Pittsburgh: A Competitive City?

"The residents and taxpayers in the City deserve excellence in City government. The City must be able to provide quality services at the lowest practical cost. City resources must be used to meet the needs of the residents, visitors, and businesses in the City".

Fifteen years ago this month the Competitive Pittsburgh Task Force released "Establishing a Culture of Excellence", a report that was prompted by a structural deficit in the City’s budget. Years before Act 47, the ICA, new business taxes, and long-term leases for parking spaces were in the public consciousness of the region, the Task Force attempted to "identify opportunities for cost-saving through the introduction of market discipline, and develop strategies for increased competitiveness and cost savings". No doubt spurred on by cities like Indianapolis, which used the "yellow pages test" to determine what municipal services the private sector could provide by contract, the report focused heavily on benchmarking and the private sector to identify $44 million in annual and one-time savings for the City.

At 37 pages, the Task Force report covered public works, public safety, and general services and also pointed out the "ticking time bomb" posed by the pension plans. On that last point, the report recommended selling pension bonds-an action taken soon after which did not prove fortuitous-but also advocated using any immediate savings from the bonds to reduce future pension obligations. The City is still wrestling with pension issues in spite of the actions taken this past December.

How much was implemented? The Task Force did recommend bidding out many non-safety functions like garbage collection, animal control, street sweeping, basin cleaning, cable, and fleet management. The message across departments and functions was clear: get non-safety costs to private sector levels or get out of the business. Today, the City still collects its own garbage and that of neighboring Wilkinsburg: there was a "managed competition" bid in 2007 which the City won, but our work showed that some of the costs may have been understated. Animal Control has its own bureau. Fleet management is privately contracted.

On safety services like police, fire, and EMS some initiatives discussed by the Task Force are still being discussed today: introducing civilians into police administration, getting the hospitals to partner/absorb EMS functions, reducing police overtime, etc. Privatization of the tow pound-recommended by the Task Force-was accomplished in 2009. The headcount and number of fire stations, which the report pointed out was far out of line with comparable cities, have come down largely over the years of Act 47 and changes to post-retirement health care in collective bargaining agreements.

The Task Force also recommended the City and Allegheny County "eliminate all duplicate services", a recommendation repeated in the 2008 proposal to merge the two governments and has not acted upon to any great degree as of today.

"Big picture" wise, the City had 370,000 people in 1996; it spent $442 million across all funds that year (audited amount from general, special revenue, debt service, and capital) for a per capita amount of $1,197. Per capita net bonded debt was $1,507. With a January 1996 payroll of 4,217 employees, the City had 11.4 employees per 1,000 people.

In 2010, population had fallen 17% to 306,000; audited total City spending was $589 million, resulting in a per capita amount of $1,924. Per capita net bonded debt rose 30% to $2,058. Employee headcount per 1,000 fell slightly to 10.3.

Spending is up, the per resident share of debt is up, and headcount is down slightly: what would the Task Force have to say for the success of their recommendations?

New PSEA Head Certified to Teach Economics—But What Kind?

The morning news brought the startling revelation that the newly elected head of Pennsylvania’s largest teacher union (PSEA) has a certification to teach economics. Two questions come to mind immediately: what kind of economics is he certified to teach and does it bear any resemblance to real economics?

Bear in mind that the first principle of economics is the law of scarcity. The first principle of unions is to ignore the law of scarcity. Any student with a knowledge of Economics 101 sufficient to get a B grade in the course can tell you that wage rates are a price and that competitive markets for labor are the efficient and best way to allocate labor and determine wages. He would also know that wage rates in different occupations and industries must reflect worker productivity and the price of the product being and sold.

The objective of unions is to do away with market forces and ignore the role of supply and demand. The results, as we have seen, have been catastrophic for U.S. industries such as steel and autos. Now with the Obama administration becoming the heavy-handed advocate in chief for unions, their ability to wreak havoc on the economy is being renewed and the impact on our ability to grow curtailed. When the head of the AFL-CIO is the President’s leading economic advisor, the nation is in serious trouble.

Moreover, and to our great misfortune, in the public sector, where the new PSEA head operates, the forces of international competition can play no countervailing role in suppressing the destructive force of rapacious unionism. Many government services are monopolies that cannot be outsourced. So when unions enter the picture with incessant demands for compensation, favorable work rules and endless grievance procedures, government services become more expensive and are of lower quality than they would otherwise be.

In light of union antagonism to the laws of economics, one must wonder; just what was the nature of the economics covered by the PSEA head’s economic certification?

Advice for County Council Candidates

In a recent news story two candidates for County Council outlined what they plan to do when they take a seat on Council. Here’s a clue for them if they are serious about addressing County problems–read the Allegheny Institute’s report; Candidate’s Guide to Crucial Issues Facing Allegheny County.

On candidate is concerned about crowding on PAT buses and the implied lack of capacity on key routes. As a Council member exactly what would she do? Solving PAT’s financial crisis will almost exclusively depend on actions taken by the state, such as eliminating the right to strike for transit workers, possibly forcing PAT into a bankruptcy and requiring outsourcing of bus service. The County could allocate more funds as a stop gap, but what other functions or programs would the candidate suggest cutting? The County is cash strapped and the financial picture is getting worse. Empty rhetoric about being concerned over bus crowding tells us nothing about the candidate’s understanding, or lack of understanding, of the genesis of Port Authority’s problems.

The candidate went on to say that all decisions and votes taken would be based on what is in the long term best interests of the County. Who can be opposed to that? But it is empty rhetoric as well. How will the candidate decide what is in the in the best interests of the County? What factors will the candidate consider and how will they be weighted? In short, what philosophy of government does the candidate hold and what do they value? There is no way for the candidate to decide what they believe will be in the best interest of the County that does not reflect their belief system. Voters have a right to know what that is.

Meanwhile, the other candidate reveals a complete lack of understanding of the County’s functions by saying he wants to put more County police on the streets and he wants more focus on early childhood education. The County does not police the street; that is a municipal function. County police are primarily an investigation unit. Moreover, education is solely a school system function. Besides both of these functions, if they were county functions, would require more spending to boost their roles. Where would the money come from? The candidate also wants to give tax credits to businesses to entice them to the County. How about cutting taxes for all businesses to make the business climate friendlier? Giving credits is fraught with possibilities of favoritism and misuse.

Again, the major issues facing the County and how to deal with them are described in the Institute’s candidate’s guide referred to above. Too bad the candidates are reduced to rhetoric and irrelevant positions-not a good sign for the County.

City’s Dilemma—Loathing Privatization and Fear of Debt

Rarely in the annals of self-government has the elected government shown itself to be as inept as that in Pittsburgh. With a looming takeover of the pension funds by a state agency and pension funds with less than 30 percent of the money needed to meet obligations, the Council and the Mayor remain at loggerheads over a solution. The Council refuses to consider privatization or outsourcing and the Mayor will not consider a plan that involves borrowing more money.

To make the situation even more interesting some unions have actually supported a privatization plan, a virtual blasphemous act among organized labor, in order to ward off the state takeover. For some reason, union leaders fear the state managing the pensions more than their bête noir-privatization. One has to ask; why would that be?

Obviously, the relationship between the Mayor and Council is poisonous. There is no trust. Otherwise, they could come together on a plan to improve the City’s massively underfunded pensions. The Mayor’s position of not wanting to the City or its authorities to incur debt to resolve the plan is laudable. The Council’s abhorrence of privatization is ludicrous and detrimental to the City.

The problem is that an unwillingness to make the spending cuts necessary over the last five years, a too ambitious and wrongheaded approach to the bidding process to use parking garages as a way to raise money and Council’s obstinacy have combined to produce this preposterous stalemate.

Now the City has to swallow the bitter pill that is coming and begin planning where spending cuts are going to be made to free up money to meet pension fund obligations. If the City wants another solution they must look to filing for bankruptcy. In bankruptcy Pittsburgh could ask the judge to force unions to accept less generous retirement benefits than those called for in existing contracts. Some sharing of the pain is reasonable. Asking other Pennsylvania or U.S. taxpayers to provide money to meet excessively generous promises to unions is neither reasonable nor morally justifiable.

PAT’s Day of Reckoning Denied Again

Pennsylvania’s Governor is in Pittsburgh today announcing that, surprise, surprise, he has found $45 million in unspent economic development funds that could be used to avert the planned service cuts at the Port Authority and grant the next legislature and the incoming Governor time to come up with a permanent fix.

Stop us if you have heard that one before.

It happened in 2005 when the Governor found close to $700 million to give to PAT, SEPTA, and other transit agencies in order to give his task force time to come up with a transportation fix. We wrote in a 2005 Policy Brief that the temporary fix "would make it very tempting to forget the real problem" plaguing PAT and its sister agencies. What followed was Act 44 and the ill-fated I-80 tolling plan.

The Southwest PA Commission had acquiesced to previous requests to flex highway money to PAT and, after doing it several times, said enough was enough. The Governor’s action-if carried out-gives SPC an out since what is being flexed is economic development money, not highway money.

That raises this question: why would the Governor, who is such a strong proponent of all the positives public sector economic development can deliver, leave some $45 million unspent? How many jobs could have been created with that expenditure in these tough economic times?

As we have written time and again, so long as the state continues to ride to the rescue with temporary fixes there is no impetus to address the right to strike, the monopoly status of PAT, or how to begin outsourcing of service. Will the next Governor and General Assembly let today’s action serve as a free pass?

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?

Look to Denver, But Not Just for Convenience Sake

A letter to the editor in today’s PG waxed poetically about the positive attributes of the public transit system that she saw on a recent visit to the cities of Golden and Denver, Colorado. "I noticed the bus came every three minutes. It’s free and gets passengers from one end of the street to the other…[her son] can take a bus that runs about every 15 minutes to Denver, a trip of about 25 miles for $2. Denver still has a thriving shopping area, and for a Saturday there were a lot of people downtown."

After theorizing what fare hikes and service cuts would do she opined that "perhaps the Port Authority can contact Denver to see how it is managing, since it seems to be doing a much better job."

The writer might be shocked to know that officials from Denver’s Regional Transportation District did indeed visit Pittsburgh a few years ago to talk about what really makes their system successful-that it has parted ways with the traditional model of public transit as a monopoly that characterizes most systems in the U.S. Under state law 50% of the RTD’s transit service is contracted out to private carriers. We even wrote about the arrangement in a 2005 Policy Brief and showed that the contracting out was done without layoffs but by attrition.

Such a notion was met-and has been met since the RTD officials came here-with a dismissive attitude from the transit union who view contracting as giving "their work" away, from skeptics who recall the years prior to the formation of PAT in the early 1960s, and from management and staff that did not want to pursue the idea. But evidence from our 2005 analysis showed that operating costs from the contractors was much lower than the "in house" operations and helped control long term costs at the District.

Even better, when RTD drivers went on strike in 2006 the system did not completely shut down as contracted drivers kept some of the service going. The then-Governor of Colorado even admonished those on strike. Here a strike shuts down the system completely and public officials jump through hoops to find money to avoid making the hard choices.

So yes, PAT should contact Denver for solutions as the writer suggests, but don’t expect an adoption of best practices.

Tale of Two Transit Authorities

Lost amidst the discussion of the Port Authority’s annual ritual of talking about service cuts, layoffs, and fare hikes as a result of what they see as not enough revenue was the fact that the neighboring Westmoreland County Transit Authority hired a new contractor-from out of state, no less-to operate and maintain its fleet of buses. The WCTA has contracted out its bus service since 1978 due to the fact that the law that incorporated it prohibited it from directly operating buses.

The WCTA had to choose between seven bidders for its business, and the winner has stated that it will offer jobs to all 45 current drivers and mechanics without changing their current benefits. An Allegheny Institute survey of the WCTA contained in a 2005 report found that their drivers’ wage was well below that of PAT.

The outcome of the contractor change? According to the director of WCTA there will be no fare increases or changes to bus service and routes. He also said "I anticipate that the public will not notice any difference."

Contrast that with the status quo at PAT and it is hard to see how the union’s lockdown on mass transit in Allegheny County can be justified. If PAT leadership had refused to back down from its goal of outsourcing a portion of operations it would be much farther along on rightsizing operations than where things stand today.

Port Authority Irresponsibility: A Never Ending Story

Is history repeating itself?  Later this week the state will convene a meeting in the eastern suburbs of Allegheny County to come up with a fix for roads, bridges, and mass transit in the wake of the none-too-surprising rejection of placing tolls on Interstate 80. 


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