In Friday’s blog entry we described the slow-going process of getting the City onto an integrated financial platform with the County and the oversight board’s decision to impose sanctions if something was not done.
The Act 47 team had a firm deadline (12/31/09) that was ignored; a subsequent search turned up a press release from the County Controller’s office dated September 8, 2010 that stated "time limits on budgetary processes for both the city and county make it necessary for the City of Pittsburgh to sign the agreement with Allegheny County by September 20 . The county initially presented its proposal to the City of Pittsburgh in March 2010 and subsequently adjusted the agreement to meet needs submitted by the city in discussions".
City Council plans to hold a post-agenda session on Wednesday discussing "…the status of enterprise resource planning (ERP)". Among the seven guests invited to the session are the Act 47 coordinator and the County Controller, along with the head of the oversight board. That’s nearly half of the meeting attendees who have attempted to either place a firm deadline on the City moving forward with the system or threatened to take punitive actions if the process is not completed.
What are taxpayers supposed to think with yet another episode in which their local governments deliberately avoid taking a specific action or carrying out a specific function, especially one that seems to be directed toward saving some money?
Say it isn’t so. A newspaper report today pointed out that the oversight board is ready to wield its stick against the City if the City does not get moving on a financial management system, also known as an "Enterprise Resource Planning System" which manages an organization’s accounting, payroll, human resource functions, etc. and which the City lacks.
The Act 47 amended plan-adopted in 2009-said "the City shall continue to work with the County to merge its ERP functions to the County’s platform by December 31, 2009". There was no midnight marathon session like we saw with the pension bailout this past New Year’s Eve. For those keeping score at home, we are now 421 days past the Act 47 deadline for the integration. If the City was willing to ignore that directive, what hope is there that the oversight board’s admonishment will fare any better?
There should be no surprise, after delays in moving purchasing to the County took longer than it should have, the study to answer the question of whether to merge the City and County took longer than it should have, and now this. The City claims it wants to look at other options, including going onto the Water and Sewer Authority’s management platform.
It is especially galling since the City has already appropriated the money ($10 million) but says it is reluctant to move ahead because the sale of the Municipal Courts building somehow figures into the financing of the deal. Instead they prefer to stick with the "fragmented" and "obsolete" system as described by the Act 47 team.
As the discussion over whether states should be allowed to declare bankruptcy heats up (they cannot do so now) several states are taking steps to make their oversight of local government finances stronger. A Wall St. Journal article notes that California, Michigan, and Indiana are among a group of states that is seeking to take steps to enhance oversight and distress statutes.
Pennsylvania is no stranger to distress provisions. There is Act 47, that has been in place for over twenty years, and oversight boards have been created specifically for Philadelphia and Pittsburgh. A national expert on the subject points out that "more than half of the states have some sort of active supervision or financial review of local governments" and the attention has only ramped up as bond defaults, bankruptcies, and fiscal stress becomes more of a reality for state and local governments.
If Pennsylvania can provide a lesson it would be that unless there are some very strict and possibly uncomfortable reforms, states can expect their local governments to be in oversight for quite a long time. Some Act 47 communities have been in for quite a long time and Philadelphia will be under oversight until bonds are paid off, which is sometime early in the next decade. The theory on strengthening distress is to stave off Chapter 9 bankruptcy, which may be the only real solution to many municipalities’ fiscal problems.
The Port Authority (PAT) is bankrupt. It is bankrupt financially, intellectually and morally. PAT’s board and the elected officials who appoint the board members refuse to listen to suggestions of steps to preserve some bus service, choosing instead to make massive cuts; the transit workers union would rather see fellow members lose their jobs than make any concessions on compensation or work rules; and the state continues in its role as enabler of irresponsible behavior.
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.
The Mayor’s recently released budget wanders into the world of fantasy, delusion and denial. A trifecta seldom seen. With the prospect of PMRS taking over the pension plans in January and the failure to lease the Parking Authority assets, Pittsburgh faces a large increase in pension contributions in a year or so.
With the first pass at the budget rejected by the Oversight Board because of inadequate credible revenue prospects, the revised budget for 2011 will make up the difference by using the reserves in the fund balance. No cuts in spending or other revenue enhancements are planned. For 2012, the Mayor projects $20 million in non-profit contributions. Currently the City is receiving $1.7 million. What’s more, the County is also projecting significant revenue from non-profit contributions. In both cases there is no evidence whatsoever the money will be forthcoming. In all likelihood, if the Oversight Board holds firm in its position regarding the need for credible revenue forecasts, the out year budget proposal will be denied.
Moreover, the Act 47 team will undoubtedly be dismayed by plans to use up the City’s reserves in coming years. It too, will-or should-send a very strong denunciation of the Mayor’s budget plans.
Beyond the financial oversight organizations’ justifiable opposition to the reckless nature of the budget proposals, there is a more salient point. Why is there no talk of expenditure cuts? Have the Mayor and Council so poisoned the well of cooperation with the rejection of each other’s proposals to utilize parking assets that further conversation about contracting out, asset sales, and consolidating services with the County are completely off the table? If so, Pittsburgh can expect some very rough sledding and a very probable tightening of state mandated financial control. This is especially true in light of the coming financial crunch at the Pittsburgh School Board where repeated refusals to make substantial operating expenditure cuts are digging a deep fiscal hole.
Using up reserves is nothing more than a delaying tactic in hopes that a miracle will occur and some benevolent Legislature or Congress will bail out the City. Afraid not. The City must get past this fantasy.
City Council wants to leave no stone unturned and wants to make sure that when it decides to approve or disapprove of any agreement the Mayor reaches with a potential lessee of parking facilities that will provide funds to bolster the City’s ailing pension funds it will base its decision on a thorough examination of facts and options. That’s why, with the blessing of the City’s oversight board, Council will spend $250,000 to engage a consulting group to study the lease-for-pensions deal.
Councilman Burgess-along with his allies in the campaign for "living wage" bill-are still pushing hard for the legislation. In a comment filled with irony, the Councilman said at a hearing that it is unfair for "government to profit from the misery of the people who work for us."
Perhaps it has never dawned on the Councilman that the "miserable" City workers (if there are such folks) could always look for other employment that pays better. And perhaps the Councilman might consider the pain and misery his bill would cause already hard pressed City taxpayers who would have to reach deeper into their pockets to pay these "miserable" workers. Or maybe the City would have to layoff some workers or enter into fewer service contracts in order to save money to pay the higher wages of those workers fortunate to keep their jobs and other benefits. How miserable would the laid off workers be?
There is no free lunch Councilman. Where will you find the additional revenues or budget cuts to fund the living wage? In a City that is struggling to find money to meet its already enormous personnel legacy costs, plans to increase spending even more without any idea of where the money will come from are the last thing the City needs.
We ask again: Where are the oversight board and Act 47 coordinators? They should make it clear that this bill is a non-starter as far as they are concerned. The whole episode points to the lack of seriousness of City government and its overseers in solving the City’s problems.
Hard as it may be to fathom now with the City and the college community locking horns over the "Fair Share" tax and "voluntary" contributions to the City’s finances, but just a few short years ago the City was flush with cash as represented by its fund balance. The high point in the last few years came in 2007 when the total (reserved plus unreserved) general fund balance reached $89 million. That was up from a scant $14 million in 2004, prior to the Act 47/oversight board era, and the rise was due largely to the new taxes created by the state Legislature.
At the time the administration seemed bullish on the size of the surplus (the Finance Director noted in August 2007-just two years ago-that "we are positive that the fund balance is going to continue to grow as is did through 2006 and 2007") while the Controller’s office was not so sure (‘this is the high point and then [the City’s finances] are going to go down").
The Finance Director also noted in the same article that "there are long-term problems out there" referring to the legacy cost problems. These problems have come much faster than exuberant city officials believed or wanted the public to believe. With the City trying to pay for infrastructure needs without adding to the massive debt load and no strict controls placed on the growth of general fund spending (in 2004 the City spent $375 million and is expected to spend $446 million next year, a 19% increase) the City predictably began looking in other places for additional funding to meet the Act 47 requirement of putting $10-14 million additional money into pensions annually. Thus the turn to the tuition tax, which may be a moot subject very soon.
Going forward the fund balance is projected to be $26 million in 2014-higher than the low point of 2004, but much lower than the high point of 2007. And of course that is just a forecast, something the City’s prognosticators have not been very good at.
“…the notion that the second largest city of this Commonwealth would record the unprecedented status of bankruptcy is simply an unacceptable alternative”-
Report of the Intergovernmental Cooperation Authority, April 12, 2004
Five years ago when the City was new to Act 47 status and the oversight board was getting its bearings there had to be some inkling of a very real possibility Pittsburgh could find itself in front of a bankruptcy judge. The City was characterized as being saddled with an outmoded tax structure and out of budgetary gimmicks to meet its spending needs. Per capita debt was far out of line with other U.S. cities. To forestall a worsening situation, the state had approved the City’s petition for Act 47 status, created a new, separate oversight board, and enacted a tax reform package for the City.