Pig in Turnpike Poke?

The Turnpike Commission says it is planning to build a 12.5 mile extension of the Southern Expressway at a "projected" cost of $633 million. Projected being the operative word. The final actual cost could end up if unexpected contingencies arise during construction. Of course, if there were no prevailing wage requirements, the project could cost a lot less.

Here’s the rub. Funding sources have not been fully identified although borrowing is likely to be a major component. Amazingly, the Turnpike spokesperson says no toll revenue will be used to repay any borrowing. What then is the revenue source to repay loans? Is the Turnpike expecting it will not have to pay its debts? Is the Turnpike counting on state or Federal grants to cover its debt costs?

When a toll road is built, it is built on the assumption that tolls will cover most of the cost. If tolls are not projected to be adequate to cover the cost of construction and maintenance, then the Turnpike will have to shift revenue from other parts of the Turnpike system to cover the costs. An extension costing $633 million would have to generate about $25 to $30 million at a minimum to repay debt and operate and maintain the road. At a toll of $5 per vehicle, the road would have to carry 6 million vehicles per year or 16,400 per day. The existing Southern Expressway is carrying about 5,000 per day. Can we reasonably expect to triple that number any time soon on the extension? And if a big share of the extension traffic is movement within the extension boundaries congestion might not be reduced appreciably on the Parkway or I-79.

The Turnpike is heavily burdened by existing and future debt as it is forced by legislation to borrow $450 million per year to turn over to PennDOT. The result is escalating main line Turnpike fees. Of course, the state desperately needs the Turnpike revenue to fund maintenance and operations on state highways now and even with those funds does not have enough to cover needed bridge and highway repairs and upgrades. How would the state possibly be able to divert hundreds of millions to a new road?

As someone wisely observed when looking at situation like this, "something about this does not feel right." Let’s hope the Turnpike planners come with better answers to key questions.

Building the extension by the Turnpike is on its face a good idea but only if the road will pay for itself. The Turnpike is no position to acquire a lot of additional debt beyond what is currently mandated to do. On the other hand, the extension might be built by PennDOT but only after a full and plausible explanation of how benefits will exceed costs with benefits heavily dependent on new tax revenue to the state and local governments arising from net expansion of economic activity in the area attributable to the road.

Shale Fee for Allegheny County

One of the items on the agenda for County Council this week is to levy the fee on Marcellus Shale activity permitted to counties under Act 13 of 2012. Our Brief outlined the specifics of the Act and how the fee will be distributed. The legislation before County Council states that the fee "…will be to the benefit of the citizens of the county because the revenues generated from the imposition of an unconventional gas well fee will be appropriated in part to counties and municipalities within the Commonwealth for important public purposes…"

The ordinance also points out that the County has spud wells now and "is likely to have more in the future". Based on our analysis-factoring the price of natural gas, the number of wells in the County (4) and statewide (just over 4,100), along with the distribution formula for the revenue-Allegheny County and its municipalities within the County stand to share around $112,000 in 2013 from the fee. For comparison’s sake the County collects more in the "fees" it levies on recording and filing ($19.1 million), copying and printing ($603k), swimming ($1 million), and landfills ($217K) than it would take from the shale fee initially.

The Act spells out how the proceeds will have to be used. It is not sure where the County will place this money when it is received. In the 2011 budget, when revenues are broken into object code, there are "taxes" which cover property, Regional Asset, drink and car rental taxes but also the gaming host "fee"; there are no "fees" in the object code "licenses and permits" and there are several "fees" in the code "charges for services"; there is one "fee" in the code "fines and forfeitures". All that is left after that is "state revenues" which could be a landing spot for the money since the Public Utility Commission will be remitting the revenue to local governments.

2013 Budget Shortfall Blamed on Fiscal Discipline

It was just announced by the state Budget Secretary that the Commonwealth will need to find $750 million in spending cuts to balance the 2012-2013 fiscal year budget. Revenues are continuing to fall short owing to the lingering high unemployment rate and despite some reasonably good private sector job gains.

Predictably, some members of the Legislature were quick to criticize the Governor for not doing enough to stimulate job growth and generate more revenue. Of course, what they mean by stimulate job growth is to borrow money and spend it on public sector projects that will use union labor. And of course, he should have spent any remaining rainy day fund to make sure fewer teachers got laid off. All unionized workers. Notice a pattern?

The problem is that borrowing comes at a cost. Raising taxes is not an option during a recession and balancing the budget is a Constitutional requirement. Thus, when the rainy day fund is inadequate to close a budget gap, spending cuts have to be made. If the previous administration had not insisted on increasing spending at rates well above inflation for two terms, the budget deficit would never have reached the $4 billion mark and the spending cuts would not have been so painful in the current fiscal year.

But for some, spending taxpayers ‘money, whether from taxes or borrowed and paid back out of taxes, is always the answer to budget problems and job creation. Apparently they have not noticed that all the Federal stimulus and deficit spending a long with extraordinarily easy monetary policy has had precious little impact on the rate of job growth nationally, especially in view of the gargantuan amounts of money being spent and created.

An Updated Look at Municipal Spending in Allegheny County

Local government is perhaps the most important to its residents, yet many are unaware of how much their municipality collects in revenues and spends on services.  In 2010 we started the first of a series that takes a look at the per capita spending and revenue levels of Allegheny County’s municipalities.  Last year we looked at the 2008 Municipal Annual Audit and Financial Reports to compare the per capita values and noted the highs and lows.  This year we look at the 2009 Reports, the most recent available, to provide an update.  This year’s report covers 123 of the 129 smaller municipalities that comprise Allegheny County.  We also update the population data from the 2009 estimates to the 2010 Census count[1]



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Municipal Spending in Allegheny County: The High and the Low

With municipalities across Allegheny County setting their budgets for the upcoming year, several are patting themselves on the back for not raising taxes.  That is a good thing but it would be even better if taxes could be reduced, especially in communities where per resident spending is much higher than the municipality average in the County.  To see which communities are high spenders and which are comparatively low spenders we obtained data from each municipality’s Municipal Annual Audit and Financial Report and use that to compare per capita spending across the County[1].  The most recent municipal data available is for 2008 and a full list of the municipal spending categories can be viewed on our website.  Population data is taken from the Census Bureau’s 2009 estimates. 



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Private Sector Foolishness in Pittsburgh

According to Mayor Ravenstahl there is unanimous agreement in his group of government, university and business leaders that Pittsburgh needs a new source of revenue to bail out its ailing financial problems. We can think of two gigantic problems with the Mayor’s assessment of the situation.

First, there is absolutely no evidence that a new source of revenue will solve Pittsburgh’s long standing tendency to spend or commit to spending all the money it gets its hands on and then some. Over the past two decades the Legislature has provided numerous additional sources of recurring revenue to the City as well enormous amounts of money to large building projects in the City.

And what has the City done to correct its well documented extravagant spending? Not very much. It is still far out of line in its spending, employment and legacy costs compared to other U.S cities. So why would we think a new revenue source would solve the problem? The City needs first to demonstrate its willingness to make the spending cuts necessary to put its house in order. Lower cost government can redound positively to the City with a lot of benefits; lower taxes, a friendlier climate for business and new residents and happier taxpayers.

Raising taxes in the current economic environment is nothing less than preposterous.

The second gigantic problem? Who are the business leaders on the Mayor’s panel who endorse a new revenue source and why are they doing it? No doubt these are the same folks who thought a new tax to fund stadiums was a good idea and that wasting $500 million on a PAT tunnel under the Allegheny River was a good use of taxpayer dollars. If these businesses are so keen to help Pittsburgh with new revenue, why do they not each volunteer a four or five million dollars per year to the City? If it is so important to find new revenue, they should take the lead and make a commitment. That they won’t ante up reveals a fair amount of hypocrisy. Those who want others to pay more should lead the way and donate voluntarily or recommend tax increases on themselves.

That won’t happen because their colleagues in the business world would go ballistic. And no doubt many shareholders in their own companies would as well.

Finally, it is worth noting that the Mayor’s request for $4 million from the tax-exempt institutions received no commitment from the university presidents in attendance at the meeting. Of course being great public spirited citizens they want to help the City by going to Harrisburg and lobbying for more taxes.

We can only hope the Legislature will give this delegation short shrift, exactly what it deserves.

Pothole Ridden Thinking

A PG editorial this morning said that "the sorry condition of Pittsburgh streets is testimony to the fact that the city is not out of the fiscal woods". True, Pittsburgh is not out of the fiscal woods-it won’t be until there is an execution of a plan to deal with legacy costs and bring per capita levels of spending down to more competitive and taxpayer friendly levels.

A lot of people might think that the condition of the roads is testimony that the City has been focused on other things, like economic development and conjuring up schemes to grab more taxpayer money, than taking care of the municipal basics of public safety and public works. But the PG feels that the City needs to turn to commuters and non-profits for more money in order to take care of basic road maintenance.

Never mind that the City (like all counties and municipalities) gets a share of the Liquid Fuels tax ($4.6 million in 2010) that is used for road maintenance and levies the Local Services Tax ($12.5 million in 2010) which replaced the old $10 Occupational Privilege Tax and has statutory language that mandates that one of the four possible uses for the LST is "road construction and/or maintenance". What else would they suggest? An increase in the wage tax under Act 47? For one, it cannot be done because of legal restrictions and two it would cause an increase in the wage tax for people living in the City, making their rate far higher than it would be on non-residents. Plenty of places have commuter taxes (New York, Philly, etc.) and that has not solved the financial difficulties.

Maybe a return to focusing on the basics would work.

Not So Jolly News for Rivers Casino

Pittsburgh’s Rivers Casino received some not so jolly news this holiday season-a credit rating downgrade from Standard and Poor’s. The downgrade from a B- to a CCC amounts to a lump of coal in the casino’s stocking. But the official statement from management is that the reduction "was entirely anticipated". They rationalize the move as one that is affecting the gambling industry as a whole and not indicative of troubles at the North Shore facility. In keeping with the cheeriness of the holiday season the statement further comments the "Rivers Casino is posting market share gains and is becoming a destination of choice for gaming in Western Pennsylvania".

Management is correct in one facet-the downgraded was to be anticipated. As we have been documenting, the slots parlor has not lived up to neither its, nor the gaming board’s, revenue expectations. Through the second week of December the casino is on pace to earn $196 million in annual gross terminal revenues-far below their projection of $427.8 million and the gaming board’s projection of $362.4 million annually.

Of course, with the casino at only 45 percent of expected revenue, many people are worried because the City and region have pinned a lot of hopes on the success of the facility. Not only will the projected community payouts be in doubt-like the $7.5 million per year for the new hockey arena-but the future of the slots parlor itself could be in doubt. And that brings up a whole new set of questions. What happens if the Rivers Casino declares bankruptcy? Remember that one of its owners has already declared bankruptcy. Who takes over the casino and will they be required to pay for the new arena or will a bankruptcy judge relieve them of that obligation? While this is the season of giving, the Rivers Casino may need more than Santa can fit in his sleigh.

No Mr. Secretary, No More Taxes for Pittsburgh

The Secretary of the Department of Community and Economic Development in a recent speech said Pittsburgh needs to find new sources of revenue to deal with its heavy debt burden and pension problems. He also said the City needs to cut spending.

The problem with the City raising more revenue is that it is already over taxing residents, businesses and commuters. Finding new sources of revenue is highly problematic. Bear in mind too that City schools with spending at $20,000 per student absorbs much of the City’s tax base.

The City hasfailed to cut spending over the last five years even though it is in Act 47 distressed status. Contracting with the private sector or the County to provide services, selling assets to raise funds and making serious employment reductions is the way the city must go. Higher taxes are a jobs destroying strategy the City must avoid.

Pittsburgh Casino Revenues Flat

Wagers at the Rivers Casino seemed to have hit a plateau in the fourth week of operations. Revenue data for the week of August 31st shows the casino accepting wagers of $52.9 million, up slightly (less than one percent) from the previous week of $52.5 million. This slight increase was also reflected in the week’s gross terminal revenues ($4.34 million vs. $4.26 million).

The casino started out below projections and had seen weekly wagers and revenues decline in the following two weeks prior to this small up-tick. After four weeks of play, the average weekly gross terminal revenue for the Rivers Casino is $4.63 million. Projected over a full year, the casino is on pace to earn gross terminal revenues of $240.8 million. This represents only 56 percent of the Casino’s initial expectation of $427.8 million. While excuses abound, this has not been a great first month for the slots parlor.

Casino managers have plenty to worry about and should not get too excited about a less-than-modest increase in revenues. While stopping a three week slide in revenues is positive, it may not be a harbinger of things to come-after all, even the Pirates win an occasional game.