The Pittsburgh Water and Sewer Authority (PWSA) is staring at some sunk costs. According to an article today the PWSA spent $2.7 million on a financial management system that is essentially a closed loop and cannot communicate with the integrated City-County financial management system that took quite a long time to implement. A former City employee was quoted as saying that the PWSA should have jumped in on the integrated platform and one board member is not happy with the system they have.
But is that characterization of getting in on the City-County platform accurate? A March 2011 article seems to indicate that it was the City that was proposing to go with the PWSA’s platform as an alternative to joining the County’s system (the Act 47 rejected this option). That means the City-County integration was not even done at that point-that was not formally announced until January 2012, possibly two years after PWSA purchased its financial management system.
And how about the board member’s position-that "PWSA upper management recommended the system, and it made sense to approve it"? The PSWA board includes four Mayoral appointees: surely they had to have known in 2010 that there was a push to get a large integrated system. It was mentioned in the amended Act 47 plan that was written in 2009, a year before the PWSA purchase was made. Add on top of that the fact that the Mayor was bullish on cooperation and completed a purchase of the Borough of Millvale’s water system under the admirable goal of efficiency. Didn’t those appointees get direction from somewhere other than PWSA management? The other three members of the board are heavily involved in City finances-the Controller, the Finance Director, and the Treasurer. Did they offer opinions on where to steer the Authority’s financial platform?
In a new audit the City Controller takes the City’s rental car policy to task, noting that Pittsburgh is paying much more for renting similar type vehicles than Allegheny County does, even though there have been opportunities for the City to join the County in a combined bid.
Perhaps there are good reasons why the City stayed put with its current vendor, the same one it has had since 2006, rather than going with the County. There’s no response contained in the audit from the people in charge of the City’s rentals (most of them are for police and parks) so it is hard to speculate. But one has to wonder what it could be when for the price of a four month minivan rental for the City equates to over eleven months for the County under their contract. The Controller also stated that "oversight by City personnel of these invoices appears minimal".
It basically boils down to (1) looking for savings and (2) watching the bottom line. Ironically, the audit points out that the City in 2008 "had an opportunity to join the County in its request for bid (RFB) issuance, but declined". That is the same year when the Task Force on how to merge the City and the County released their report in favor of the concept. That report wanted a clear commitment from the Mayor and the Executive to further efforts at cooperation.
The Allegheny Institute commented on the rental car issue over the summer in a media interview.
An opinion piece celebrates the start of RADical days, when the assets funded by the 1 percent sales tax created under the Regional Asset District offers free admission as a "thank you" to taxpayers to show them what the money has paid for. The op-ed closes by noting "RADical Days are the most entertaining way to watch your tax dollars at work."
Much more entertaining that going down to see what happens at the County Courthouse or the City-County building, that is for sure. If the Port Authority gets deemed a regional asset as is envisioned by the recent bailout plan perhaps there will be a day in the future when "free" bus or trolley rides will get patrons to RADical days.
The piece correctly points out that one half of the proceeds from the sales tax goes to fund the assets. The other half is split into two pieces, 25 percent to Allegheny County, the other 25 percent to the municipalities in the County. The legislation creating RAD mandated that upon accepting the money the County and the City had to eliminate their personal property taxes, and the City had to reduce its amusement tax from 10 percent to 5 percent. The City and the County had to create senior citizen tax relief programs and municipalities other than the City and the County were to use the money to reduce local taxes and dedicate a portion to inter-municipal organizations like councils of government.
Do taxpayers know what their local governments are doing with the money? For the County’s 2012 budget the revenue side shows $41.5 million from the sales tax, which amounts to its 25 percent share under the formula. Then, under "other and miscellaneous" there is $17.8 million reported from the Regional Asset District. The latter allocation in its entirety goes to Parks, which has a $22 million budget this year. The $41.5 million goes entirely to non-departmental revenues, a $408 million pot of money. The City budgeted $12.2 million this year as its share and notes that the money "replaces funds lost with the elimination of the personal property tax, the reduction of the amusement tax…and the expansion of the City’s real estate senior relief program".
The RAD website notes that "as a result of new sales tax revenue, 115 municipal governments reduced local millage, 10 eliminated the per capita tax, and three reduced/eliminated the wage tax." It is a strong bet that many of those millage rates have crept back up, and we know that the County and the City have been granted and are often asking for new sources of tax revenue.
In the historical record, the month of June has not been a kind one to the City of Duquesne. In June of 1991, on the 20th to be exact, Duquesne was declared financially distressed. Five years ago, in June of 2007, the Board of Control that administers the school district decided to close the high school and send students to one of two nearby school districts. The Control Board has a contract with the Allegheny Intermediate Unit to perform much of the management functions for the District.
There seems to be little positive news for either the City or the District. The City recently sold its sewer system to a neighboring municipal authority because it did not want to face the cost of upgrades (estimated at $14 million). The City is levying a higher wage tax on its residents and non-residents who work there under Act 47. There is no indication the City will be exiting its status anytime soon.
There are 348 students in the District according to an annual report to the Legislature from last month, and the Commonwealth spent $10.8 million, close to 70% of the District’s revenues, in the 2010-11 school year. The rates of PSSA proficiency are poor and the District has failed to meet adequate yearly progress the last two years. Plans were announced to move seventh and eighth grade students to neighboring districts, but that would hinge on legislative changes.
"Based on the current circumstances, we cannot justify such an investment since it is unlikely that we could achieve a reasonable return on the investment due to declining sales volume". This comment from a Saks Fifth Avenue spokesperson during an announcement the upscale store will be closing its Downtown location when its lease expires next September because it failed to gain a commitment for $10 million in improvements from the store’s landlord and the City. Perhaps this was too much honesty from the spokesperson in terms of trying to solicit taxpayer help.
The failure of heavily subsidized Lazarus and Lord and Taylor’s stores in Downtown during the past seven years has substantially lowered competition for Saks. The fact that the store still cannot make a go of it is very instructive about the shopping patterns in southwestern Pennsylvania.
How the City, the County and the state, react to the Saks announcement will be very telling. As short as a dozen years ago the development "vision" for Downtown was as a retail destination. In pursuit of that vision, several publicly funded schemes were put together to promote Downtown retail establishments. Should Saks close, Macy’s will be the lone downtown department store, a company that is reacting to economic conditions by downsizing its footprint, not asking for a subsidy.
If the owner of the building is not willing to meet Saks’ terms, why should taxpayers be on the hook? The apparently honest statement by the spokesperson that future sales will not justify Saks undertaking the needed investment is a clear signal to elected officials: they would be ill advised in putting tax dollars into this situation. In light of previous bad experiences with subsidizing retail, they would be incredibly tone deaf if they spend $10 million to prop up a store that caters to high income shoppers.
According to the 2009 Act 47 report for Pittsburgh, the City has a fleet of 940 vehicles and related pieces of equipment. A quick look at data in the most recent County CAFR shows a similar count (934) for Allegheny County. Both currently contract vehicle maintenance to a private contractor under separate contracts and could be under one contract in the coming months, possibly by August 1st according to a County spokesperson.
By doing so the hope is that the savings for taxpayers will be even greater in scale, and it would maintain a non-core service of both the City and the County with a private operator.
The City’s Act 47 report points out that, even with the contractor agreeing to abide by the collective bargaining agreement that the City had with in-house employees, "vehicle maintenance costs were approximately $400k lower in FY2007 than in FY2003".
With the possibility of such savings and improved performance by the respective vehicle fleet of each governing body, this is a joint effort that should be pursued with vigor.
Now, both the City of Pittsburgh and Allegheny County are pushing ahead with plans to pry money out of the non-profit community, which, by and large, means the institutions in the City.
Both governments are facing difficulties balancing their out-year budgets so they are flailing around looking for any source of potential revenue they believe they might be able to intimidate or shame into coughing up money. The irony could not be more complete.
Hospitals and universities are endlessly hyped in marketing and self-promotion literature as the great drivers of the local economies. And they are. A large share of net new job growth is traceable to health care and education.
After imposing tax, regulatory and labor climates that are inimical to private sector expansion, the two governments (assisted by costly school districts) find themselves in position where raising taxes is likely to be counterproductive. Quite a conclusion for big government advocates. So what’s left to do? Go after non-profits that might have some extra money lying around. The question: where will they go when they milk all they can out of those institutions and it also turns out to be self-defeating and counterproductive and when they find still do not have enough cash coming in to fund government?
Cutting spending comes to mind. But why not do the cutting now before more revenue chasing does more harm to the area’s economy?
Advocates of a city-county merger between Pittsburgh and Allegheny County constantly tout the economic development benefits they promise are sure to follow. It is claimed that consolidating City and County economic development agencies will make it easier to attract new firms. Of course they offer no credible evidence this will happen or that it has happened in other city-county mergers. But why let minor details such as convincing arguments or evidence stand in the way?
News accounts quote the City Controller as saying, "We are talking potential calamity here…" referring to the City’s accounting system. The City’s ability to pay bills or even know where its money and other assets are could be lost. How utterly Pittsburgh this is; totally irresponsible when it comes to managing itself. Little wonder the City is in financial distress, it apparently cannot even concern itself with the most basic of management priorities-making sure the bookkeeping is done accurately, securely and in a timely manner.
The recently released 2008 population figures show the City of Pittsburgh posting a yearly loss of nearly 1,700 residents, continuing a trend that has been ongoing for several decades. City officials and apologists were heartened by the fact the drop was smaller than in previous years and all atwitter about how the City was finally nearing a turning point and that population growth is just around the corner-arguments they have made for years. What they need to do is to face up to the reasons people leave the City such as high taxes and a poorly performing school district and begin to make meaningful changes to stop the ongoing exodus.