo. As a result thousands of Pennsylvania children are being denied the opportunity to participate fully in the American dream.

No Big Surprises in City Budget

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An annual growth rate of about 3% per year in expenditures; no increases to existing taxes and no real proposals for new types; still wrestling with legacy costs such as debt, pensions, post-employment healthcare, etc.

That basically sums up what came from the release of the City of Pittsburgh’s 2013 budget and five year financial forecast submitted to the oversight board last week. The City expects to finish 2012 with expenditures of $459 million, growing to $469 million next year. Operating departments and debt service will be higher, but pension/health benefits/workers’ comp will be down slightly. In 2013 and the years to come operating expenses represent about 50% of total expenditures, the other half going to the aforementioned non-operating costs of pensions/health/workers’ comp and debt service.

The biggest adjustment for the City, like the County and the other municipalities, will be adjusting the property tax rate when new values are certified. The City’s rate held steady at 10.8 mills when it was adjusted following the 2001 reassessment (the City used to tax buildings at one rate and land at another) and was really the only tax untouched by the reforms of the Act 47 and oversight years in which new taxes were created, others eliminated, and some rates defined in state law.

Retired Prof Illustrates the Perils Academe Creates for the Economy

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One Charles McCollester, retired professor of Industrial and Labor Relations at Indiana University of Pennsylvania, writing in the P-G letters column reveals for all to see which side of Industrial and Labor Relations he shows solidarity with.

In the letter the retired prof launches a withering attack against Governor Corbett saying he is the most anti-labor governor since the late 1920s. And what does he base this on? First, he berates the Governor’s refusal to turn over more state dollars to the Port Authority unless there are substantial union concessions. This is an Authority that is in financial chaos owing to overly generous labor contracts in the past that have created legacy and compensation costs the Authority cannot afford absent the state taxpayers heaping more dollars onto a system that cannot be saved short of bankruptcy. The professor should do modicum of research before weighing in on a situation he knows precious little about.

Second, he caterwauls about trying the Governor’s attempt to break the teachers’ unions by slashing school spending and recommending vouchers. Apparently, the well- publicized huge budget deficit facing the Governor last year and the need to cut spending did not reach Indiana. Or if it did, the professor chose to ignore or believed it was all a Republican trick. Perhaps the professor does not believe that school employees should share in the financial hardship so many Pennsylvania taxpayers were going through during the economic downturn. And, it is also apparent that the refusal of teachers to make voluntary small sacrifices such as deferring pay increases in cash strapped school districts was entirely justified. Stick it to hard pressed taxpayers-that’s the ticket according to those who share the world view of the professor.

Vouchers for kids in grossly inadequate public schools? No way say opponents. That would undermine the wonderful public school monopoly the teachers and other members of the educational establishment enjoy and benefit so handsomely from.

And the professor wraps up his know-nothing screed by attacking the foundation community in Pittsburgh for asking the financially distressed Pittsburgh school district to consider the quality of teachers to be let go as opposed to following strict seniority rules. His argument-stop the cost cutting in the first place. Clearly, the professor has not followed the many reports of the excessive cost structure in Pittsburgh schools where spending tops $21,000 per student and academic performance in many school buildings is below miserable. The legacy of refusal to even nod in the direction of real reforms and the damage done to the cost structure by unions and do-gooder educrats have essentially ruined what was great school system. Time to pay the piper has arrived and all the professor can do is cry about the attack on seniority rules that are one of the biggest factors creating the long slide to a sub-mediocre school district.

How many Indiana University students have had their view of the world hopelessly distorted by the professor and the legions of other faculty members like him?

One Time Fixes an Every Year Thing

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"It is the County’s goal to ensure current year revenues are sufficient to fund current year expenditures without the use of non-recurring revenues. However, non-recurring and unbudgeted areas of funding used to finance expenditures were as follows". This boilerplate language appears every year in the County Controller’s Comprehensive Annual Financial Report (CAFR) under the section "Relevant Financial Policies" as a way of saying that the County has a goal to live within its budgeted means but cannot.

Since the 2007 CAFR-covering the 2007 fiscal year, which for the County runs on a calendar basis-through the newly released report covering 2011, the County has used the following amounts of non-recurring revenues: $41.8 million, $24.7 million, $35.2 million, $48.9 million, and $45.6 million. The sources of the revenues varied-gaming money, sales of property, state funds, etc. That adds up to the nearly $200 million referenced by the County Controller in the conference releasing the new CAFR.

Recent uses of non-recurring revenue came about even though the previous County Executive pledged in September of 2009 that "the county’s long-standing practice of balancing its finances with one-time revenue sources is a thing of the past." The $50 million deficit that the former County Controller predicted in April of 2009 that would surface in 2012 was tempered, supposedly, with the 1 mill tax increase passed by County Council at the end of 2011. Whether the County avoids using non-recurring revenue this year will become clear upon the release of the 2012 CAFR.