Mayor Fails $52 Question

The Mayor of Pittsburgh was on a radio station today bemoaning the condition of the City’s roads and advocating for more money to pave nearly 900 miles of asphalt roads. The Mayor stated that commuters drive on the City’s roads and only pay $52 a year to work in the City through the Local Services Tax and that the tax should be increased and the resulting revenue would be dedicated to roads.

A few facts for the Mayor are in order. First, as we have pointed out time and again, non-residents pay more than the $52 LST; a good portion of the RAD sales tax goes to the City, and, if the drivers busting up the City’s roads are parking at a garage, lot, or meter they are paying the nation’s highest parking tax.

Second, a boost in the $52 tax would be a tax increase on City residents as well. The last time the state raised the tax from $10 to $52 they permitted every municipality in the state (except Philadelphia, which does not levy the tax) to raise it and would likely do the same if the idea were to get more than a moment’s notice in Harrisburg. And if for some strange reason the state permitted only Pittsburgh to raise the tax it would fall on City residents who work in the City (some of them might drive to work as well) since the tax is paid where the taxpayer works.

Lastly, on the idea that the proceeds would be put into a "lock box" for roads the state law already mandates that funds from the LST be used for police/fire/EMS, road construction/maintenance, and/or reduction of property taxes. The law does not allow it to be used for other purposes, so it is disingenuous for the Mayor to imply otherwise. Council attempted to dedicate LST money to pensions late last year before opting for the parking tax due to these statutory restrictions. Perhaps a detailed accounting of how the City has allocated the cumulative $100 million in LST money (from its increase in 2005 through 2011’s budget) would be helpful.

The City has decided to fund its capital needs on a pay-as-you-go basis without issuing new debt. That was seen as a necessary remedy for Pittsburgh, which has above-average debt on a per-capita basis. That means infrastructure improvement decisions are made with the same pot of money as pension benefits, money for workers’ compensation, the clerk’s office, etc.

What Doomed Council’s Second 11th Hour Plan

OK readers, grab your scorecards.

After a three hour session, City Council passed a plan to boost the pension fund to 50% by using the future revenue stream of the Local Services Tax (LST) the $52 tax that falls on every person who works within the City’s limits. This replaced the plan (let’s call it Council plan A of December)that would have used parking meter revenues as the pledged source to get the funded ratio of pensions up to the legislatively acceptable level under Act 44. The Mayor did not like that one, so soon after, the LST plan (that would be Council plan B of December) was put together and then that was scrapped in favor of dedicating a portion of parking tax revenue to the pensions (yep, Council plan C of December).

What happened to the LST plan (B), you ask? Here’s likely the answer. Act 222, the law that originally raised the tax from $10 to $52 and renamed it the Emergency and Municipal Services Tax from the Occupational Privilege Tax and Act 7, which subsequently renamed the tax the Local Services Tax, contain language that restrict the use of the tax.

Section 22.6 of Act 7 states "any municipality deriving funds from the local services tax may only use the funds for (1) emergency services (2) road construction and/or maintenance (3) reduction of property taxes (4) property tax relief through a homestead or farmstead exclusion". The act further states that 25% of the money must be used for emergency services such as police, fire, and medical services.

Using the LST revenue stream as a pledge to fund pensions was not going to fly. So the next act was to identify another revenue source, and that’s where the parking tax revenues come in. Right now that tax generates about $44 million for the City’s general operations, and dedicating $13 million as is the plan would require cuts or another revenue source to fill the hole.