Pursuing a court case against the University of Pittsburgh Medical Center (UPMC) will tangentially affect the City’s institutions of higher education according to the Pittsburgh Council of Higher Education, which in turn will affect the task force working on non-profit issues (such as payments in lieu of taxes) that was created as a condition of the oversight board for approving the 2013 budget. Sounds like a house of cards or a big city version of the domino theory.
Because if the City challenges the medical system’s charitable status, as it has made clear it wants to, then the universities will feel threatened, and then any talk of cooperation on the task force will crumble under the specter of a lawsuit.
The universities indicate through a letter to the Mayor that they would prefer to move on to less controversial subjects like "…the city’s burgeoning pension obligations and the imposition of a tax on those who commute to the city". If the universities’ focus sounds eerily familiar it should: it was not long after the Mayor floated a variety of taxes and fees to see what would stick that what survived was the "post secondary education privilege tax" on college tuition. After that was eventually dropped in late 2009, the universities (along with one large Pittsburgh corporation) promised to go to Harrisburg and seek reform for pensions (this was post Act 44, but prior to the garage privatization plan) and possibly spreading the tax burden on to others. We noted at the time that "the universities should not, and in good conscience cannot, move from celebrating their hard work against the tuition tax to helping the City lobby Harrisburg for some other tax, most likely to be one imposed on people who cannot vote for the City’s elected officials."
There is a glimmer of hope four years later: the Council letter did note "The ultimate solution is not to look at another source of funding, but rather looking at the financial stresses of the city…Maybe there are some approaches that would reduce the need for funds". There’s been no shortage of recommendations on that line of thinking.
The residual effects of Hurricane Sandy postponed until Thursday, November 8th, a hearing to decide if Pittsburgh has satisfied the requirements to be released from Act 47 distressed status, a status that was granted to the City in December of 2003.
Two days before this past Christmas a letter was hand-delivered to the Mayor noting that the 2012 budget "fail[ed] to reflect the conditions for approval that the ICA has required". Those conditions were threefold: first, to adopt a strategic capital plan, which would be important given the fact that the City has not issued debt for infrastructure projects but soon anticipates doing so, second, to create a dedicated fund for other post-employment benefits, something first required in the amended Act 47 plan from 2009, and the City’s share of the pension fund payment ($60 million) for 2012.
In addition the letter states that the City amended the budget by increasing Council staff salaries and creating a dedicated fund for Council mailings by "apparently…diminishing a workers compensation fund".
Could it be more ironic that-following the City’s 2007 request to get out of oversight and an amended recovery plan that stated "get focused on legacy costs like debt, pensions, and workers comp-the City comes late with plans and funds related to these items and siphons money off of one of them to bolster Council operations?
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.
Legislate in haste, repent at leisure. Recent developments indicate that axiom applies to the City’s budget, especially the New Years’ Eve plan aimed at avoiding a state takeover of pensions. The axiom’s admonition applies equally to the other parties involved in the unseemly last minute machinations.
The Intergovernmental Cooperation Authority for Cities of the Second Class-commonly known as the ICA and more commonly as the oversight board-was created in 2004 to help prevent a fiscal calamity in Pittsburgh. The statute creating the board (Act 11) states that “the inability of a city of the second class to provide essential services to its citizens as a result of a fiscal emergency is hereby determined to affect adversely the health, safety, and welfare not only of the citizens of that municipality but also of other citizens in this Commonwealth”.
Next year marks the end of the current life span of the Intergovernmental Cooperation Authority (ICA) for Cities of the Second Class, commonly known as the Oversight Board. Created by Act 11 of 2004, which was signed into law on February 12 of that year, the statute’s language declares the Board “shall exist for a term of at least seven years”. An act of the Legislature is required to extend the life of the Board beyond 2011.
Mayor Ravenstahl is quickly coming up against the end of the fiscal year and needs to solidify Pittsburgh’s budget for next year. The Intergovernmental Cooperation Authority (ICA) rejected the first budget draft because it relied on revenues from a tuition tax for which legislation had not yet been approved. The second draft reduces his revenue projections from $453.8 million to $446.5 million. And by some accounts this is carving out an aggressive budget. If he were truly being aggressive in putting together his budget, he would work on reducing expenditures rather than using stop-gap measures to shore up revenues.
Without the projected $16.2 million from students attending colleges and universities in the City, he has had to rely on a time-worn tradition of Pittsburgh mayors-one-time revenue sources to balance his spending. For example, the new budget relies on the sale of City owned buildings which are expected to bring in $500,000 as well as a transfer from the City’s debt escrow account of $4.1 million. The new budget also anticipates increases to other revenue streams such as the earned income tax, the deed transfer tax, and the payroll preparation tax. Considering that the recession has shown no signs of abating anytime soon in the Pittsburgh area, these estimated increases may be a bit of wishful thinking. Furthermore, these one-time revenue generators will not solve the City’s spending problems-especially the crippling legacy and debt costs.
If the Mayor truly wants to be aggressive in setting the budget, he needs to address the expenditure side. He can start with mandating that each department shave five percent from its budget. This across the board cut could save the City a substantial amount-$22 million on a $450 million budget. At a time when most companies and individuals have seen freezes or cuts to income, the City should do the same. The Mayor needs to tackle the high legacy costs by lobbying for defined contribution plans to replace the defined benefits plans currently in place. Any City property that is sold should have those proceeds used for debt reduction and should not be put into the general fund.
Throughout the years we have made many suggestions on how the City can improve its finances. If the Mayor wants to be aggressive he should start implementing some of these long-term solutions to finally get the City back on track.
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.