Proposed Zoning Changes Could Harm Efforts to Maintain Navigable Rivers

In December 2015 the Mayor’s office issued a press release promoting a change to the zoning laws regarding riverfront development within City borders.  The claim made in the release is that the old zoning designations of “urban industrial” or “general industrial” are no longer useful and need to be changed to reflect the more commercial, residential, and mixed use development goals of the City.

 

While it’s very clear that the City’s once world class industrial might is in the past, the administration needs to be mindful of the reason the rivers are the attraction and resource they are. They exist as they do because they were developed to provide navigable waterways to transport the materials and products that supported the growth of an extractive and industrial economy that was the source of Pittsburgh’s economic prowess for decades.   Absent the navigation infrastructure that maintains the minimum depth pools we see today, Pittsburgh’s rivers would revert to their natural state and that would mean frequent very low, unusable and far less attractive water levels.  We expound on this point below.

 

The City’s Planning Commission recently recommended an amendment to the planning code called the “Riverfront Zone Overlay District” (section 907.02.J) which would tighten the zoning laws.  City Council has not yet approved the amendment. Overlay districts, as defined by the Department of Community and Economic Development’s Center for Local Government Services, “…are placed over the original districts and apply additional provisions that are either more restrictive or expansive, or that may provide for different uses or design standards than the original district regulations.”  The overlay district would be in place for 18-24 months while new, more permanent, regulations are put in place.

 

There are recommendations that create concern found in the section of the amendments called the “Need for Interim Zoning” (907.02.J.2).  The purpose of the new rules, among others, is to “design requirements for development consistent with the evolving character of the neighborhoods” and to give “neighborhood stakeholders input on projects which have a high impact on the public realm.” That would appear to have far reaching and potentially powerful impacts on the types of uses and construction that would be permitted over a very wide area.  Furthermore, another reason for the change in zoning, under the “Intent” section (907.02.J.3) is the desire for more “green space” and to provide enough of a riverfront setback to, among other things, create space for a linear, continuous riverfront trail.   With many of the industries relying on riverfront access to the water, will they be pushed back to make room for trails?  This can also limit the type of industry looking to move into the City as they will be barred from river access.

 

The consequences could result in chasing out or severely restricting expansion opportunities for the industrial or commercial firms currently using the rivers.

 

And what if these stakeholders succeed in chasing out industrial firms?  As mentioned above the development of navigation infrastructure helped support industry through the 20th century by keeping river water levels stable and deep enough to carry barge traffic. Most of the population is either unaware, or only vaguely aware, that the rivers were dammed to create navigable waterways that enabled industry to thrive in Pittsburgh and up and down the three rivers.  These locks and dams are owned and controlled by the US Army Corps of Engineers (USACE).  Because of the lock and dam system the USACE, in its Upper Ohio Navigation Study: Pennsylvania (2014), estimates that Allegheny County has led the state in the number of boat registrations for a number of years.  They also estimate that the number of non-registered boats (kayaks) went from 1,400 in 2004 to over 9,000 in just a few years.

 

The lock and dam at Emsworth is an important element in keeping the rivers in Pittsburgh at full pool level.  This lock and dam were built in 1921 and were rehabbed in 1984.  Thus it has been over 30 years since the rehab, and nearly 100 years since they were constructed.  The USACE estimated that in 2008, 21.27 million tons of cargo passed through the Emsworth lock, down from 24.08 million tons in 1970.  The report further explains that the area has shifted from being dependent upon coal and steel to one that is dominated by health and education.  These sectors of course are not dependent upon the waterways.

 

In a very ominous sentence the USACE report says, “The question then becomes whether the continued maintenance of the navigation system is warranted given the potentially large investment that will be needed to modernize the aged projects.”  The USACE report also notes that the movement to minimize the use of coal fired plants for electricity generation could lead to even less coal being moved by barge and that the “…effects on barge transportation of coal could be negative and greatly diminish the utility of the waterborne transportation system.”

 

According to the Port of Pittsburgh Commission (PPC), Pittsburgh is the third busiest inland port in the nation and twentieth busiest overall in the country.  In 2013 it handled over 33 million tons of cargo.  Each lock on the Monongahela and Ohio handles approximately 9,000 barges per year.  And of course barge cargo hauling is much cheaper than other modes, costing between $0.005 and $0.01 per ton mile (PTM) which is much cheaper than rail ($0.05 PTM) or truck ($0.10 PTM).  According to a PPC survey, receivers of sand and gravel, key components in cement and asphalt, stated that “trucking costs for local product are double the barge cost and the trucking cost for product delivered from outside the PPC District are triple the barge cost.”  And that does not include the damage to area roadways if truck becomes the only method of transporting this aggregate.

 

Without the incentives to maintain the lock and dam system in the region, the navigation infrastructure will be in jeopardy.  After all, the justification for the USACE to build and maintain the infrastructure was predicated on economic benefits derived through the shipper cost savings derived from transporting cargo on the waterways. Unless the USACE adopts new criteria for justifying expenditures for lock and dam maintenance and construction, the decline in water cargo traffic will eventually lead to lock and dam failures as spending for maintenance and upgrades falls.

 

Suspension of support has already happened on the upper Allegheny River where the last four locks on the river (Clinton, Kittanning, Mosgrove, and Rimer) have been closed except for special events to recreational boaters.  A local non-profit raises money to keep locks operating on the weekends during the summer.  Will the stakeholders along Pittsburgh’s riverfronts be willing to pay to keep locks and dams in good repair should industrial users and barge traffic be driven off the rivers?  Would they be willing to pay more to repair roads that were damaged by the increase to truck traffic delivering goods such as sand and gravel for construction or even salt for keeping roads clear of snow?  Recreational use of the rivers could become extremely problematic in many dry summer seasons.

 

As mentioned above, Pittsburgh’s huge industrial prowess might be in its past, but industry still plays a very important role for the City and region.  By utilizing the river, barge traffic provides the justification for keeping the deep, stable pools to which we have become accustomed for both recreation and other benefits such as stable water supply intake. Take the pools away and water intakes for municipal and industrial users would have to be rebuilt or other sources would have to be found.

 

While the new zoning overlay district proposal claims it will not affect existing businesses, the groundwork could be laid to push some “undesirables” out of the City by denying expansion or rehab opportunities.  The unintended consequence of such a zoning change could lead to damage of the stable pools on the rivers that make them attractive which drew many of these new stakeholders to the City’s waterfronts in the first place.

 

What is needed is close consultation with industrial users and prospective water transport users in the City and region to help promote the cargo shipping use of the rivers so as to maintain the economic benefits that the USACE—and Congress—must determine exist to justify large expenditures on the infrastructure. Otherwise the river communities will be forced to go to Congress to ask for money to maintain or rebuild the infrastructure on the grounds they want to use their boats or that their waterfront views will not be attractive without the dam created pools.  That might well prove to be a very hard sell.

 

This should serve as a cautionary note for City zoning planners to be very careful about the tone they take in remaking the riversides.  Indeed, the City ought to be working with other parts of the region and the industrial users of the waterways to make sure they are utilized even more than now. Driving coal barges off the rivers might seem like a great thing for the clean air proponents, but if the navigation infrastructure is allowed to deteriorate as result of low barge traffic, the long run implications for Pittsburgh and the other river communities could be enormous.

Redeveloping the Lower Hill

Late in the summer, the Mayor of Pittsburgh announced that he wanted to establish the largest ever Tax Increment Financing district (TIF) in the City of Pittsburgh’s history.  The proposed TIF will stretch from the Lower Hill through the Upper Hill to the City’s Oakland neighborhood—in all seven neighborhoods are anticipating benefits.

 

The centerpiece of this TIF project will be a plan for the redevelopment of the 28 acre parcel of land where the Civic Arena once stood—a plan that was finally agreed upon by all parties involved, including the Pittsburgh Penguins, the Hill District community, and local government leaders.   According to the spokesperson for the Urban Redevelopment Authority (URA), formal resolutions of Intent to Participate will be sent to the three taxing bodies involved beginning in November.  If approved, which is a strong possibility since the Mayor and County Executive pushed for the plan, a TIF Committee will be formed and the TIF Plan will be created.  They are forecasting this to be completed sometime mid-2015.

 

The redevelopment project will be placed in the hands of the Pittsburgh Penguins as per an agreement which awarded them their new home in 2007.  Naturally, the officials and community leaders involved are lauding this plan as they are projecting that a twenty year TIF from this development will generate a minimum of $22 million to perhaps as much as $50 million to be used for public improvements in the other six neighborhoods.  The problem for analysts is that it is unknown as yet how much of the TIF funds will be used on the original 28 acre site.  And, the total amount of TIF borrowing has not been specified and the details of the plan have yet to be released to the public—but should be before the taxing bodies agree to participate.  Presumably, total TIF borrowing will be above $50 million.

 

According to the URA, who will be involved in the project, the TIF proceeds will help with “public improvements in support of commercial and/or residential development”, along with housing in the area, both for sale and rental properties, property stabilization to repair and preserve structures, and neighborhood parking solutions.  In a full length report from 1999, Report 99-06, we wrote, “a TIF project allows for “public improvements in a slated area (to be) financed by the increase in property taxes generated by private development.”  It is used in a blighted area where property tax receipts are flat or declining.  A bond is issued for the project.  As the development takes place, property values rise as do the subsequent property tax revenues.

 

In order for the TIF to proceed, a government body must issue a bond for the specified plan amount.  That is, the money is borrowed up front and repaid over time from the increment in tax revenue. However, if the development fails to generate enough of an increment in property taxes to satisfy the debt issue, taxpayers could then be on the hook for the bonds, or bond insurance would pay, resulting in a down grade of the issuing body’s credit rating. Either way the sponsoring government would suffer from the default. The Department of Community and Economic Development does offer a guarantee program for TIFs that guarantees $5 million per project.  However, this program is not available for projects located within cities of the first or second class, thereby excluding Pittsburgh.

 

One glaring example of a City TIF project gone awry comes to mind—the Lazarus department store.  As was noted in our 1999 report, the Lazarus project failed to deliver the promised increase in property taxes.  Of course, fifteen years later, Lazarus is sadly but a distant memory for most Pittsburghers and development officials.

 

But of course the Lower Hill development is different from the Lazarus project, especially in the scope of the project.  It encompasses property that has not been paying property taxes as the Civic Arena was owned by the City-County Sports and Exhibition Authority.  Thus, there isn’t a base amount of property taxes being collected.  Instead the agreement entered into by government and community leaders is that the resulting property taxes generated from the development will be split between the taxing bodies (35 percent) and the bond repayment (65 percent).  While highly doubtful, it is still possible that one or more of these bodies, school district, City, or County, will decline to participate—most likely it would be the school board since, as mentioned above, the Mayor and Executive were involved in the negotiations.  However, the County did decline to participate in a retail/residential development in Mt. Lebanon, which never got off the ground and the municipality relied on DCED’s guarantee program, i.e. the taxpayers, for reimbursement.  Indeed, the County had taken a position not to involve itself in residential TIFs several years earlier.

 

But does the project meet the letter of the TIF law?  According to the TIF law, the project’s main intent should be to remove blighted areas.  The Lower Hill, Crawford Roberts, the Bluff, and Greater Crawford Roberts districts were designated as blighted years ago and, under the original Urban Redevelopment Law of 1945, that designation has not been removed (Act 35 of 2006, which amends that law, set a twenty year time limit on such a designation going forward).  Secondly, TIFs have a “but for” requirement.  That is, the project would not be financially viable without the TIF funds.  With real estate overlooking the Downtown area, it is hard to believe that a private developer would not jump at the chance to develop these 28 acres without government subsidies.  Finally, and perhaps most importantly, TIFs were envisioned to be used primarily as a means to promote developments targeting high value added, high multiplier activities and jobs such as manufacturing that could create family sustaining jobs for the community, renew blighted areas with economic vitality and generate ample long term benefits to justify the taxpayers’ investment—not for retail and residential development, which is the crux of the Lower Hill plan.

 

For the residential portion of this plan there is a further complication for the TIF, or at least the size of the TIF.  The previous mayoral administration created tax incentives to lure residents into the Golden Triangle.   There are three programs from which potential buyers can take advantage; whether or not they will be extended to condos/residences in the Lower Hill will have to be determined, but on the URA website they acknowledge “parcels that developers choose to use the abatement or economic stimulus program on would have to be removed from the TIF district, removing potential TIF proceeds and requiring formal action by all three taxing bodies.”

 

Keeping in mind that since public money will be used, prevailing wages will have to be paid on the entire project.  Prevailing wages will increase the labor cost of the project significantly above what market wages would cost.  A recent study conducted on behalf of the New York State Economic Development Council noted that statewide the average increase in project costs due to prevailing wages was 36 percent with a range of 23 to 52 percent in the state’s metro regions.  While, the Pittsburgh percentage of increased costs has not been determined through detailed study, it seems reasonable to believe it is at least 20 percent, which would put the cost extra cost of the forecast $400 million in construction on the site at $80 million.

 

As mentioned earlier, the original intent of TIF was not to support retail or residential development, but rather manufacturing or other high value, high multiplier projects.  The City has not had much success with retail TIFs; Lazarus, immediately comes to mind, and even the Southside Works has had its struggles with retail as several stores have turned over in its short existence.  Interestingly and somewhat ominously, the economic analysis completed on behalf of the team, commented that “retail provides a challenging environment” and that on-site residents “do not typically generate demand for substantial new retail space.”  So why are they so eager to go down this path?  This 28 acre site represents a great opportunity for the City of Pittsburgh.  The best thing government officials can do is get out of the way.  The team was already provided an excessively sweet deal by getting development rights to this area.  Let them pay market value for the lots and develop them as they see fit—and use their own money, not taxpayer money.

A Bigger Exemption for City Taxes?

The City Controller has suggested increasing the homestead exemption for City taxpayers. A homestead exemption allows homeowners to decrease their assessed value by a fixed dollar amount so as to lower the property tax bill. The County has a homestead exemption of $15,000 while the City’s is $10,000. While the Pittsburgh Public Schools offers one it is funded through gaming money and it is not quite at the discretion of the school board to change the amount.

In a Brief we wrote last year we showed the effects of the homestead exemption on County taxes since County Council was exploring the idea of eliminating it. The exclusion was boosted from $10k to $15k about a decade or so ago. That’s the decision point the City may come to if it decides to follow through with the Controller’s recommendation.

Using our sample of 100 properties that sold in 2011, twenty of those randomly selected homes were located in the City. If the forecast of the Property Tax Estimator holds accurate Pittsburgh’s 10.8 millage rate would fall to 6.94 mills to be revenue neutral under Act 71 requirements. If that rate held the homes in our sample located in the City would see differing results for their City property taxes: nine homes would pay more in taxes, eleven would pay less. A bigger homestead exclusion for City homeowners would obviously shrink the tax payment: going from a $10k exclusion to a $15k exclusion would result in roughly a $35 decrease in the City property tax bill.

Are Public Sector Pension Changes Coming?

It is not going to get any easier on the pension front in Pennsylvania.  Just this week, as the state put the final touches on the 2012-13 budget, the warning bells on the costs associated with the two statewide pension systems (one for state employees, the other for school employees) tolled  louder.  Doing nothing means the percentage of the state’s budget dedicated to pensions will grow to 10 percent according to one published newspaper report. 

 

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Parks Philosophy: Dynamic or Static?

Four years ago the previous County Executive made a public pronouncement that the County park system-comprised of 20,000 acres-would undergo a shift in thinking that looked more at private and non-profit solutions but would not involve selling off the parks. This came on the heels of a 2007 study commissioned by the County which examined revenue generating opportunities in the parks.

The reason? Primarily because maintenance had fallen behind and were neglected. A foundation akin to the Pittsburgh Parks Conservancy called the Allegheny County Parks Foundation was established, but there was an emphasis on establishing "public-private partnerships to operate some of the parks’ major amenities and attractions (emphasis added)". The Parks’ Department website still lists requests for proposals for operating some of those amenities and the County Parks’ Foundation is soliciting a bid for redesign of the South Park fairgrounds, but private involvement in the parks is still minimal.

Meanwhile the City of Pittsburgh Council’s new chair of parks and recreation completed a tour of parks in the City and much of the same was encounter: deferred maintenance, unused space, and an ongoing planning effort to determine what is being used and what is not.

The parks at both the City and County level are intertwined in a rather complex arrangement: proceeds from the 1% RAD sales tax go to the parks, there are the non-profits acting as recipients for donations and coordinating projects, there are formal parks departments and the public works departments handle most of the maintenance. Where exactly do outside private and non-profit interests fit into that quite crowded chart?

OPEB Trust Fund Moves Ahead

"Despite an estimated $320 million of other post-employment benefit liabilities for health care and life insurance as of January 1, 2006, the City has only funded these benefits on an annual basis when they are actually due to former employees who have already retired". That is how Recommendation PN03 of the 2009 amended Act 47 recovery plan began.

The recommendation was for the City to "establish and begin to fund an OPEB Trust Fund" by FY2011. City Council is scheduled to debate the characteristics of the Fund, members to oversee it, and the initial contribution ($2.2 million in 2012) to the Fund. Both the creation of the fund and thus the initial amount are a year behind schedule.

The fact that the OPEB liability is a massive one and the fact that the City has moved slowly on creating the fund are unchanged; what has changed is the size of the obligation. Whereas the Act 47 plan used the 2006 valuation, two subsequent ones have been made and are publicly available in the Controller’s CAFR. By 2008 the liability was $359 million and by 2010 it was $488 million.

When the Act 47 team pointed out in its recommendation that "OPEB liabilities threaten the City’s long term financial health by committing the City to pay increasing amounts into the future for services rendered in the past". Retiree health care was eliminated for police and fire personnel who were hired on or after January 1, 2005, so all of the obligation is tied to employees employed before that date.

Creating the fund was one of the requirements set up by the oversight board when it informed the City its approval of the 2012 budget was changed to "conditional" status.

A New Sheriff in Town

With a letter rescinding its approval of Pittsburgh’s 2012 budget, the ICA (oversight board) has sent a strong signal of its unwillingness to continue business as usual vis-à-vis the board’s relationship with City administrators. The ICA board membership has been reshaped in recent months with two appointments who replaced outgoing members that were apparently disposed to go along with what the City wanted to do. With the new board makeup, holding the City’s feet to the fire on financial matters is obviously going to be increasingly the order of the day. No more ignoring promises to do things and getting no real push back from the ICA.

The board membership changes and their new, more disciplined, approach will also have an effect on the Act 47 coordinator who serves at the pleasure of the Governor. Under the previous Governor, the oversight of Pittsburgh’s finances and the demands made on the City to tighten its belt were often effectively resisted by the City government and its strong unions.

While progress has been made, the need to move the City toward a level of financial health that would warrant removal of its distressed status has not been achieved and the danger of backsliding has always been a real possibility, especially in view of the philosophical propensities of elected officials.

Taxpayers of the City should welcome the new sheriff as the best guarantee of putting the City on a path to sustainable fiscal health. Indeed, they should encourage the ICA board and Act 47 coordinator and insist they do the job they were created to do.

City Wants to be Free

After presenting the 2012 budget to Council, the Mayor raised the idea that the City is ready to be released from state oversight. Now whether the Mayor meant Act 47, or the oversight board, or both is not clear from the newspaper article or the Mayor’s press release (which does not mention the request). The Mayor’s spokesperson had stated the City could function on its own in mid-October. Plenty of elected officials, both from the state and the City, weighed in on the Mayor’s statement.

Recall that the City formally petitioned DCED for removal from Act 47, a petition that was denied in July of 2008. There was a chance that the state was moving to eradicate the oversight board early in its tenure, but it is still in place and several new appointments have been made to the board.

In denying the Act 47 request, the DCED Secretary at the time noted the City had several issues to address:

  • Debt service requirements that exceed 20 percent of the City’s operating budget and will not decline until 2018
  • Unfunded pension liability currently at $467 million
  • OPEB liability that ranges from $220 million to $320 million
  • Workers’ compensation liabilities have remained high and are projected to reach $24.7 million by 2012

So what do things look like now, more than three years later? We know that debt service is still around 20% of the budget ($87 million for 2012); as a result of the pension bailout and asset infusion unfunded pension liabilities stand at $381 million; OPEB liabilities are now $488 million; and workers’ comp costs are down slightly, at $21 million for 2012.

City’s Tear-Down Budget: Condemnation or Praise?

Pittsburgh City Council will debate spending about $500k from the capital budget this week to demolish condemned properties. It is not clear how many structures will fall since the budget information does not lay that detail out. In the past two fiscal years the city has budgeted just over $3 million per year (out of a $52-$53 million capital budget) for demolition.

The most recent data from 2008 shows there were 602 condemnations in the City of which 230 (38%) were razed by either the City or a private party (either the owner or a contractor). That year data on Pittsburgh and other U.S. cities showed Pittsburgh had about 18% of its housing stock classified as vacant (29k of 159k). That percentage was slightly above the average for the group; higher than Allentown and Toledo but lower than Cleveland and Cincinnati.

Though the City "has made continuous efforts to address blight, ranging from increased demolition of vacant buildings…" the Act 47 team recommended that Pittsburgh seek the best practices for managing their vacant buildings. Has the City moved in this direction? Perhaps the only way to tell is determining how effectively the demolition money is being utilized.

Pensions Stay in City’s Hands

Nine months following City Council’s December 31st pension bailout plan, which used a one time debt service transfer and pledged three decades of parking tax revenue ($13 million in the next few years, doubling in 2018) from the general fund to the pensions, the state Public Employee Relations Commission (PERC) has ruled that that plan constitutes an asset that satisfied the language of Act 44 of 2009. That language required the City to get its aggregate pension funded ratio (assets divided by liabilities) to a minimum of 50%. PERC’s assessment today puts the ratio at 62%.

Recall that Council vetoed the Mayor’s plan to have a long-term lease of parking assets to a private interest and opted instead for an "infusion of value" which relies on a long-term stream of payments instead of a lump-sum up front payment. If the plan had not worked and the pensions were below 50% funded, administration of the plans would have been transferred to the Pennsylvania Municipal Retirement System (PMRS).

Questions remain: many of these were pointed out in our first Policy Brief of 2011. For instance, since the promise of parking tax money, roughly $3 billion altogether, fell in the mid-range of the scenarios presented by PMRS, why was the City so afraid of a takeover? The state law clearly stated collective bargaining would remain at the City level. Also, where is the binding language that holds future City administrations and Councils to honor the promises of 2010? And, if we are to take the comments of the City Controller at face value when he said the bailout plan "is no long-term solution [but] a mechanism to avoid state takeover", then what is the long-term solution?