So, What Does the ICA Want the City to Do?

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?

A New Sheriff in Town

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.

Receiver Completes Triple Option for PA Cities

On January 3rd of the coming year, the newly appointed receiver for the City of Harrisburg is to submit a recovery plan to the state and City officials. Harrisburg is in Act 47 distressed status and filed for Chapter 9 municipal bankruptcy. The former designation remains while the latter was dismissed by a judge. The City will appeal the decision.

The position of receiver came about when Harrisburg punted on adopting an Act 47 recovery plan and then the amended plan written by the mayor as required by the statute. The Legislature amended Act 47 as it applies to cities of the third class who had not adopted a recovery plan (read Harrisburg) and that is how the position of receiver came about.

If anything can be taken from the creation of the position it is that financial recovery for municipalities as envisioned in 1987 has definitely changed. That was when Act 47 was established and it has twenty municipalities under its umbrella. But the application of the law and the idea of recovery is getting tweaked. Harrisburg has the receiver; Pittsburgh has an Act 47 team coupled with a separate oversight board and has a prohibition on using a higher earned income tax to tap non-residents; Harrisburg likewise is forbidden from using that tool; Philadelphia is not in Act 47 but it has had an oversight board since 1991, with that agency primarily in place to administer the payback on bonds that were sold to erase other obligations. That board was the inspiration for placing one in Pittsburgh, where no long-term debt has been incurred as a way to get rid of outstanding costs.

More than half of the twenty municipalities are operating under their initial recovery plan without amendments, some of them stretching back to the late 1980s when the law was passed. When the next community gets declared financially distressed, who knows whether a coordinator, receiver, board, or some combination will be in place to guide it back to health.

Supreme Court Undermines Act 47 Coordinators’ Authority

A recently announced momentous decision of the Pennsylvania Supreme Court has severely limited the power of Act 47 to impose steps aimed at helping financially distressed municipalities return to fiscal stability.


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Pittsburgh to State: “Please Release Us” from Oversight

Amid the 2012 budget deliberations comes a not-too-subtle plea from certain City officials that they are ready for the state to remove itself from watching over the City’s shoulders and inspecting its finances. The Mayor’s spokesperson stated "We feel like we can start functioning on our own". The Act 47 coordinator said he "couldn’t put an absolute timeline on [leaving Act 47]" and, by extension, the existence of the separate oversight board.

Recall that in November of 2007 the City petitioned the Secretary of DCED to remove them from Act 47 status. An evidentiary hearing followed and in July or 2008 the decision was rendered to keep the City under supervision. It was agreed that, due to the City’s massive legacy cost problem, an amended recovery plan was needed and that is the plan the City is currently operating under.

With an official DCED designation date of December 29, 2003, Pittsburgh will soon have been in Act 47 for eight years. Twelve other municipalities currently in distressed status have been in longer. Of the six communities that have been removed four came out in less than eight years. Ambridge, in neighboring Beaver County, was in for just three years. The boroughs of East Pittsburgh and North Braddock, both of Allegheny County, made it out in seven and just under eight years, respectively.

In announcing the decision in 2008 the DCED secretary at the time pointed to the City’s pensions, post-retirement health care, debt, and workers’ compensation liabilities as items that needed top priority attention before even considering letting Pittsburgh out of oversight. The City spent all of 2010 focused on the pension part of the equation, and the plan that moved forward was one that beat a state minimum funding threshold, not a long-term solvency plan. They are slowly moving toward a trust fund for retirement health care (there are no assets set aside for that liability), workers’ comp costs are higher than norms, and debt is going to level off so long as the City takes care of capital needs without borrowing. Sounds like there is a lot more work to do prior to release.

Murphy’s Law

Last night KDKA TV aired an interview with Pittsburgh’s former Mayor which could best be described as a puff piece on economic development.

Too bad the reporter did not bother to ask the former Mayor about the true economic impact of spending all those tax dollars. Or about Lazarus, Lord and Taylor’s, etc. and the millions wasted by the Pittsburgh Development funds (proceeds from legalized slots are going to pay those loans off).

The ten years it took to field a winning baseball team is proof of how stupid the argument was to begin with. If the North Shore is so great, why is the City still hemorrhagingpopulation? Why are the schools so rotten and the City’s finances in shambles?

No net job growth for a decade and a hollowing out of the population of the key income earning groups. And a half billion dollars wasted on the Connector with all the lost economic activity resulting from the disruptions in constructing it.

The former Mayor lied about the threat of the Pirates leaving in 1997-98 to get the stadium built and then ignored the wishes of the overwhelming majority of the voters. His legacy can be found in the fact the City is under the financial supervisionof two state appointed watchdogs. Sadly, they have not done a very good job, but they are still here and are likely to remain so for a long time. Pittsburgh does not have the money to pave its streets. How’s that for a legacy?

The former Mayor is the epitome of what is wrong with egomaniacs who have political power. Enough is never enough for these people.

More Changes Needed in Pittsburgh Oversight Groups

The recent addition of Ms. Dugan to the Intergovernmental Cooperation Authority (known as the oversight board) was a tremendously positive step for the Governor to take in addressing the lackadaisical approach of the board and its habit of too often being irrelevant to the job at hand-guiding the City’s financial matters with strict discipline.

But more remains to be done to bolster the resolve and performance of the oversight board and the Act 47 recovery team. The Republicans in the House should move quickly to replace the appointment made several years ago by then Speaker Perzel. The appointment of a Democrat union leader by the House Republicans was disappointing in that it gave the Democrats a four to one majority on the board. Leaving this appointee in place keeps the board in the hands of a majority likely to be friendly to the City’s employees and higher spending and less likely to be worried about the taxpayers, fiscal discipline and the business climate.

At the same time the Governor, through the Secretary of DCED, should evaluate the performance of the Act 47 coordinator with an eye to replacing the group with someone less intimidated by the Pittsburgh government and its political and civic supporters.

The latest report from the City Controller, showing Pittsburgh spent more than it took in last year along with the debacle over the City’s massively underfunded pension plans, point to seriously inadequate financial oversight for the last seven years. What do Pennsylvania’s taxpayers have to show for the millions of dollars spent since 2004 for the two oversight groups? Not much apparently.

Where was the Oversight on the City’s Last Minute Budget?

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.


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Are Changes Coming to the Makeup of the Oversight Board?

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”.


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