Municipalities’ Share of RAD Tax Revenue

In 1994 Allegheny County imposed a one percent local sales tax allowed under 1993’s Act 77, the legislation creating the Allegheny Regional Asset District.  Act 77 mandates that 25 percent of the revenue collected be distributed to the County and 25 percent to its municipalities with the requirement that it be used primarily to reduce other taxes, with a few other permissible uses.


For most of the 1994-2015 period, 128 of the 130 County’s municipalities have received a share of the funds. Two municipalities, Trafford and McDonald, do not participate. Over the period, a total of $801 million was shared by the municipalities. All sales tax and municipal distribution data are taken from the RAD board web site.


The share of the revenue a municipality receives is calculated by multiplying the total amount available for distribution by a factor designated as the ratio of its weighted tax revenue and the sum of the weighted tax revenues of all municipalities.  Weighted tax revenue is specified as the municipality’s total tax revenue from all sources divided by the ratio of the per capita market value of real property in the municipality and the per capita market value of all County property. All population figures are taken from the latest Census figures available, currently the 2010 numbers.


In simplest terms the formula means that a municipality’s share factor will, all other things equal, be larger the greater its tax revenue and will be larger the smaller its per capita market value of real property.   Thus, municipalities with large tax revenues will tend to receive more than municipalities with small revenues.  However, the weighting formula will boost the share of municipalities that are poorer in terms of market value of real estate per resident above what it would be if its tax revenue alone were the factor and conversely the formula will act to reduce the share for municipalities that are wealthier in terms of market value of property per capita.


To investigate how accurately the formula is being applied this report examined the details of the sales tax revenue distribution. The first step was to calculate each municipality’s share of the sales tax revenue distributed over the last five years as well as the for the cumulative shares for periods 1994-2010 and 1994-2015. One interesting fact emerges quickly. The City of Pittsburgh received 52 percent of all the dollars distributed during the first 17 (1994-2010) years of the program and 50 percent of all the money distributed over the 1994-2015 period. However, the City’s share has been falling in recent years and by 2015 stood at 42 percent.


For the entire period 1994-2015, the municipalities with the seven highest per capita sales tax allocations include Braddock Borough, Clairton, Duquesne, McKeesport, Mt. Oliver, Pittsburgh, and Rankin.  All had per capita cumulative distributions over the 22 years of over $1,000 with Braddock, Rankin, and Duquesne above $1,400, Pittsburgh at $1,321, Clairton $1,200, McKeesport $1,121, and Mt. Oliver at $1,003. At the low end, the seven lowest per capita cumulative distributions went to Ohio Township, Pine Township, Sewickley Hills, Frazer, Franklin Park, Marshall and Robinson.  All received totals of under $200 over the 22 years except Robinson which received $209.  Of the remaining municipalities, 40 received between $500 and $1,000 while 74 received between $209 and $500 per capita.



Note that the per capita taxable property averaged $25,000 for the seven highest per capita RAD tax recipients (only $18,000 if Pittsburgh is excluded) while the seven lowest per capita recipients had average per capita taxable property of $155,000.  Thus, the impact of the distribution formula’s weighting scheme is readily apparent.


The simple average per capita cumulative for all 128 municipalities was $483. The weighted average (actual total dollars distributed divided by all 128 municipality residents) per capita was $655. This gap is due largely to the fact Pittsburgh received over half of all the sales tax revenue distributed during the period since the beginning of the program and its tax revenue and population count are so large relative to the other municipalities—larger than the ten next largest municipalities combined.


The next task was to evaluate whether the per capita distributions were close to what the legislated procedure should produce.


By using the formula in a reverse fashion, that it is to say, using it to solve for the effective sum of weighted tax revenues as opposed to calculating the amount to be distributed, it is possible to evaluate whether a municipality is receiving more or less than it should be—or the right amount.  The four other   components of the distribution formula are easily obtained for the seven municipalities that rank at the top of per capita distributions and the seven with the lowest.


Using this procedure reveals that for the 2015 allocations, results for two of the 14 municipalities examined suggest they received more than the legislatively mandated formula entitled them to. But they were fairly small boroughs and the amounts of money were small compared to the total amount distributed. The one municipality getting significantly fewer dollars than the formula says it should was tiny Frazer Township. Interestingly, the Frazer distributions since 2010 have been roughly a third of the average distribution from 1994 through 2010.


The remaining municipalities in the 14 selected for study had 2015 allocations that were within ten percent or so of the amount an accurate application of the mandated formula would be expected to produce. Bear in mind that deviations from ideal results are inevitable due to inaccuracies in estimates of market value of real estate caused by the County’s frozen assessments, self-reported municipal tax revenues, and the use of five year old population counts. Ironically, the RAD distributions are included in the tax revenue used to calculate the share factor. Inevitably, this will create serious distortions over time, especially in the cases of poor, small municipalities whose RAD tax distribution is a large fraction of their total tax revenue.


Finally, it is important to note the changes in municipal shares that have occurred starting in 2011 through 2015. Overall, dollars available to distribute rose 11 percent from $41.9 million to $46.6 million.  There were some big winners in dollar amounts and some big winners in the percentage increase in dollars received.


The most dramatic change was in the distributions going to Pittsburgh. Although the dollar amount for the City rose $98,000 (0.5%) from 2011 to 2015, the share of total funds distributed fell by ten percent.  If the City share had remained at the level of the first 22 years, Pittsburgh would have received $23.5 million in 2015, instead of the $19.98 million it actually received. This would have left only $23.1 million for other municipalities instead of the $26.6 million that actually occurred, a difference of $3.5 million.


The diminution of the Pittsburgh share over the last several years has been accompanied by significant gains in shares for some municipalities and large dollar increases for some. Clearly, the weighted tax revenue of the City has fallen relative to the sum of weighted tax revenue for all municipalities. This cannot be blamed on the County reassessment because the Pittsburgh share was declining before the reassessment.  And since population numbers are set to the 2010 Census they cannot be the explanation.  It is possible however that the significant declines in City population from the Census of 1990 to 2000 and then from 2000 to 2010 could have lowered the City’s weighted tax revenue from the 1994 to 2000  period to 2000 to 2010 and then again in the years since 2010.


Penn Hills, with an increase of $408,425 or 30 percent over the 2011 to 2015 period, was the biggest gainer in dollar terms. Clairton was second with a gain of $201,752 or 50 percent during the period.  Bethel Park posted the third largest dollar rise at $ 180,000 or 40 percent.  Six other municipalities enjoyed distribution gains of over $100,000 including; Moon (up 41%), Mt. Lebanon (up 20%), Munhall (up 32%), Rankin (up 66%), Upper St. Clair (up 34%), South Fayette (up 59%) and Ross (up 41%). Thus, each of these experienced gains well in excess of the overall 11 percent growth in total tax revenue distributed.


106 municipalities had increases in distributed funds from 2011 to 2015 of over ten percent. Of these thirteen municipalities received increases of over 50 percent, but none reached the $100,000 dollar mark in actual dollar increases. Ninety three of the municipalities had gains in the range of ten through 49 percent.  Eleven saw their allocations rise from one percent through nine percent while three had no change in share. Meanwhile, five municipalities saw their distribution amounts fall led by Braddock at 28 percent and Duquesne at 17 percent.


A table with all the dollar values and share changes has been posted on the Institute web site.


In summation, while the formula for distributing the sales tax revenue is apparently working reasonably well, it has a major drawback. To wit, much of the data used is outdated or subject to errors.  Failure to keep market values of property up to date and using Census data that can be as much as ten years out of date are real problems for accurate calculations. A new, simpler formula that uses more up to date data is needed to rectify these problems.  That will be the subject of a future Policy Brief.

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.

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).

Yes, Let’s See Where ALL RAD Money Goes

An opinion piece celebrates the start of RADical days, when the assets funded by the 1 percent sales tax created under the Regional Asset District offers free admission as a "thank you" to taxpayers to show them what the money has paid for. The op-ed closes by noting "RADical Days are the most entertaining way to watch your tax dollars at work."

Much more entertaining that going down to see what happens at the County Courthouse or the City-County building, that is for sure. If the Port Authority gets deemed a regional asset as is envisioned by the recent bailout plan perhaps there will be a day in the future when "free" bus or trolley rides will get patrons to RADical days.

The piece correctly points out that one half of the proceeds from the sales tax goes to fund the assets. The other half is split into two pieces, 25 percent to Allegheny County, the other 25 percent to the municipalities in the County. The legislation creating RAD mandated that upon accepting the money the County and the City had to eliminate their personal property taxes, and the City had to reduce its amusement tax from 10 percent to 5 percent. The City and the County had to create senior citizen tax relief programs and municipalities other than the City and the County were to use the money to reduce local taxes and dedicate a portion to inter-municipal organizations like councils of government.

Do taxpayers know what their local governments are doing with the money? For the County’s 2012 budget the revenue side shows $41.5 million from the sales tax, which amounts to its 25 percent share under the formula. Then, under "other and miscellaneous" there is $17.8 million reported from the Regional Asset District. The latter allocation in its entirety goes to Parks, which has a $22 million budget this year. The $41.5 million goes entirely to non-departmental revenues, a $408 million pot of money. The City budgeted $12.2 million this year as its share and notes that the money "replaces funds lost with the elimination of the personal property tax, the reduction of the amusement tax…and the expansion of the City’s real estate senior relief program".

The RAD website notes that "as a result of new sales tax revenue, 115 municipal governments reduced local millage, 10 eliminated the per capita tax, and three reduced/eliminated the wage tax." It is a strong bet that many of those millage rates have crept back up, and we know that the County and the City have been granted and are often asking for new sources of tax revenue.

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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Carnegie Library System: Comparative Operating Statistics

After receiving little attention in the way of research since the 1990s, the state of the Carnegie Libraries-a public trust of 19 libraries with a collection of over 5.2 million items based in the City of Pittsburgh-has been a much covered topic since 2008.


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More States Go Corporate for Park Upkeep

In 2008 and a few weeks ago in this blog we explored the idea and the progress in Allegheny County’s plan to look for private sector help for park improvements. Facing tight revenue sources and maintenance needs that have been deferred for some time, the County thought that there might be an opportunity to solicit interest from the private sector but the Executive pledged in 2008 that "we are never going to sell [County] parks".

A recent article in USA Today describes how other states have jumped on this line of thinking and have secured donations and services in return for advertising and sponsorship opportunities. Parks in California, playgrounds in New York, and now Georgia (where officials have stated, in a reassuring way, that "we will not rename any parks") are looking to the corporate pool.

And that pool is not bottomless, so whether the County goes the route of other states (the parks website still lists assets that were considered for rehab at the time our 2008 piece was written) it likely needs to get moving. Add the fact that the parks are seeking increased Regional Asset District funding for next year is not an indicator that the private sector approach is proceeding in the intended direction.

Times are Tough, But, It’s State Money

We’ve written about the Redevelopment Capital Assistance Program (RCAP) before: it is one of many arrows in the state’s quiver aimed at eliminating blight and stimulating economic development. The General Assembly not long ago authorized increasing the cap on how much the state could borrow to fund projects through this program, and in July the Governor handed out $600 million through the Commonwealth.

Just yesterday City Council discussed entering into various cooperation agreements with the Urban Redevelopment Authority, who acts as the applicant for RCAP dollars.

Perhaps City, state, and URA officials are aware of some good economic news as several RCAP requests were amended to reflect increased dollar amounts:

  • A grant for Phipps Conservatory was increased from $250k to $500k
  • A grant for the Pittsburgh Ballet was increased from $750k to $1,250k
  • A grant for the Pittsburgh Zoo and Aquarium was increased from $875k to $2,000k
  • A grant for the Carnegie Library modernization project was increased from $7,500k to $8,500k

And although it was not specifically amended, a grant for the Connelly Tech project-which was announced as an $8 million project in July-is now up to $12 million.

Non-Profits Face Two-Pronged Battle

The state and the City of Pittsburgh are prepared to lean a bit harder on the non-profit sector in order to shore up their spending plans. The state wants to extend the sales tax to tickets sold to cultural attractions like the zoo, ballet, and museums and the City wants to enact a host of new fees and charges on things like hospital admissions, college and university students, and water use by large non-profits to provide some $10 to $15 million per year for its pension costs.

Of course, none of the targeted parties like the idea. On the sales tax, various officials noted "The cost of tickets is a big factor. Adding on an additional tax can only hurt attendance in the short term and the long term"…"this proposal would only place an additional burden on us. We definitely feel it could adversely impact our visits"… "Honest, this proposal has come entirely out of the blue, without any prior discussion, and that is what we find so puzzling." Hmm. Wonder if any of the affected venues in Allegheny County would like to get the input of businesses that have been collecting the extra 1 percent sales tax that has gone to support many cultural and recreational attractions helped through the Regional Asset District. That proposal came out of the blue as well: no public meetings, no referendum, and no broad based discussion. It was sold as having minimal impact on business but that has not been the case.

On the City proposal, one quote stands out: "UPMC has always supported the city". The region’s largest employer was a big contributor to the voluntary Public Service Fund and the major driver behind the Pittsburgh Promise. Perhaps they thought that would be enough to convince the City to avoid talk of more fees and charges aimed at the non-profit sector. But not so: instead the non-profit giant’s enabling act has not prevented the City for searching for even more money,

Is there a glimmer of hope for these organizations? Perhaps, but not in this corner of the state. Another news article today pointed out that the County wants to build a package of consistent and recurring revenues for its budget, including "$4 million from contributions by nonprofits to county finances". Is it time for the non-profit community to take a stand?

Many Wild Cards in Sales Tax Debate

Under various proposals before legislative committees, PA counties could have the ability to tack on an extra percentage point on to the existing state sales tax, thus giving counties a local option tax, something that only Philadelphia and Allegheny currently have. Bills snaking there way through would either apply to all counties except the two that already have the tax, to Philadelphia only, or to third class cities only.

The most recent PA tax manual shows that of all classifications of local government counties raised the most tax money (97%) from real estate taxes, even more than school districts (many levy the wage tax) and money from a sales tax could be used to offset real estate tax revenue. No mention has been made of replicating the Regional Asset District set-up of Allegheny County or the general budget use of Philadelphia if the tax were to go into effect.

Of course, there is still the possibility that the state budget deliberations could involve the state raising the sales tax in order to pay for its own budgetary needs, which would likely forestall the counties getting the add-on. And then there is still the prevailing attitude that taxpayers don’t want any tax increases and county commissioners being reluctant to adopt the tax.