Pittsburgh Schools Head Asks For Ideas

Staring at a nightmare of intertwined problems seemingly of Gordian Knot proportions, Pittsburgh’s Superintendent issued a plaintive call for help in the form of ideas about how to solve the conundrum. Joining in a non-helpful way, the Post-Gazette weighed in editorially praising the school for not raising tax rates for twelve years, ignoring entirely the tremendous ongoing decline in enrollment over the period and the increases in other revenue that have allowed the schools to keep spending well above $500 million.

Here’s an idea for the Superintendent. Send to the Board a proposal to set aside $10 million to create a thousand $10,000 scholarships that can be used by parents who wish to send their children to non-public alternatives. With the current spending of over $21,000 per student that would represent a savings for taxpayers. And if the recipient students perform better academically, which most probably will, it is a win-win for taxpayers and students. If demand for scholarships is greater than a thousand, arrange to expand the program year after year.

But here’s the problem that will have to be confronted. With declining enrollment, school employment, including teachers, would be reduced. No doubt there will a lot of screaming by the unions and their supporters about the cuts. If that happens, the parents of school children in the City will be able to see what is really important to the Board-their kids’ education or kowtowing to unions.

The Board will be under intense pressure from unions and the indefatigable defenders of the public education monopoly who have long since forfeited any moral claim to their anti-choice positions. Years after year and decade after decade miserable academic performance and wasted potential of so many students lives. Where do they go to get back the opportunity derived from a good education?

The truly remarkable part of the story is that the union and the defenders of public monopoly education apparently feel no responsibility or remorse. For the unions, it is understandable if not defensible. They are about their members and their power. Students are and have always been secondary. Maybe some individual teachers would like to put students first but they toe the union line when they have to choose between the students and union loyalty.

Bottom line, the Superintendent should make this such an important priority that she will threaten to resign if the Board refuses to consider the idea.

Governor Taking Heat over Transportation Funding

And the cries for the Governor to find new revenue to fix roads and bridges -and fund mass transit -grow louder. This while the Governor wants to protect taxpayers from higher costs. He knows other problems are looming large such as the whopping increases in pension funding that will be required over the next few years. Where will that money come from? There are projected Federal Medicaid funding cuts. How will that be made up?

It is marvelous to watch the crowd that supports an outrageously expensive and inefficient mass transit system and wants the state to pour more money into it grouse about transportation needs. Indeed, the Governor, against his own better judgment and the strong case that was made not to bail out the Port Authority, has committed $35 million a year in additional state tax dollars for the Authority. No one knows where that money is coming from.

What is really galling about the latest round of caterwauling regarding the Governor’s inaction on raising taxes and fees for transportation is the assent given explicitly or tacitly by the same complainers when the previous Governor was moving hundreds of millions in highway funds to underwrite the Port Authority’s egregious spending. That money was wasted rather than fixing road problems.

Moreover, why was it that the people who are now so exercised about the Governor’s inaction could not contain themselves at the prospect of tolling I-80 to raise funds for transit? Anyone who bothered to look at the law could have known that tolling I-80 for any purpose other than funding maintenance and improvements on I-80 was not going to happen. Yet the then Governor, the Legislature and all the spendthrift supporters of mass transit all thought it was great idea and that somehow the presidential administration would get it approved notwithstanding the law. Mirabile dictu, it did not cave to political pressures from the former Governor. Years were wasted in dealing with cost issues and seeking funding sources. And then the sharp economic downturn put on hold any meaningful discussions.

Road work does need to get done. How about we ask the Feds to lift the Davis-Bacon prevailing wage requirements? That would lower costs dramatically. Not that it will ever happen. But the state could eliminate prevailing wage requirements on projects not using Federal dollars. Where is the clamoring for something sensible like that? Why is it always the taxpayers who must make the sacrifices? Why not some concessions from those who drive the costs far above where they would be in market based system?

PA’s Pension Tab: $1,550 per Household

Almost everyone knows there is a pension crisis in the public sector, but very few can see how that affects them directly. Sure, there have been municipalities across the country that have filed for municipal bankruptcy in order to reorganize, but none have sold off police cars or park benches as a result of a liquidation. People in western Pennsylvania know that Pittsburgh has a low funded pension and that the money it takes to be put toward pensions and other legacy costs means fewer dollars for traditional public services.

But what does the pension crisis mean for the typical household? A recent academic treatment of the topic examines what it would cost for pensions to be fully funded over the next thirty years assuming no policy changes to the nature of pensions. The paper points out that most public sector pensions are defined benefit plans, where an employer promises the employee an amount at retirement based on age, length of service, and final salary calculations as opposed to defined contribution plans like a 401k or 403b where the employee saves for retirement often with a match from the employer. The report notes that the longer it takes for states to reform pensions the liabilities keep accumulating.

So the paper sets out to calculate the required increase per resident household to pay the existing liabilities off over a three decade period. Or, as the authors of the paper posed the question in an editorial, "how much will your taxes have to increase?" The U.S. average for the fifty states is $1,385 per year, with Pennsylvania coming in slightly above that average at $1,550. New York is the highest at $2,250, and Indiana is the lowest at $329. The states nearby to southwestern Pennsylvania are quite different, with Ohio at $2,051 and West Virginia at $600.

No Big Surprises in City Budget

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.

Business Owner for Higher Taxes? Had to be One Somewhere

In a recent op-ed piece a business owner made an incredible statement. "My business would be hurt far more by allowing the tax cut for America’s most fortunate to continue and instead slashing budgets for things like public education, research and infrastructure to pay for them."

Nice rhetoric but completely wrong on every point. Federal income taxes are not even close to the most important component of education spending. Public education is funded primarily by state and local taxes. Infrastructure, especially roads and bridges, are funded mostly by special taxes designed to collect money from people and businesses that use them. And the notion that Federal budgets have been slashed totally ignores the fact that Federal spending is up a trillion dollars since 2007. Which budgets have been slashed? Federal spending as a percent of GDP is at its highest level in history save for WWII. The claim that programs are being starved is nothing if not hilarious.

The writer is obviously concerned about Federal tax revenue not keeping up with the nation’s spending binge. But the primary reason for depressed tax revenue is the weak economy that has not responded to the bulge in Federal spending as we were promised it would by the President and his people. Moreover, the policies of regulation and the threats of higher taxes coming out of DC are depressing private sector investment and growth. It is important to remember that the USA has one of, if not the, highest corporate tax rates on the planet. And the magnitude of the final real costs of Obamacare is still unknown both in terms of direct expense for employees for health care costs and for compliance.

The notion held in some quarters that allowing the tax cuts to be eliminated for those making over $250,000 is going to solve the nation’s fiscal crisis is irrational. That will not raise nearly enough money in a depressed economy and will have a chilling effect on business growth. The tax raisers are forever and always disappointed when higher rates fail to produce more revenue. But they never learn.

Getting more people on private sector payrolls is the only sensible answer to our fiscal woes, Federal or local. Current and prospective policies in DC are pushing in exactly the opposite direction. It is too bad and very sad that some folks can be successful in the private free enterprise system and still have so little understanding of what makes the system great or have so little respect for keeping free enterprise free and as unfettered as possible. A look at France, Greece or Spain might help them but the writer of the op-ed in question is too busy linking things together fallaciously to take a look elsewhere to see what happens in the world he thinks would be better than ours.

Finally, the typical ignorant comment about the need to spend ever more money on public education in the country fails abominably to see what is happening in public education in Chicago, Philadelphia and Pittsburgh and other cities. Seven percent of Westinghouse 11th graders are proficient in math. The majority of Chicago students are unable to function at grade level. Lack of spending? Over $20,000 per pupil in Pittsburgh and the nation’s second highest paid teachers in Chicago. How many more tax dollars must be thrown at these failed school systems to satisfy the business man who thinks we are under taxed?

Acquiring some actual knowledge about the world and how it works could go a long way to correcting the thinking of the business owner.

Moody’s County Bond Rating: How Reassuring Is It?

A couple of weeks ago Moody’s Investor Services assigned an A1 rating to Allegheny County bonds. Much glee was expressed by the County Executive at the rating agency’s good opinion.

There is no gainsaying the fact that a high bond rating is a very good thing for the County in terms of its ability to borrow money at the best interest rates. But before County residents get too comfortable they should know the details of the rating that might be somewhat less reassuring.

First of all, the rating comes with a negative outlook based on Moody’s concerns about the challenges facing the County; namely, the very low reserve balance, the low pension funding levels and lack of financial flexibility. Moody’s does credit the stable economic base that is heavily structured toward higher education, health care and government employment. A point the Institute has made for quite some time.

Second, it is instructive to examine Moody’s rationale for the A1 rating. Quote; "The bonds are secured by the county’s general obligation, unlimited property tax pledge." (Bold and italics added by the Allegheny Institute.) Moody’s is saying that because the County can raise property taxes as much as necessary to make bond service payments the agency will give the County a high credit score. Thus, the low reserve balance, the budget balancing by one time funding sources-such as grabbing gaming money headed to the airport, the sale of tax liens, etc.-and the low pension levels and ongoing structural imbalances that might otherwise have caused a rethinking of the bond rating are overridden by the fact the County can raise taxes as much as necessary to make bond payments.

Taxpayers might be more comfortable if the bond rating was due to careful financial management, keeping a strong reserve, not depending on last minute finding of money to close a budget gap and holding prudent debt levels. In other words, the good debt rating should not be used to go borrowing more money other than for refinancing. Taxpayers would also be more comfortable if the County’s budget problems were resolved by spending cuts through outsourcing and privatization. County employees might feel differently about that but it is the taxpayers who must be served. After all, they pay for the government.

The Moody’s unlimited taxing power rationale that underpins its high bond ratings can lead governments to get themselves into trouble by borrowing imprudently and not paying enough attention to controlling spending. High credit ratings have undoubtedly led municipalities to go too far into debt and created financial crises when the economy stumbled and tax revenues began to fall. Slashing core government functions has often been required to leave enough money to pay debts. Raising taxes in an already depressed economy can be counterproductive and actually drive tax base away. Moody’s might want to rethink how it weights the "unlimited" taxing power criterion.

Strike Two!

As we wrote in a blog earlier this year, the Neshaminy School District in southeastern Pennsylvania had a teacher strike, the first in the 2011-12 school year. As of Monday, teachers in that District walked out on the picket lines again, (first time was in January) and they are allowed to stay out until next Friday the 15th so as to leave enough time to complete 180 days before the end of June per state law.

The board and the teachers’ union are still working on a contract that expired in June of 2008. It is important to look at the "three e’s" of the District, all obtained through the most recent CAFR, that show what has happened in recent years.

Enrollment-it has fallen since 2002, about 11%, and stands at just over 8,500.

Employment-it has also fallen since 2002, but at a slower pace than enrollment (7%).

Expenditures-are up 33% since 2002.

That means per pupil expenditures in the District have grown significantly in the last decade, but as with many negotiations the issues of pensions and health benefits are center stage. Taxpayers don’t want to pony up more for benefits in a district where the median salary is over $89,000, even though union officials have suggested a tax increase is one way to go toward ending the impasse.

Council Lady Displays Woeful Ignorance about PAT

The following paragraph is taken verbatim from a sitting member of Pittsburgh’s City Council and illustrates perfectly how the City got into financially distressed status and why it is likely to remain there if her views continue to guide policy decisions. Writing in the Post Gazette editorial pages Councilwoman Rudiak says, "We live in an extraordinarily wealthy country that can afford the vital, world-class public services that have provided the foundation for our economic prosperity. Unfortunately, our priorities have shifted. Many of our elected officials have decided that maintaining public services is not important and that our nation’s wealth is best kept in a few hands."

This paragraph is part of an editorial in which the Councilwoman bemoans the fact that the state is not rushing to pour more money into Allegheny County’s outrageously expensive and effectively bankrupt public transit system. According to the Councilwoman it is mere selfishness on the part of Harrisburg officials by which she undoubtedly means the Governor without saying as much.

Ms. Rudiak either has no conception of the extraordinary burden imposed by legacy costs at the Port Authority or the extremely high wage rates and benefits paid by the Authority or chooses to ignore them while slamming elected officials who have the responsibility of seeing that public dollars are used wisely.

But most ridiculous of all is the argument that world class public services are the foundation of our prosperity. The foundation of prosperity is a free enterprise system that allows free people to start businesses and use their talents, hard work and creativity to generate income and wealth. The rule of law and protection of individual and property rights are the foundation of prosperity; infrastructure and adequate public services are facilitators. As we have plainly witnessed in the Soviet Union, a good mass transit system and huge expenditures on "public services" did not create prosperity.

And to argue that the wealthy are being allowed to keep too much of their income and wealth is simply devoid of any factual basis. It is a known fact that the top 10 percent of income earners pay the lion’s share of all Federal income taxes. Ms.Rudiak quotes a study claiming that high income earners in Pennsylvania pay a much lower share of their income in state and local taxes than do middle income earners, 4 percent for over $428,000 as compared to 9 percent for $35,000 to $56,000. But the proviso is that the 4 percent is after Federal offsets, whatever that means.

It would not be surprising to learn that very high income earners pay a lower share of income in sales taxes or property taxes but not low enough to make their state and local share only 4 percent. In absolute terms those taxpayers are paying a large amount of state and local taxes. The state income tax is a flat 3 percent and there is no way their combined property and sales taxes account for only one percent of their income. For that to happen they would have to spend most of consumption dollars out of state and own very little taxable real estate.

One of the crises facing Pittsburgh, Pennsylvania as well as many states and cities across the nation is the financial burden of pension costs of public employees whose benefits are far greater than most private sector workers. With a greater and greater share of tax dollars going to pay for legacy costs, there will be fewer dollars to pay workers to perform for public services. Unless, of course, taxes are raised which will in turn stifle the income producing private sector that is needed to support all the public spending.

Ms Rudiak-and the other elected officials who believe that higher taxes are the answer to the economy’s problems-is a main reason the country and many states are in the shape they are in financially. How easy it is to believe that taxes can be raised willy-nilly to fund ever less efficient government and its rising costs without serious consequences to the city, state and nation. For these folks, there is never enough government or publicly provided services.

Another Proposal to End School Property Taxes in Pennsylvania

govt state

Every so often the idea comes up-shifting the school tax burden from property to something else such as the sales tax or the personal or earned income tax.  And as quickly as the idea comes up, it goes away quietly without any real action.  This year the House Majority Policy Committee resurrected the notion once again through House Bill 1776 that, according to a recent newspaper account, will be introduced sometime in the near future[1]


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The Left’s Paradoxical Wish List

The denizens of Wall Street Occupistan obviously have never paid much attention to lectures on logic, unintended consequences or internally contradictory reasoning. Case in point; the demonstrators demand the police and authorities leave them alone to do "their thing" while virtually every policy position they take requires further expansion of the scope, power and intrusiveness of government. Liberals want to be able to engage in dope smoking and drug taking yet want the government to tell people what to eat and what kind of car to drive and how many gallons of water their commode can use per flush.

In economics they want government to stimulate job growth while at the same time asking for higher taxes and more regulations of every stripe on the businesses that actually create jobs. They attack the private sector’s greed and profit seeking while bemoaning the fact that there are not enough good jobs and wages are too low. They take out enormous amounts of student loans to major in degree fields that offer little opportunity outside government or non-profits and where pay levels will not support them in anything like the manner they expect to live.

And so and so on. The examples are virtually endless. But it can be summarized briefly. Education has failed and the decades-long march of left wing ideology, with its strategy of undermining cultural, education and religious institutions, is dangerously close to turning the USA into Greece or worse. The large intrusive government sought by the Occupiers will paradoxically have the power to crush all dissent they purport to be their absolute right. Be careful what you wish for is a good adage for folks to live by.