High Taxed Cities Shows One Surprise

The website 24/7 Wall Street took a report done by Washington, DC’s Office of Revenue Analysis that examined the property, sales, and automobile taxes paid by a hypothetical family of three earning one of two levels of income ($25,000 or $150,000) to see which city had the highest tax burden. To be clear, the data does not look at all cities, only the largest city in each state. So for Pennsylvania only the City of Philadelphia is examined (it ranked second highest for both hypothetical earning levels, taking 13.3% of income for the higher earning family, 18% for the lower earning family).

The highest taxes city was Bridgeport, CT. Its high property taxes add to that distinction, and New York, Los Angeles, Detroit, and Baltimore fill out the top ten. One surprise would be the city that came in fourth, taking $18k from a family earing $150k and $3.5k for the $25k earning family, was Louisville. Readers of our work will recall that Louisville was the last major city to merge city and county functions (in January of 2003), and was the shining star of merger advocates in the southwestern Pennsylvania region (they ignored the example of Philly, which has been a merged government for a very long time) and many officials from Louisville took junkets here to trumpet their successes. A September 2003 article noted "Of particular interest to Pittsburgh, the Louisville merger allows the metro city to be more efficient…Instead of two information-technology departments, there is one. Instead of two human resources offices, there’s one. By eliminating redundant offices, the city will eventually save money not only on personnel, but also on rent, once leases on county office buildings expire." Though not sold as a money saver and rather as an image booster, one would expect that there would be some tax savings through consolidation.

Looking at the statistical section of two of Louisville’s financial audits-the 2003 one and the 2012 one-gives a perspective on the ten years leading up to the merger and the ten years since shows the rates levied on real and personal property by the City of Louisville (now known as the "urban services district") and Jefferson County (now known as the "metro government") shows that from 1993 to 2002 combined real and personal property tax rates fell 7% from 1.325 to 1.236. From 2003 through 2012, the combined rates on those taxes still fell, but by 0.8%, a rate much lower than pre-merger. But who’s in the position to complain about a tax cut of any shape or form these days? Especially when one notes that the combined real, inventory, and personal rates of the long consolidated school district (not part of the 2003 merger) went up 18% since the merger?

A Pension System for All?

The Governor’s report on public sector pensions-which we blogged about earlier in the week-has set a lot of discussion in motion. So too have the testimonies collected by the Public Employment Retirement Commission, which was mentioned in an editorial this morning by the head of the Township Supervisors Association. Some of the presenters mentioned consolidating plans, which the Association head disagrees with, noting correctly that many of the state’s biggest plans-SERS, PSERS, Philadelphia, and Pittsburgh-have significant problems and that a solution should not "make the healthy swallow the same bad medicine as those in trouble".

We agree: in fact, in testimony we presented in 2008 to a hearing of two state Senate committees, we noted "There seems to be little interest at the state level to consolidating plans based on past discussions. It has been mentioned before, but nothing has come to pass. The problem with such an approach is that municipalities with well-funded pensions will view a merger or consolidation as a bailout of the lower-performing plans. In addition, the nationwide experience shows that it is almost non-existent for a state to assume total control and responsibility for local pension plans."

But perhaps there is another way to think about consolidation in the future which does not involve lumping the good plans in with the bad if the state were to think about the employees of the state (SERS), the employees in education (PSERS), local police, firefighters, clerks (covered by one of the 3,000 local plans administered locally or through the PA Municipal Retirement System), county employees, authority employees, etc., etc., in which enrollment in those plans is closed as of a certain future date and all new employees of the Commonwealth, its local governments, its authorities, agencies, school districts, community colleges, state universities, are enrolled in one new statewide plan with a clear employer and employee contribution mix. The existing plans would stay in place until there are no more participants in them and then the state would fully transition to the new unified plan. It would obviously take a very long time (and extends the further such a change is put off) but might be worth exploring.

On the Whole, Would We Rather Be Philadelphia?

School closings, teacher contract concessions, and "difficult choices", many of them related to the loss of students to charter schools and a failure to rightsize operations. Oh, and a $300 million borrowing just to keep the schools operating. And that is with a School Reform Commission running the show for the Philadelphia School District. This year the District will spend $2.5 billion on educating 146,000 K-12 students, and just under half of that budget comes from the state.

The fiscal situation in Philly is pointed out, not only for the implications it has on statewide taxpayers, but because one member of the state’s second largest district, Pittsburgh, recently opined that "bigger must be better" and suggested that there be a merger of the 43 districts in Allegheny County since "We’re working on an agrarian model that’s so out of date it’s not funny." A consolidated Allegheny County district would have roughly the same enrollment as Philadelphia’s school district, based on calculations of PA Department of Education data.

Unless the state were to just consolidate the districts in Allegheny County, which is doubtful since school districts are not governed according to county borders, or the board member goes back to the Nordenberg report that suggested consolidating only the County and the City and leaving the other municipalities and the school districts in the County alone and amends it to gain some interest nearly five years later, the cast a wider net approach so we can spread financial problems over a larger area is a non-starter.

There has been one merged district, Central Valley, in the last five years and that came as a voluntary arrangement. It was upheld as a model when the previous gubernatorial administration pushed the idea of cutting the number of districts from 500 to 100 in order to reduce "back office" costs and improve educational offerings. But our work found that the largest district in Allegheny County, Pittsburgh, had more "non-teachers" per 1000 students than a sample of other districts in the County, the exact opposite situation one would expect to see.

Pennsylvania has largely trended the way the U.S. has with the number of school districts: much of the consolidation came in the 1950s and 1960s; by 1972, according to the Census of Local Governments, the significant drops in numbers of districts had stopped and this year the totals in PA and the country are slightly smaller than where they were nearly four decades ago.

A Regional Transit Authority: Will Consolidation Be Better?

Alluding to the dire financial forecast that threatens the Port Authority (PAT) in FY2013 a candidate for Allegheny County Chief Executive recently offered the idea that it would perhaps be better to have a regional transit agency, much like the Southeastern Pennsylvania Transit Agency (SEPTA) that serves the opposite corner of the Commonwealth, handle transit operations here.


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Merger Math

Take two Allegheny County school districts, each comprising three separate municipalities within them, one that voted to consolidate elementary schools and one that discussed the idea but tabled it, add in a combined decrease of close to $1.5 million in decreased state subsidies, the suggestion of a pay freeze for employees, and the statement from the Governor on his tour of Allegheny County that "…I think school districts around the state are going to have to start looking at can they continue to exist, that there should be a consolidation or a merger somewhere" and you have the present case of Carlynton and Keystone Oaks.

The former district opened the idea of approaching three nearby districts with the idea of consolidating; one said no, one is largely leaning toward no, and KOSD’s superintendent stated "I’ve not been given specific directions, but I think the board is willing to have informal conversations."

Both districts have about the same enrollments (Carlynton with 1,460, KO with 2,050) and if a merger would be successful it would be the first one since the creation of Central Valley a few years ago. Apparently all talk of school consolidation within each district will be delayed while there is a discussion of the merger idea.

Is it Time for a New Merger Typology?

It has been nearly five years since the Mayor of Pittsburgh stated "a year from now, when you ask the question ‘should the City merge with the County?’ we will have the answer". It has been four years since the County Executive said of a prospective merger "hey state [of Pennsylvania], you have to help fix the unfunded pension and the outstanding debt". And it has been three years since the report of the Citizens Advisory Committee on the Efficiency and Effectiveness of City-County Government, or the "Nordenberg report" after the chair of the committee, released its recommendations. That report was to provide the answer to the question posed by the Mayor in 2006.

So what has happened since? We have heard of the 911 consolidation, the City and the County making agreements to purchase services together, the City providing services to other municipalities, municipalities and/or their authorities joining together with others to provide services. Just in the past week there was a failed multi-municipal merger of police departments, a successful merger of water systems, and a merger of fire departments. Unlike the "one size fits all" approach that a City-County merger would have produced (though municipalities other than the City of Pittsburgh, school districts, and authorities would have been untouched) there are a variety of methods by which mergers and consolidations have come about.

They can be cooperative, directed, or voter-driven, and either between various governments (County-City, City-municipal, County-municipal, authority-authority) or wholly within government (a department-department consolidation). Note that the Nordenberg report pointed out that their inquiry was "…limited to improving the efficiency and effectiveness of the two important units of government…[it] does not extend to other municipalities or to school districts".

The recent union of the City and the County into a financial management system came at the behest and insistence of the Act 47 team and the oversight board. That would be considered "directed, County-City". The agreement announced between the City of Pittsburgh and the Borough of Wilkinsburg for the City to provide fire protection would be considered "cooperative, City-municipal". That’s similar to the garbage collection pact negotiated between the two governments several years ago.

The pact between two water authorities in the North Hills reported in the newspapers would be "cooperative, authority-authority" and the consolidation of row offices into County departments would be "intra-County, voter driven" since a voter referendum approved that change.

What this suggests is that there is more than one method by which to evaluate the conditions under which a merger or consolidation is undertaken. The typology might help to determine which kind works better than others.

Officials Fiddle As Credit Rating Teeters

Moody’s has downgraded the City of Pittsburgh’s financial outlook from "stable to negative." While the City keeps the A1 rating from 2008, the rating agency obviously has misgivings about the direction elected officials are taking in trying to deal with the massive unfunded pension liability, other legacy costs and bond debt.

One can only wonder how long the City can hold on to its A1 rating as it fritters time away and fails to deal with the coming jump in payments to the pension plans. Officials hoping for a surge in economic growth in Pittsburgh that would boost tax and other revenues are likely to be greatly disappointed given the struggling national economy that is unable to shake off a prolonged period of recession and near stagnation. Thus, it has become incumbent upon the City’s government to take some painful steps to address the "negative" financial outlook.

What credit rating firms do not see is any effort on the part of the City to reduce its spending through paring back non-essential services, outsourcing or privatizing services or even making a serious effort to consolidate services with the County or enter into contracts with the County to provide services.

Council has made it painfully clear that privatization in any form is unwelcome as shown through statements objecting to leasing the parking authority garages and City parking meters. It’s all about protecting jobs of City employees. The long running objections to outsourcing garbage collection when that particular function is carried out by private companies all over the County and state point to intransigence and irresponsibility toward taxpayers that are woven into the fabric of Pittsburg governance. Moreover, the Council’s insistence on passing prevailing and living wage ordinances demonstrates a pitiable lack of understanding of economics and the importance of free markets to economic growth.

In short, it is amazing that Moody’s ever assigned an A1 rating to Pittsburgh. How could Pittsburgh, which has been under financial oversight by two state appointed groups for the last six years and where officials have failed to reduce spending and payrolls to per capita levels more in line with other U.S. cities, be considered an A level credit risk?

Too many municipalities?

Establishment elites and their allies in the liberal media continue to rail against the 130 municipalities in Allegheny County as the source of high government costs, inefficiencies, and slow economic growth.

Wonder why these folks never consider the great era of prosperity and growth that occurred decades ago when Allegheny County had "too many" municipalities? It puts the lie to their argument.

The main reason for slow growth has been the rise of unionism, especially public sector unions, that have driven up costs of government service, led to higher taxes and created massive interference with the working of the free market and dependence on government directed development.

Therein lies the major problem with the County’s slow economic growth and population loss. Reducing the number of municipalities might lead to some improvement in delivery of services, but it can also lead to worsening results as well. Pittsburgh, the largest municipality by far in the County, spends almost $1,400 per resident to provide government services and Pittsburgh schools spend $20,000 per student. Most municipalities and school districts in the County spend nowhere near those levels.

So, tell us again why all the focus on "too many" municipalities as opposed to talking about how to deal with the real obstacles to prosperity.

Newspaper Revisits Nordenberg Report

The Post-Gazette in an opinion piece this morning laments that politicians and local leaders have failed to get a referendum question on the ballot asking voters to approve a merger of the Pittsburgh and Allegheny County. In decrying the lack of progress they remind us of the infamous Nordenberg Report from 2008, which recommended the merger vote. According to the op-ed writer the Nordenberg study group did a very thorough job of making the case that with all the municipalities there is excessive duplication and called boldly for a City and County merger to address the issue.

Too bad the op-ed writer has never bothered to read any of the criticisms of the shortcomings of the Nordenberg Report. Analytical ineptitude hardly begins to describe the hastily written report. Misleading use of Louisville’s job growth following merger with Jefferson County and failure to point out the huge differences between the situations in Kentucky and in Allegheny County and Pittsburgh are just a sample of the fallacies contained in the study.

But what really sank the Report almost as soon it was released was the absurd plan for merger. Pittsburgh would merge with the County, but all other 129 municipalities would remain intact. Pittsburgh as a government would cease to exist and be replaced by an "urban services" district. The district would run city services and collect taxes to support the expenses. Unfortunately for the plan, the Pennsylvania Constitution does not allow different tax rates for people and businesses in the same government jurisdiction. With Pittsburgh no longer in existence as a municipality its residents would be citizens of the County and could not be taxed higher than County residents. Moreover, Pittsburgh’s debt and other obligations would be shared by all residents of the County.

What a pathetic effort for seventeen months of study. Little wonder the public, in the City and across the County, have no interest in pursuing the merger.

Perhaps if the writers of opinion pieces would actually read the report and look at some of the criticisms leveled against it, they might climb down off their lofty high horse and deign to consult with a few folks who know something about the issues and problems in the Nordenberg Report. But don’t count on it. Strongly held convictions based on pie in the sky notions are often impervious to facts and reasoned argument.

Merger Hopes Meet Union Reality

The product of the Commonwealth’s first voluntary school district merger-Central Valley District in Beaver County-could be headed for a work stoppage. That’s right: the district that had to deal with how to align schools, levy and collect taxes, and come up with a unified name and mascot apparently didn’t pay enough attention to its workforce. As the head of the PSEA stated "our members want to see this merger work. They also need fair and reasonable contracts."

And in Pennsylvania those members can walk off the job without punishment and shut the school system down. With issues of vacancies, transfers, work hours, and health care in contention, it is not much of a stretch to think that there are hurdles with how to align the separate work units that existed in the previously un-merged districts. Recall that is a recent blog we pointed out how the high school would have two principals.

Merger advocates-whether they be in the camp of combining school districts, municipalities, or counties and municipalities-take note: public sector unions are not an issue to take lightly in a proposed consolidation. Even the task force charged with studying a Pittsburgh-Allegheny County merger sidestepped the thorny issue, noting that "personnel costs often rise when two different pay and benefit systems are integrated, because, most typically, employees move to the more generous compensation and benefits package". Think that dynamic is not at work in Central Valley?