Should We Be Concerned About County Debt?

The County Controller released the 2012 Comprehensive Annual Financial Report last week and foremost among the Controller’s concerns is the debt, which, when examined by the "net bonded debt" marker was $825 million, up from $747 million in 2011. The County administration stated that 2012 was a bit of an outlier, "the result of the county squeezing two years’ worth of new loans into one". If that is the case, it is worth looking at data prior to then to see if there is a trend.

From 2003 to 2011, net bonded debt grew 14.7% (from $651 million to $747 million) while population fell 2.9% and, as a result, the per capita debt level increased nearly $100 from $517 to $611. Compared to the City of Pittsburgh’s per capita debt, the County is in great standing. The ratio of debt to assessed valuation has remained around 1% or fractions above 1% for most of those years and, if we treat things in terms of legal debt limit, the County was in 2011 and has been since 2003 using 80% or more of that limit. Debt service as a percentage of non-capital expenditures is a tad over 4% and has been about that percentage over the time frame.

The previous Controller in 2010 called for a long-term debt policy that would act as "…a strategic tool for determining affordability and setting priority for financing capital projects".

Pittsburgh Taxpayers’ Debt Load Getting Lighter

In 2011, the debt per capita in Pittsburgh was $1,901, based on the Census count of 306,000 and $581.8 million in general obligation debt of the City.  A decade earlier the average resident carried a much heavier debt load of $2,651.  Both the debt and the City’s population were higher in 2001 but debt has fallen faster than population in the intervening years resulting in the per capita debt drop. 

 

 

It is no small feat what the City has accomplished with regards to its debt.  Over that time frame it resisted issuing new obligations and set a target for bringing down the ratio of debt outlays to general spending (which has been running around 20 percent) over the coming decade.  When the Act 47 team examined debt service as a percentage of operating expense in 2009, Pittsburgh’s 21 percent was well above Newark (4.6%), Buffalo (7.6%), St. Louis (7.9%), and Cleveland (11%). The City wants to get the level down close to 12 percent.

 

Beyond the obligations of the City government, Pittsburgh taxpayers are liable for various other debts issued by related governments that perform functions such as owning sports stadiums, land, parking facilities, and schools.  City financial data shows that City taxpayers are responsible for all the debt or a portion of debt for some of the other borrowers. A look at the decade from 2001 to 2011 shows that some shares have increased, some debts have disappeared, and some have increased.

 

2001

 

 

2011

 

 

Debt

(Direct and Overlapping)

Percent

Obligation of City Taxpayers

$ Amount (millions)

Debt

(Direct and Overlapping)

Percent

Obligation of

City Taxpayers

 

$ Amount (millions)

Pittsburgh General Obligation

100

885.7

Pittsburgh General Obligation

100

581.8

Stadium Authority

100

22.7

Stadium Authority

0

0

Auditorium Authority

50

13.5

Auditorium Authority

50

1.4

Urban Redevelopment Authority

29

64

Urban Redevelopment Authority

61

40.2

Parking Authority

100

83.9

Parking Authority

100

93.4

Pittsburgh Schools

100

399.4

Pittsburgh Schools

100

451.7

Allegheny County

25

176.3

Allegheny County

25

192.9

Total

 

1,645.5

 

 

1,361.4

 

While the City government’s debt was falling, so too was the debt of the authorities related to stadia and the URA.  The percentage of URA debt attributable to the City rose while the amount of URA debt fell. It is reasonable to assume the City has agreed to back more of that agency’s debt and, should it incur more obligations, the City would be on the hook for a larger share than in the past. By way of explanation, note that if the City were still responsible for only 29 percent of URA debt in 2011, the dollar amount of the obligation would have been $19 million rather than the actual $40 million it now actually has.

 

Going in the opposite direction by taking on more debt from 2001-2011 was the Parking Authority ($9.5 million), Allegheny County ($16.6 million), and perhaps most surprisingly, the Pittsburgh Public Schools ($52 million).  The School District has been losing enrollment and is currently being advised on what to do with twenty school buildings no longer in use. Some are in the process of being sold.  The District is expected to be “insolvent” by 2015 by some observers, so it’s puzzling as to why the debt was issued and why the District has not put itself on a self-imposed “debt diet”. 

 

In total, all the debt obligations City taxpayers are responsible for amounted to $4,926 per capita in 2001, falling by about 10 percent to $4,449 in 2011.  Note that much of the property tax in the City is paid by commercial and industrial properties, many of which are owned by non-residents who pay a large share of taxes collected in and by the City.

 

How does Pittsburgh compare to other cities?  As we noted in our recent Benchmark City report, the per capita debt in Pittsburgh was 64 percent higher than the Benchmark City just on general obligation debt, and that the gap between Pittsburgh and the Benchmark shrank since we did our first Benchmark report in 2004 (it was 233% higher then).  But how about Pittsburgh compared on the total direct and overlapping debt to another city that is very similar on population and square mileage?  The City is Stockton, located in the San Joaquin Valley of central California.

 

The City has a lot of debt applicable to it in varying shares: school district, community facilities, and its own general fund and pension obligations, and the total comes in at $1.065 billion, just about $300 million less than Pittsburgh’s direct and overlapping total, and with a population of 296,000, the typical Stockton resident’s share of the debt is about $850 less than Pittsburgh’s ($3,601 to $4,449).

 

It is worth noting that Stockton’s pensions are in better shape than Pittsburgh’s (88% funded combined for police, fire, and non-uniformed employees compared to 62% combined for Pittsburgh) and it has slightly less accumulated in unfunded liabilities for other post-employment benefits like life insurance and retiree health care ($416 million in Stockton vs. $488 million in Pittsburgh).  Despite all the foregoing, the City of Stockton has been walloped by the effects of the recession and the housing bubble and it was successful in its Chapter 9 bankruptcy filing with a favorable ruling from a Federal judge in March. 

 

But the Stockton case does point to the absolute necessity of restraining municipal spending and being very prudent in agreeing to overly generous compensation and pension packages.  A lesson that Pittsburgh must keep in mind as it works its way out of distressed status and seeks to have the state appointed financial oversight board removed. 

 

A True Debt Picture

Hidden debt, understated pension and health care liabilities, and debt accumulated for special purposes but never approved by voters is the subject of an op-ed and estimated to be $7.3 trillion. Special authorities, corporations, etc. serve as a vehicle to accomplish such tasks.

Does this happen locally? In plain view taxpayers and inquisitive folks can peruse financial statements to see the clear picture. Let’s start with the city of Pittsburgh: its 2010 CAFR features several tables on debt and debt service: its net general bonded debt that year totaled $629.7 million. On a per resident basis (using a population of 306k), the result is $2,058. Our newest Benchmark City report uses the 2011 CAFR and the per capita amount fell to $1,900. When the related tentacles of City government are examined, the debt level changes: the City is responsible for 63% of URA debt, or $48.4 million; 50% of Auditorium Authority debt, or $1.6 million; and 100% of Parking Authority debt, or $97.4 million. Overlapping debt that would affect a City of Pittsburgh resident would include 100% of School District debt (though Mt. Oliver Borough would account for a small share) or $487.4 million, and 25% of the County debt (the CAFR estimated by population share) or $163 million. Together the total rises to $1.4 billion, $4,500 per capita.

How about Allegheny County? It has direct debt of $771 million, or $630 per capita. The County’s CAFR attributes 100% of the Community College debt to the County, adding $46 million. If the debt of local governments within the County’s ‘orders (but not part of the County) are added in, that adds on $2.8 billion from public schools, $677 from cities (Pittsburgh, McKeesport, Clairton, and Duquesne), and $601 million from boroughs and townships. No authority debt is applicable to the County from the CAFR table, and someone living in Aspinwall would be liable for debt incurred by Pitcarin or Sewickley, but when the Controller’s office puts the whole tab together the total almost touches $5 billion, bringing per capita amounts to $4,000.

Most City Debt Still Pension Related

Feeling that the City’s finances are in good enough shape, the Mayor has proposed a bond issue of $80 million to pay for capital needs in the City. Some members of Council say the time is not right, the amount is not right, etc. so it seems certain that the relative ease with which the operating budget passed might be absent from discussions over the capital budget.

As of year end 2010, the City had $633 million outstanding on its general obligation bonds. Nearly 40% of this is related to bonds 1998 A, B, and C which were "issued to fund the City’s pension fund" as noted by the Controller’s audit. There is $140 million outstanding on 2006 B which, with others the same year, was used to refund previous bonds. After those outstanding amounts are counted, what remains is $259 million (about 40% of the total) in various bond issues that date back to 1993.

In 1996 (the earliest historical number available on the Controller’s website) per capita debt was $1,507 and the ratio of debt to general governmental expenditures was a very low 9.33%. Last year the per resident amount was $2,058 and the debt to spending ratio was 14.80%, the lowest since the early to mid 2000s. Most of the past fifteen years per capita debt has hovered around $2,400 and the ratio of debt to spending around 18%. That’s why much of the future fiscal optimism of the City is predicated on the "debt cliff" when payments fall significantly, supposed to arrive somewhere around 2018.

What is Pittsburgh’s Debt Load?

A quick perusal of the City Controller’s Popular Annual Financial Report shows that long term debt has fallen from $787 million in 2005 to $680 million today-more than $100 million in five years. The City has issued debt just once in the amount of $47 million in recent years.

It is doing so in order to get the debt level down to more manageable levels. Per capita debt-depending on which population figure one uses, the 334k count from the 2000 Census or the 311k count from the most recent Census estimate-stands at over $2,000. Higher than Newark, higher than Rochester, higher than St. Louis.

Note too that the Controller points out "challenges ahead" as declining population, pension funding, and aging infrastructure. That means smaller tax base, more dollars dedicated to funding current pension participants and paying for retirees, and at the same time trying to avoid borrowing to pay for streets, bridges, and sewers.