Tag Archives: Spending

What to Do About Wilkinsburg?

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A recent news article focused on the Wilkinsburg School District in the eastern part of Allegheny County and its confluence of problems over the past two decades. The article quotes many different people-students, teachers, administrators, school board members who all offer up opinions about why the District is in the condition it is in. It also touched upon the mid-1990s proposal for Turner Elementary, a proposal which the Allegheny Institute wrote about in 1996 and now provides a deep and detailed history of those efforts. The article did not mention that the District endured two strikes in back to back years (1998-99 and 1999-00).

Just a short time ago and before the publication of the recent article a state senator held a community forum and called the situation "unsustainable".

Is it? Take a look at recent numbers. The per-pupil expenditure in Wilkinsburg was $20,569 in the 2010-11 school year, a 67% increase from where it stood in 2002-03. The per-pupil amount was fourth highest in the County. Enrollment fell by more than 20% from 2002-03. The District hiked millage rates in 2005 and 2012 and stood at 36.6 mills last year, the highest in the County. The idea of merging Wilkinsburg into Pittsburgh Public Schools has been raised (the two have merged fire departments and the City handles residential trash collection for the Borough) but there has not been much enthusiasm for the idea. In fact, over the same time frame Pittsburgh saw a larger drop in enrollment in percentage terms (24% to Wilkinsburg’s 21%) and it almost had the same increase in per-pupil spending (64% to 67%).

Teachers and Legislators Getting Schooled on Bad Policies

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Facing a large budget deficit, the Plum School Board has voted to lay off 23 teachers.  The principal causes of the $1.48 million deficit are salary increases of over $900,000 and a requirement to boost the District’s pension contribution by $1,000,000 for the upcoming fiscal year. Limited to raising tax revenues over the current fiscal year by a state imposed index, the School Board has opted not to apply for an exemption from the Department of Education to increase tax rates.

 

 

Teachers were asked to voluntarily forgo the salary increases called for in the contract but rebuffed the request, necessitating the personnel reductions. As required by a state law that does not allow teacher layoffs for economic reasons but does permit layoffs for enrollment declines or program eliminations, the Plum school board is targeting several programs for elimination including ROTC, television production, and family consumer science among others.  Predictably, the teachers’ union head responded that “children should not be held hostage”-adding that the union wants to save all programs now and in the future. 

 

How ironic. Teachers’ unions have pushed for and received the job protection legislation that prevents school boards from making teacher layoffs across departments and working to achieve the least disruptive results of layoffs.  By forcing school boards to eliminate entire programs in order to make layoffs, the legislation does exactly what the teachers want; hold taxpayers hostage. They pit parents against taxpayers knowing students and parents of children taking classes in the programs targeted for elimination will raise a fuss and clamor to preserve the programs.  This strategy of pitting parents against the taxpayers and the school board on behalf of teachers works well when strikes or threat of strikes occurs. It is very clever to set up a scheme that deflects attention from the creators of the problem to the school board.

 

All this is now occurring in the reality of the massive and growing shortfalls in the Pennsylvania teachers’ and state employees’ pension plans.  These shortfalls will necessitate very large additional contributions from the state coffers as well as school districts over the next few years if major changes in the pension laws are not forthcoming. The reforms proposed by the Governor earlier this year would go a long way to dealing with the problem.  However, these reforms face enormous opposition from state employee and teacher unions with the threat of court challenges.

The plan to implement a new payout scheme for future years of service of employees who are currently employed while preserving the benefits earned to date is a major obstacle. Outcomes in the court are not assured and reforms could be nullified completely or delayed for many years.

 

But the lesson from Plum for teachers and the Legislature could not be clearer or starker.  With the billions of dollars that will have to be poured into pensions over the next several years if dramatic pension reform is not enacted, the state and school districts are facing an excruciatingly difficult dilemma of deep spending cuts or tax hikes. And as long as the law is in place that requires program elimination to layoff teachers, school boards will eventually be forced to cut into education muscle and bone.

 

Here is the reality. If teachers and state employee unions are not willing to accept the proposals outlined by the Governor, they will inevitably see their wages and non-pension benefits cut and many of their associates lose their jobs. The only alternative will be tax hikes that will cost many private sector jobs and hurt the state’s economy, a situation that over the long term helps no one-and certainly not the public sector unions.

 

It is now incumbent on the General Assembly to move quickly on substantial pension reform legislation to avert the coming disaster. It should also immediately amend the statute that requires entire programs be eliminated in order to have teacher layoffs.  And that should be followed by emulating the states, including the addition of Wisconsin in 2011, that do not permit teacher strikes. Teacher strikes are the ultimate argument against public sector unions.  Nowhere is the Madisonian admonition for the government not to create and/or side with powerful interest groups more in evidence. The opportunities for powerful public sector unions to use their considerable resources and influence to get friendly legislators elected and to have those legislators work for legislation favorable to the unions are demonstrably antithetical to good governance and sound fiscal policy. And they are the ultimate weapon against taxpayers.

 

The teachers and state employees have a decision to make. Will they fight pension reform with great zeal and vehemence and likely win a pyrrhic victory wherein they cause great damage to themselves and the state’s economy and taxpayers?  

Eyes Focused on Pupil Costs in the Burgh?

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Consultants engaged by the Pittsburgh Public Schools at the beginning of 2013 released a finding that the per-pupil cost in Pittsburgh is about $7,000 more than similar districts in Pennsylvania. Reacting to the finding, the Superintendent noted that the school board needs to “…have the facts on the table”. 

 

 

It is not clear if the implication is that the board had heretofore been in the dark about per-pupil costs in the District-the Annual Financial Report always contains data on student operating statistics and duly reports the cost per-pupil in 2011 was $21,177.  None of this will come as a surprise to readers of Allegheny Institute Policy Briefs that have made these points many times.  Likewise the state Department of Education regularly makes such information accessible and reported that identical amount for 2010-11, making Pittsburgh the eighth highest in the Commonwealth out of 500 public school districts.

 

The consultants, as reported in a news article, looked at spending and made adjustments to the data (removing special expenditures such as payments to charter schools) to produce a figure of $18,400.  Compared to “similar districts in the state” that produced an average cost of $11,600, the resulting difference was $6,800.  A later article identified the peer districts as Allentown ($11,952), Erie ($12,913), Hazelton ($10,917), Lancaster ($14,606), Reading ($12,559), and Scranton ($13,792). 

 

Give the consultants some credit for at least identifying the per-pupil cost and comparing it to other districts.  Let’s hope the report drives some discussions about the District’s budget and the impending arrival of insolvency that has been predicted to arrive sometime around 2016.  Previous consultants missed real opportunities to look at the data they had produced on per-pupil costs and therefore missed real opportunities to make hard recommendations for the District.

 

For instance, in 2005 (see Policy Brief Volume 5, Number 25) a consultant was paid $250,000 in taxpayer money for a report telling the District it needed to close schools and achieve other savings of $84 million over five years (combined operating expenditures for the District from 2005 through 2010 was $3.3 billion) and found that Pittsburgh’s per-pupil cost was 23 percent higher compared to five midwestern and northern districts. Lowering the Pittsburgh District’s per pupil costs toward the average of those districts would have produced savings on the order of $100 million per year. 

 

A year later (see Policy Brief Volume 6, Number 61) another group brought in to help the District also presented a review group of other school districts (across the country) but never calculated per-pupil spending even though they had expenditure and enrollment data.  The Allegheny Institute calculated Pittsburgh spending to be 59 percent higher than the average of the other districts. We recommended the District reduce per-pupil costs to around $12,500 with adjustments for inflation and enrollment, something the consultant should have done based on the data available but did not.  

 

No matter how you slice it, Pittsburgh spends an exorbitantly high amount on a per-pupil basis. 

 

If student population (average daily membership) is chosen as the basis of comparison, Pittsburgh spent more than Philadelphia ($14,132), Central Bucks ($13,811), Allentown, and Reading, a group that, along with Pittsburgh, represents the five largest districts in the state from the 205,000 students in Philadelphia to the 18,000 in Reading.

 

If the comparison is based on the relative wealth of the District-using Pittsburgh’s ranking of 386th on the state’s market value to personal income aid ratio list to compare (1st being “poorest” and the 21 districts tied at 480th being “wealthiest”)-we find per pupil spending at similarly ranked districts was lower. Districts included Fairview in Erie ($12,552), Schuylkill Valley in Berks ($15,618), Upper Perkiomen in Montgomery ($13,882), Dallas in Luzerne ($11,154) and Keystone Oaks in Allegheny ($17,929). 

 

If the comparison is based on geography and is limited to Allegheny County, districts including Duquesne ($20,564), Brentwood ($20,693), Wilkinsburg ($20,569), and Quaker Valley ($20,046) nudge up against Pittsburgh’s level of spending per-pupil. The average per-pupil expenditure of all districts in the County not including Pittsburgh was $15,500. 

 

With this new consulting report set to be finalized toward the end of the year along with a hefty reshaping of the school board with four of the nine school board members not returning in 2014, perhaps the board will finally get serious about reducing costs-and improving academic performance.

Pittsburgh School Board Election

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In the school board election there have been many of the same old, same old nostrums offered up by the candidates. We need more money, let’s go after the non-profits. This in a school district that spends well over $20,000 per student and has little to show for it in terms of academics. This in a school district with a "Promise program" that offers scholarship money to virtually everyone who graduates. Yet school enrollment keeps falling and preparation for college languishes at abysmal levels. If money were the answer, Pittsburgh schools would be among the best.

There was one comment from a candidate that has a lot of potential. The candidate suggests changing union contacts to remove the overweening influence of seniority on personnel decisions and presumably on pay-although that was not explicitly stated.

There is little question that for too long teachers and the so called educrats who have been in charge have neglected the wellbeing of students, their parents and taxpayers in favor of political correctness, liberal ideologies and self- preservation of the employees and bureaucrats. The citizens of Pittsburgh and the taxpayers from across Pennsylvania who cover about half the cost of the school system deserve better.

Universities Need to Visit History Department

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Pursuing a court case against the University of Pittsburgh Medical Center (UPMC) will tangentially affect the City’s institutions of higher education according to the Pittsburgh Council of Higher Education, which in turn will affect the task force working on non-profit issues (such as payments in lieu of taxes) that was created as a condition of the oversight board for approving the 2013 budget. Sounds like a house of cards or a big city version of the domino theory.

Because if the City challenges the medical system’s charitable status, as it has made clear it wants to, then the universities will feel threatened, and then any talk of cooperation on the task force will crumble under the specter of a lawsuit.

The universities indicate through a letter to the Mayor that they would prefer to move on to less controversial subjects like "…the city’s burgeoning pension obligations and the imposition of a tax on those who commute to the city". If the universities’ focus sounds eerily familiar it should: it was not long after the Mayor floated a variety of taxes and fees to see what would stick that what survived was the "post secondary education privilege tax" on college tuition. After that was eventually dropped in late 2009, the universities (along with one large Pittsburgh corporation) promised to go to Harrisburg and seek reform for pensions (this was post Act 44, but prior to the garage privatization plan) and possibly spreading the tax burden on to others. We noted at the time that "the universities should not, and in good conscience cannot, move from celebrating their hard work against the tuition tax to helping the City lobby Harrisburg for some other tax, most likely to be one imposed on people who cannot vote for the City’s elected officials."

There is a glimmer of hope four years later: the Council letter did note "The ultimate solution is not to look at another source of funding, but rather looking at the financial stresses of the city…Maybe there are some approaches that would reduce the need for funds". There’s been no shortage of recommendations on that line of thinking.

Benchmarking Pittsburgh

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City of Pittsburgh, know thyself. So goes the Socratic admonition.  Here’s some information to help in the self-knowledge. 

 

 

In order to see how the City performs on various measures of local government functions; how much it spends, taxes, how many people it employs, its legacy costs, and its authorities and schools, the Allegheny Institute in 2004 created the concept of the Benchmark City. The Benchmark City allows for an approximation of national norms of city governing by taking four regional hub cities from across the U.S. (Salt Lake, Omaha, Columbus, and Charlotte) and amalgamating them together to form a construct with which to gauge Pittsburgh’s performance.  After undertaking the initial analysis in 2004, we have updated the data in three year intervals and just recently released our 2013 report.

 

What did the 2013 analysis find?  An in-depth analysis can be found in the report, but here is a summary: on a per capita basis Pittsburgh spends more overall, collects more taxes and more non-tax revenue, and spends more on police and fire than the Benchmark City.  On the key measure of general fund spending, the gap between Pittsburgh and the Benchmark City was 46 percent ($1,539 to $1,051). When staffing levels are examined (on a per 1000 person basis), Pittsburgh is higher on total employees, total police, and total fire.  It has higher per capita debt obligations, a lower pension funded ratio, and pays out more in workers’ compensation.  City authorities employ many more people and have much more assets. Meanwhile, school spending and school taxes per person are considerably higher.  Overall, 2013 comparative results were not all that different from those found in the three previous Benchmark City reports as they took snapshots of budget and audited data at specific periods of time.

 

It is fair to say that positive change has occurred since 2004 when we first created the Benchmark City comparing Pittsburgh with cities of similar population size. Remember, that the City had just entered Act 47 recovery status and an oversight board like the one in Philadelphia was being discussed.  Gone are the business privilege and mercantile taxes, the $10 occupational privilege tax, and in their place are the payroll preparation tax and a $52 local services tax.  Act 47 status could be revoked based on the recommendations made by the recovery team in November of last year. 

 

With nearly ten years of benchmarking data on hand it is also possible to look back at 2004 and compare the relative standing of Pittsburgh to the Benchmark City now to see where the gap on certain variables has improved, stayed the same, or gotten worse.  There is good news. Pittsburgh has significantly improved its standing relative to the Benchmark City on pensions and debt.  In 2004, the funded ratio of Pittsburgh’s pensions was 43 percent lower than the Benchmark City.  By 2013, the gap had shrunk to 13 percent. Obviously the 2010 revenue plan crafted locally in response to the mandate by the state under Act 44 had a major impact. In 2004 the funded ratio in Pittsburgh was 51 percent and the Benchmark City 89 percent.  As Pittsburgh’s ratio climbed to 62 percent, the Benchmark City ratio fell to 72 percent, thus the combination of Pittsburgh’s improvement and the Benchmark’s poorer showing worked to close the gap. 

 

Then too, per capita debt, which was 233 percent higher than the Benchmark nearly ten years ago now stands at 64 percent higher.  Pittsburgh’s per capita debt fell by more than $800 while the Benchmark City debt rose by over $300 per person. If there is a strict adherence to reaching the debt to spending goal laid out by City Council (12% of spending taken up by debt by 2020) then improvement will continue in the future. 

 

Total staffing and fire staffing (per 1000 people) have also seen movement in a positive direction. Per capita school spending and per capita school taxes (which are not under the control of City officials in Pittsburgh or any of the cities that comprise the Benchmark, but are critically important) are still higher in Pittsburgh as of 2013, but again the relative standing between Pittsburgh and the Benchmark shrank since 2004.

 

That being said, the City’s per capita spending still remains close to 50 percent higher than the Benchmark,  now as it was did in 2004 and the gap between it and the Benchmark City on taxes is likewise the same (62% higher in 2004, 57% higher in 2013).  There is no noticeable difference in the staffing levels or asset holdings of related authorities which, again, are not directly part of any city’s government but perform services critical to taxpayers and have directors exclusively or partially appointed by city officials.

 

Did anything get worse since 2004?  The student population to city population (students per 1000 people) was 29 percent lower in 2013 compared to 20 percent lower in 2004.  Police staffing was 13 percent higher in Pittsburgh in 2004 and is now 24 percent higher. 

 

In sum, we conclude the Pittsburgh has made progress, but there is still much more work to do.  Whether there is one oversight group or two going forward, they will have to continue pressing the City for more restraint and downsizing of government.

Which Road Will the County Take?

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Wages and health care: those are the two "biggies" for Allegheny County as it negotiates with collective bargaining units representing more than 5,100 of the County’s more than 7,000 employees. Both the County and at least one union leader are in agreement on the importance of wages and health care, and for good reason: personnel and fringe benefits are typically the largest share of expense for government. Based on the County’s 2013 financial plan and the statement of revenues and expenditures personnel and fringe benefits represent 53% of the general fund, 46% of all funds (general, debt service, liquid fuel, and transit support).

One of the bargaining units with whom the County is negotiating represents personnel who do a lot of the County’s road work (spreading rock salt and asphalt) which is housed in the Public Works Department (a good portion of that Department is being spun off into a new department called Facilities Management). Based on Public Works’ 2013 budget of $19 million, $13.1 million is tied to personnel cost and the remaining $5.9 million is identified by the County as non-personnel (services, supplies, materials, repairs and maintenance, and minor equipment). Note that Public Works has almost 70% of its departmental budget into personnel and fringes, higher than the County as a whole.

One of the "Strategic Goals" for the Department is for "Continuous Improvement" and within that goal is an emphasis for the Department to "practice greater fiscal constraint". It’s not clear exactly how the fiscal constraint is to be practiced, but one way would be to be judicious with labor agreements, including the one that would be executed with the aforementioned union representing the road workers.

Upon seeing the County’s initial offer of annual 2 and 2 ½ % raises over the four year contract the union head said it was "…hard to swallow that the county‘s best offer is less than what the city gave under Act 47 (state supervision)."

Pardon us, but we did not know that a local government had to be under state watch to be restrained with its spending on labor contracts. Perhaps the County has learned something from watching the events at the City-County building and does not want to jump into the same fiscal boat. Overly generous contracts and above the norm legacy costs are what got the City into Act 47 and state oversight-is the County supposed to follow suit? Will they?

Business Owner Thinks Taxes are too Low

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An op-ed so full of logical errors that the mind boggles to see so many crammed into one article has just appeared in a Pittsburgh newspaper-one with a left leaning editorial page. The author of the piece says she doesn’t believe tax rates affect small businesses and that letting the tax rate go up on January 1st for the top ratepayers is a good thing. After all, that increased revenue would go for good things like social programs and public education. Never mind that the U.S. and its states spend more on education per child than any place on the planet already and that the plethora of social welfare programs cost taxpayers $60,000 per year for each household getting benefits and that does not include Social Security.

She argues that tax rates under President Clinton left us with a surplus. She doesn’t mention that the dot com bubble produced enormous capital gains revenue and that defense spending was slashed-the so called peace dividend. Nor does she mention that the Republican controlled House forced welfare reform and held the line on spending far better than the President would have done otherwise.

She blames the Bush tax cuts for the deep recession. Au contraire, it was not the tax cuts, it was the insanity of the housing bubble-a product of Democrat social engineering and loose monetary policy-that plunged the economy into a deep dive. So little actual knowledge of what happened has enabled Democrats to foist blame on to Bush for their own disastrous policy efforts.

The writer hints at but does not acknowledge that she is part of a group called "sustainable businesses" and is a certified B Corp, both of which have strong social and environmental agenda and are far less worried about profits and growth than they are supporting liberal causes. That’s fine if she wants to be in that line of business, it’s a free country. But don’t go lecturing other businesses about what is important economically when that is not your main concern.

Finally, the author does not tell us that she is a very small business-fewer than ten people, maybe even as low as four according one website-and that her work is free from many of the environmental and other regulations that plague larger "small" businesses. Obamacare is not going to force her to decide whether to cut hours or people to remain profitable.

In short, the op-ed is useless as a guide to economic policy. It is a liberal’s cry for bigger government for doing social reform and protecting the environment. She does admit if demand for her product was stronger, they might add employees. But rather than hoping for a stronger economy resulting from natural market forces and the profit motive, she wants more government stimulus-the moral equivalent of amphetamines. They might work for a time or two, but quickly becomes addictive and destroys the mind and body. But that is a lesson some people choose not to learn.

No Big Surprises in City Budget

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An annual growth rate of about 3% per year in expenditures; no increases to existing taxes and no real proposals for new types; still wrestling with legacy costs such as debt, pensions, post-employment healthcare, etc.

That basically sums up what came from the release of the City of Pittsburgh’s 2013 budget and five year financial forecast submitted to the oversight board last week. The City expects to finish 2012 with expenditures of $459 million, growing to $469 million next year. Operating departments and debt service will be higher, but pension/health benefits/workers’ comp will be down slightly. In 2013 and the years to come operating expenses represent about 50% of total expenditures, the other half going to the aforementioned non-operating costs of pensions/health/workers’ comp and debt service.

The biggest adjustment for the City, like the County and the other municipalities, will be adjusting the property tax rate when new values are certified. The City’s rate held steady at 10.8 mills when it was adjusted following the 2001 reassessment (the City used to tax buildings at one rate and land at another) and was really the only tax untouched by the reforms of the Act 47 and oversight years in which new taxes were created, others eliminated, and some rates defined in state law.