Pittsburgh teams fight back: ineffectively

Summary: Pittsburgh’s major sports franchises banded together to pay for a study that purports to show how important the teams are to the economies of the city and region. Unfortunately, the study is not convincing—nor is the teams’ commentary offered in its support.

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Results of the PricewaterhouseCoopers study were released in summary form to at least one newspaper –the Post-Gazette—that reported the findings. As best as can be determined that summary is all anyone outside the preparer of the study and the teams have seen.  The full report with statements defining methodology and data sources has not been made public—no doubt because team information would be revealed. Thus, the principal finding of direct and indirect employment of 10,100 annually and a five-year employee wage total of $3.2 billion must be taken with a hefty degree of skepticism. And the implied claim that the teams are major economic generators with $6 billion in direct and indirect spending over five years is unsubstantiated.

Simply stated, whether the real number is anywhere close to $6 billion is questionable since we are not allowed to see the numbers for direct spending by the teams and, just as importantly, what is included in those figures.  Multiplier effects for recreation spending are very low or non-existent. Moreover, set alongside a truly important economic driver in the city, the economic impact numbers claimed by the teams as reported in the study are not impressive.

For example, Carnegie Mellon University’s 2017 financial report shows an annual payroll of over $600 million and annual expenditures in excess of $1.1 billion.  So, in five years its direct payroll would be $3.6 billion and since a great share of revenue at the university is from outside the city and region, the multiplier effects on Pittsburgh would be far greater than the sports teams’ revenue that comes in large part from ticket sales and concessions.  The University of Pittsburgh, UPMC and Highmark all individually swamp the teams’ combined local economic impact.  No doubt many larger local companies with hefty exports from the region would as well.

One spokesperson took it upon himself to make somewhat disparaging remarks about other cities across the country in response to criticism that money spent on sports events is money not spent elsewhere in the region.  He was quoted in the Oct. 29 Post-Gazette article as saying, “Yeah, they’re dispersed in Tulsa and El Paso and Fresno, and they’re dispersed in other places that no one’s ever heard of that are twice as big as Pittsburgh.”

The teams, he asserted, give the Steel City a cachet that many other cities don’t have.

“I believe strongly having these three sports teams has significant economic impact that allows us to punch over our weight as a city in competition with other cities and brings intangible benefits that separate us from larger cities, similar cities this size, cities that have sports teams and, most definitely, cities that don’t have sports teams,” he said.

Well, this person might want to consider that since 1990 Tulsa’s private-sector jobs count has climbed 38 percent through September 2018 while Pittsburgh jobs are up only 16 percent during the period.  Or that El Paso’s jobs are 48 percent above the 1990 level.  Alternatively, he might want to think about Pittsburgh’s population loss since the stadiums were built. From 2000 to 2017 the city has dropped from 334,563 to 302,407 residents—a decline of almost 10 percent.  Allegheny County recorded a loss of nearly 60,000 residents over the period.   Meanwhile, Tulsa and El Paso have seen population growth with El Paso up a hefty 22 percent.

Many other cities with no major sports franchises have seen substantial population gains as well, including Austin. In 2000 Austin at 656,000 residents was twice as big as Pittsburgh. But in 2017 Austin’s population had swelled by 49 percent above the 2000 level to stand at 950,715. Austin is now three times the size of Pittsburgh. Consider too Greensboro, N.C., where population rose from 223,880 in 2000 to 291,223 (30 percent) in 2017 and is within 11,000 of Pittsburgh’s population.

So perhaps the teams’ spokespersons should find another approach to bragging about how important the teams are to the economy, especially with the looking down-the-nose disparagement of cities that do not have sports teams.  “No one’s ever heard of those towns,” he quipped. Yet amazingly somehow they continue to do very well.

Indeed, the city that best mirrors Pittsburgh in population change is St. Louis where population fell from 348,000 to 308,000, a drop of 11 percent. Until 2015, St. Louis had football, hockey and baseball franchises including the 11-time World Series champion Cardinals—who outdrew the Pirates by nearly two million attendees in the 2018 season.

Finally, the claim that 4 million people come to the city to attend sports events and concerts each year at the facilities is somewhat deceptive. The figure actually represents attendance at events, not individual persons. Large numbers of season-ticket holders and repeat visits by other people in the city, county and region account for much of the attendance at games. And some attendees no doubt go to football and baseball games as well as hockey games. Not counting city residents, the number of individuals making visits to the city for sports events and concerts is likely to be well under half-a-million and perhaps even a quarter-million.  Season tickets are expensive.

In short, comments by team spokespersons about the study are largely self-serving and overblown rhetoric and seemingly unaware of how well other cities are doing despite not having major league sports.  They might also want to look at Buffalo and Detroit as examples of what sports teams cannot do for a city. Clearly, there are many factors far more important for economic growth than sports.  Business climate, taxes, the regulatory environment and costs and burden of government come to mind.

PAT in RAD Mix Again

"The Port Authority presents today as an eligible applicant with significant regional impact and an urgent and unmet need. Fortunately, revenue growth this year allows RAD to respond to this need on a one year basis without detriment to other program areas. Since this may not be the case next year, we urge state and county leaders to continue their efforts to find alternate, reliable transit funding sources." —Regional Asset District final budget for 2013

Last year, the Port Authority (PAT) asked for and received $3 million from the Regional Asset District as an annual grant. The Authority is making the same request again for 2014. While we know that no comprehensive transportation plan came out of the legislative session, and that PAT passed a budget for 2013-14 that is not yet on the Authority’s website, there are competing outlooks over how long PAT should get money from RAD.

The County Executive-who currently appoints all nine members of the Port Authority and 3 of the 7 members of the RAD board-said last August that he did not want the 2013 disbursement to be "…just a one time grant". An op-ed piece soon after argued against that line of thinking, stating the request "…should be a one-time thing". At least one leader in the arts/cultural community expressed reservations about the precedent the request would make, echoing a state senator who raised similar issues when it was decided that RAD would be able to help the Sports and Exhibition Authority (SEA) for a few years while it waited on gaming money.

Like the County Executive argued that he could think of no bigger regional asset than mass transit, the Executive Director of the SEA likewise opined a handful of years earlier that the convention center met "the definition of a regional asset". Yet the SEA no longer gets RAD money as it now gets gaming money-so it was really a temporary regional asset until a new source of revenue came along. Will that be the same for PAT? Recall that in some versions of the state transportation bill that would be more emphasis on local funding, with possible new and higher revenue options. Who knows if that will make it into a new transportation plan should one be debated in the fall. Is it possible that local officials could make the case that the RAD funded PAT without any hardship to other organizations so that, rather than creating new taxes again the Authority should be made a permanent beneficiary?

RAD Receipts Fall

Revenue collected by the local one percent sales tax in Allegheny County fell by 5.4 percent in February compared to a year earlier. That means overall sales taxes fell by 5.4 percent as well since the same items are taxed at both the normal 6 percent rate and the one percent add on.

Revenue at the Regional Asset District (RAD) was $6.2 million, down $357,000 compared to February of 2012. Since RAD gets half of the one percent revenue that means the County gets one fourth of the $12.4 million total collected and the other municipalities divide the remaining fourth, each of which will see a 5.4 percent drop as well. The state coffers also took a hit of $4 million dollars from Allegheny County sources due to the sales decline here.

What does this mean? Well, certainly it means that taxable sales were off by 5.4 percent, that’s a given. The larger questions are why were sales off and was the sales decline widespread across the region and state? Obviously, a drop in sales tax revenue of 5.4 percent at the state level would be a large number indeed. Continued for any length of time such a series of monthly declines would begin to put the fiscal year collections at risk of not hitting the budgeted amount.

The sales decline could have been weather related; there was a lot of bad winter weather. In that case we should see a rebound in the next month or two. On the other hand, if the sales decline is tied to the re-imposition of the 2 percent contribution requirement for social security, the rise in the top tax rate on personal income, the recent abrupt slowing in employment growth and the likely effects of Obamacare on household and business spending, then the sales slowdown can be expected to continue for a while. An eventuality certain to force even harder decisions by government officials as regards dealing with budget shortfalls. Because not only will sales tax revenue remain below budget projections but so will income tax revenue and other revenues that are lowered when economic activity slows, such as fuel taxes.

Let’s hope the weather explanation is correct. But the jury is still out and the other explanation is certainly plausible.

Just This Once

An op-ed piece today compares the Port Authority to a down-on-their-luck person who comes begging for money and, against the better judgment of the person of whom assistance is requested, gives in. The "askee" this time is the Regional Asset District, which last week included in its budget a $3 million allocation for PAT as part of a big funding package. "it should be a one time thing" the op-ed notes.

That’s going to be difficult: the County Executive, who appoints all of the PAT board members and four of the seven RAD board members, noted back in August that he will "ask the asset district board…to make a $3 million annual commitment, not just a one-time grant." We also documented previous shifts or "flexes" of money to the down-on-their-luck authority as recently as two years ago when the Southwest Planning Commission played the role of the benevolent one, being asked by the Governor to approve money for PAT. That board, in 2005, said that the last time it flexed money would be the last time it flexed money. They did flex the money, basically saying that they weren’t serious when they said they would not shift money again. The RAD board will be in the same position next fall: previous experience suggests it won’t be the one to make the PAT allocation a one time thing.

Inevitable Chain of Events Leading to RAD Funds for PAT

Back in the early 1990s the state Legislature granted Allegheny County authority to establish a Regional Asset District (RAD) and to impose a one percent County add-on sales tax to fund the district. The County Commissioners quickly voted to do so. There was no referendum asking the voters to approve the tax. This outrage was not repeated when it came to the plans to impose a sales tax for stadiums in 1997. That tax was roundly defeated by the voters and in all likelihood so would the RAD tax have been if it had been put to the voters.

But it is the law and the RAD tax has been collected for 18 years funding all sorts of things including new stadiums and propping up the Civic Arena. It was used to fund the Pittsburgh Development Fund that helped underwrite such memorable debacles as the Lazarus Department store. The Pittsburgh Schools also received a dollop of the tax revenue but that is now being sent to the City.

Now we have the spectacle of the RAD board approving $3 million for the Port Authority (PAT) to help fund the County’s matching contribution in order to receive additional state funds to fill a $64 million dollar deficit at PAT. Note that reserves had to be tapped to get the $3 million. Of course that means some other applicants or potential applicants could have gotten more money if the dollars were not going to PAT.

And why does PAT need the RAD money in the first place? In brief, because the state Legislature and the Governors over the years have done a remarkably inept job at controlling PAT by giving it a monopoly in the County and then giving the union employees the right to strike-something only three states permit. The right to strike a mass transit system is the most powerful bargaining chip any union can hold. Just the threat of a strike sends management into flights of terror and riders into paroxysms of anxiety about they will get to work. Businesses then join the chorus of pleading to give the union what it wants. Anything but a strike. So using the kryptonite equivalent of a bargaining advantage the unions have been able to extract one of the best, if not the best, compensation package and union favoring work rules in the nation.

Thus it was that PAT became an extraordinarily expensive transit operation, inefficient and destined to go bankrupt. If only state law would permit bankruptcy of PAT-which unfortunately it does not. So for a decade or more PAT kept sliding deeper into the ravine of financial chaos only to be temporarily bailed out again and again by the Governor riding to the rescue with highway money to fill the budget holes. Only this time, the hole was too big for the state to fill by itself. After all, the state is not flush with cash lying around to be redirected to PAT. Moreover, there are many in the Legislature from other parts of the state who are repulsed by the idea of tossing more of their constituents’ tax dollars at the outrageously expensive and inefficient PAT.

In this latest iteration of asking for state money, the Governor was far less generous than previous Governors and forced the County, the unions and the management to come up with a big chunk of the $64 million projected deficit. Of course the union share was a pittance relative to their share of the cost structure. The County, to raise its share, went immediately to the pot of money at RAD, asking for $3 million a year for ten years. The argument being that transit is too important to allow the major cuts that could be required if the state money is not forthcoming.

Dutifully, the RAD board agreed to hand over $3 million, no doubt under enormous pressure from the County Exec, PAT board members and the business community.

There it is. In short, the Legislature allows the County to create a revenue stream with one hand and then gives a "take all you want card" to the transit workers union with the other hand. Guess what was inevitable as the robins in spring? Eventually, the RAD money bags would be tapped for PAT. And so it goes.

At the very least the Legislature should have prohibited RAD money from being used to fund entities other than educational, recreational or cultural. There are some who will say this grab of RAD dollars for PAT could not have been foreseen. But they would be wrong.

RAD Creates New Category for PAT

In the 2013 preliminary budget for the Regional Asset District (RAD), total proposed spending would top $88 million: $85.5 million from the half of the sales tax proceeds that go to the District to fund cultural, recreational, and sports facilities; close to $3 million from reserves; and the rest from interest.

The District allocates money to contractual assets (the zoo, libraries, the aviary etc.), multi year assets (money to the Sports and Exhibition Authority for debt service), annual assets (a group that includes a variety of organizations that make annual petitions) and a small share for administration. Next year marks the beginning of a new category-provisional-for $3 million requested by the Port Authority (PAT) as part of an agreement brokered by state, local, PAT officials and PAT employees to avoid service cuts in September. Recall that we pointed out in a Brief earlier this year that RAD had come to the aid of another authority from 2007 through 2010 (the SEA) but the SEA was lumped in with the annual grants along side groups like the Pittsburgh Symphony and the Civic Light Opera.

It is not clear if, by creating this new category, PAT will be required to be put in line for budgetary consideration each year or if the $3 million is guaranteed for a certain number of years. The preliminary budget, which was put together by the District’s allocations committee, notes that "the decision on this unique request needs to be made by the full board after review of the information that has been provided by [PAT] since the [initial] hearing and after public input is received". The committee pointed out that inclusion in the budget did not constitute endorsement, but to show what the budget would look like with it in.

Contractual assets are slated to get $1.8 million more in operating money next year than this year; the multi year debt service payments to the SEA are expected to go down slightly (by $44k due to a drop in arena debt service); annual operating grants are up by $209k, but there was some churn from 2012. This year, 77 organizations received annual RAD operating support; in next year’s preliminary budget six of those organizations are gone (they received a total of $74k in 2012), leaving 71 organizations that received 2012 operating support in consideration for 2013. Of those, 45 are to receive more money than they are in 2012 (increases vary considerably) and the other 26 are slated to receive the same as they did in 2012. There are three organizations that appear in the 2013 preliminary budget that did not get annual operating support in 2012 (the three combined will get less than $10k).

Transit Shift Does Not Paint a Pretty Picture for Arts Groups

RAD money for PAT: designating the Port Authority as a regional asset would enable it for a $3 million piece of the proceeds from the share of the 1% sales tax set aside for regional assets like the zoo, libraries, parks, etc. and would combine with other sources from the County and the state. Of course, making room for PAT in the RAD pool could mean some crowding out of other assets entirely or through a smaller or flat allotment. A decline in sales tax proceeds could also precipitate complications.

We pointed out in a Brief this year that giving PAT a piece of RAD money would raise "is" and "should" questions (and we addressed the topic in earlier years, here and here). There is nothing in the law that says transit is not a regional asset: we pointed that out and a legal opinion delivered to the RAD board echoed that. Then would come the discussion about whether there was merit in giving PAT a monetary commitment. It could open the door to having other public authorities showing up at RAD’s door asking for money.

Several representatives of Pittsburgh arts’ groups communicated as much to the RAD board at a hearing yesterday. "If this (funding for Port Authority) occurs, then where does it stop?" asked one leader. Another said "Whether it’s one year or 10 years, it presents an unprecedented challenge". Part of the reason could be that the predictions that there would be a $5 million surplus might look a bit different. The RAD budget, and the decision on whether PAT will be a part of it, will come by the end of November.

PAT Could Be an Asset

After reviewing a host of sources-statutes, judicial decisions, internal documents of the organization-an attorney retained by the Regional Asset District (RAD) board has determined "there is no legal impediment to the District providing funding to the Port Authority (PAT). That answers the "is it" or "isn’t it" part of the question of the plan to devote $3 million in asset funding to PAT as a local subsidy.

The opinion does not address the "should it" question (the attorney notes "…we are not opining that the District is compelled or that it is advisable to fund [PAT]) but says that the law does spell out what RAD can’t give money to and if transportation was not the Legislature’s intent it would have put it on the list of prohibited beneficiaries. It also noted that the RAD request will not be a one time deal ("it is further anticipated that this will not be a one time request but will be continuing for at least the next several years").

The Institute raised these questions in a recent Brief and the attorney’s opinion will provide the input the RAD board needs on the decision.

Will RAD Funds Be Tapped for PAT?

Call it a strange case of foreshadowing. When the Regional Asset District (RAD) became law under Act 77 of 1993, only a few people other than Legislators would have noticed the curious fact that the language establishing the District and the accompanying one percent sales tax was appended to an act that amended existing language dealing with investigations conducted by the coroner’s office in Allegheny County. 

 

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Mayor Pushes Back on RAD Funds to PAT

A day after County Exec Fitzgerald announced he would be asking for $3 million from the Regional Asset District (RAD) board to help fill a hole in the Port Authority’s (PAT) budget and further ask that the funding be made a permanent annual commitment, Pittsburgh’s Mayor Ravenstahl pushed back. Paraphrasing, the mayor said that any excess revenue above RAD’s forecast might be welcomed by RAD recipients and that he would not support making any diversion of funds to PAT permanent.

Two questions arise. Should transit be considered by the RAD board as a legitimate use of the one percent County sales tax proceeds? Why doesn’t the County Exec go to Harrisburg and seek legislative authority to place a referendum on the ballot to get a 0.2 percent increase in the local sales tax to be used exclusively for transit? That should bring in about $25 million per year.

Because it takes 6 of 7 members of the RAD board to vote in favor of shifting or appropriating funds, the County Exec could face a hurdle in view of the fact that he has only 4 and a half of the appointments to the board. Consider too that the County receives 25 percent of RAD tax revenue already. Further, the County can impose drink taxes and car rental taxes that at their max could generate millions more than the current level. The drink tax was lowered from 10 percent but could be put back up if the Exec and Council are willing to take the political heat. Thus, the RAD board might not acquiesce to County Exec pressure and push back themselves.

Apparently after boasting of no county property tax increase for years and then boosting the tax 20 percent this year, the Exec is wary of asking for more or higher taxes. But he cannot have it both ways. The County and its residents are the primary beneficiaries of PAT’s transit services and the huge majority party in the County favors the status quo with regard to the power of unions to drive public sector entities into financial crisis (e.g., the City, the City school system, PAT). Therefore, by any reasonable standard, the County residents should bear the brunt of paying for the outrageous labor compensation and benefits at PAT. But rather than look for ways to curb PAT’s costs in a serious way, all eyes turn to Harrisburg and the lobbying begins for more state aid-which, unfortunately has always been forthcoming.

Back in the early 1990s when the concept of RAD was being developed, there could have easily been a provision included to have a part of the revenue dedicated to mass transit. At the time, the lobbyists and proponents dismissed the idea. Of course, the RAD tax was imposed by the County Commissioners who studiously avoided any notion of having the voters decide whether to adopt the one percent tax. Sadly, the Legislature, as it often does, yielded to the wishes of elected officials and civic leaders and ignored the will of the public.

And that is what the Exec hopes to achieve this time. Rather than asking County residents to decide if they are willing to more heavily subsidize PAT through a higher RAD tax, the state is being asked to put in additional funds and RAD will be importuned to contribute as well.

Coddle the unions because they are politically powerful but don’t ask residents to chip in more to pay for the coddling. That’s government at its worst, but what can one expect?