Familiar Threads Woven in Harrisburg Recovery Plan

Over three years ago, in February 2010, we asked if the debt related to a trash incinerator was pervasive enough to cause a municipal bankruptcy filing-colloquially, that the City of Harrisburg’s finances could possibly end “up in ashes”. 

 

After the City was placed into Act 47 status, saw the General Assembly make changes to the statute as it applied to Harrisburg, and operating under the direction of an appointed receiver, a plan, somewhat pretentiously titled “Harrisburg Strong”, has come together for placing the City on the path to a solid financial future.

 

Readers of our reports, especially as they pertain to Pittsburgh, will notice some familiar themes and one very different situation; namely, the presence of the aforementioned dollar devouring trash incinerator. That facility is slated to be sold-to another public authority-and some of the proceeds will go to satisfy creditors (but only partially satisfy since negotiations have produced settlements for less than owed) and reimburse Dauphin County.  That won’t pay all the bills, so a 40 year lease of parking garages, lots, and street spaces to a public-private partnership is expected to yield enough money to pay off parking debt, the rest of the incinerator debt, for the City itself, and for funds related to economic development, infrastructure development, and a trust fund for retiree health care obligations.

 

That last point is a good starting place to assess how the City and its employees are partnering up at this critical juncture.  As the February 2012 recovery plan pointed out, Harrisburg is similar to many municipal governments in that it is a very labor intensive undertaking and the lion’s share of costs are attributable to employee compensation.  Three bargaining units represent the majority of the workforce covering police, fire, and non-uniformed staff (461 employees total including non-represented staff) and all negotiated early-bird contract extensions that limited the City’s and the receiver’s ability to make changes.  Compared to other cities of the third class in Pennsylvania (Reading, York, Allentown, etc.) the plan found that Harrisburg public safety minimum salary ran about $10,000 higher. The recovery plan projected workforce costs to rise from $45 million to $52 million from 2012 through 2016. 

 

As described in the “Harrisburg Strong” plan, two of the three bargaining units (police and non-uniformed) have agreed to concessions during the lives of the existing contracts to move the City toward its goal of getting $4 to $4.8 million in savings.  There are tradeoffs for both the City and the bargaining units: for police, what were to be 3 percent annual wage increases through 2016 are now 0 rising to 1 percent in the final year.  Payments toward health care coverage for current employees will be made with variations based on the number of people covered on an employee’s plan with the percentage of income paid for insurance rising throughout the duration of the agreement.  Current employees who retire after the ratification of contract changes are treated the same as active employees and, as is almost always the case when it comes to legacy cost changes, new hires will not be eligible for post-retirement health care benefits. The police contract opens up the possibility that certain positions might be offered to civilian employees and that booking could be transferred to Dauphin County. Most of those same terms will apply to the adjustment for non-uniformed employees.  

 

So what sweeteners do the employees get in return for these concessions? For one thing they are asking for elimination of the residency requirement. This issue has been bandied about in Pittsburgh over the summer and will no doubt intensify closer to Election Day. In Harrisburg, the proposed amendments for both police and non-uniformed contracts contain language stating “…the residency requirement contained in prior collective bargaining agreements between the parties is eliminated, and employees, regardless of hiring date, shall not be required to establish or maintain a residence within the corporate limits of Harrisburg”.  Could that be a deal breaker for City officials who must pass some of the necessary ordinances to make “Harrisburg Strong”? 

 

Overall approval for the plan falls to the Commonwealth Court, which plans to review the proposal in mid-September. 

Totalitarianism Cloaked as Do-Goodism

Unions in Milwaukee, Detroit and other cities have held demonstrations at McDonalds’ restaurants demanding wages be raised to $15 per hour. And no doubt they also want full health care and retirement benefits. Some editorial writers in have opined that this not radicalism but a reasoned response to the decline of America’s middle class.

This argument is so economically stupid on so many levels that one hardly knows where to begin. Since when have low skilled workers in fast food restaurants been a linchpin of creating the middle class? Indeed, it was the growth of the middle class that led to the massive increase in discretionary income that permitted more eating out and the enormous rise of the relatively inexpensive food services. Restaurants that have provided entry level work experiences for millions of people.

A near doubling of market determined wages will not be achieved any time soon unless there is a huge increase in total spendable income, or a dramatic drop in available workers. Good luck with that if the unions are successful in getting amnesty for illegal immigrants, a virtual guarantee of a flood of cheap labor. The unions must know that and what they are really after is to have the government force companies to pay far higher wages while also maintaining or increasing benefits. This at a time when these companies are already reducing full time employment and taking other steps to avoid the costs that are coming with the implementation of the Affordable Care Act.

The inability and unwillingness of some groups and ideologies to understand the damage done by their do-good policies is nothing short of astounding. No lessons have been learned by the unions and their overweening demands on private sector employers with the attendant calamities those consequences have had for cities all over the once prosperous industrial heartland. Now they are wrecking municipal governments as well.

What the workers chanting "hold the burgers, hold the fries, make my wages supersize" are really mean is: forget the notion that what someone earns is a reflection of what their efforts contribute to the earnings of the business. If wages were somehow to double without a comparable rise in revenue, the firm would go out of business. Then wages would be zero and the employees would be on welfare or unemployment benefits. How is that for a strategy to build a middle class?

Better wages require jobs with higher productivity in terms of contribution to company revenue. With national economic policies and many state policies creating disincentives for businesses that inhibit good paying job formation. Nothing in the union chanting suggests there is any understanding of this reality.

Transit Pact on the Table

According to published reports and a news release from the County Executive’s office, there is a tentative deal between the Amalgamated Transit Union and the Port Authority that represents "the first step" to avoiding the service cuts and layoffs scheduled to go into effect September 2nd.

There will be scant details until the contract is voted on, sometime around August 19th. Therefore, any comment as to what is in the contract or what the contract does vis a vis the state putting up money for closing the 2012-13 deficit is speculation.

What can be commented on is how this contract process compares to the 2005 and 2008 contract expirations and negotiations. The last contract was not voted on until December of 2008, some six months after it expired. In 2005 it took until November of that year. If the present contract is approved it will have been a considerably shorter time frame. The 2008 contract also went to fact finding, and that process was not even completed until the end of August 2008.

Going back to January 1, 2006, ATU wages have gone up 3% per year with the exception of 2010, when the increase was 2%. Employees are paying 3% of their wages toward health care coverage. The 2008 contract also truncated employees into various classes based on age and length of service to determine post-retirement health benefits.

The Starting Point for the New PAT Contract

The County Executive has stated he will be the driver of the bus, so to speak, on the next PAT contract, noting that he’s "going to be leading the charge". The current four year contract between PAT and the ATU rank and file expires June 30th (first level supervisors expires July 31st). Seems like only yesterday the current labor contract was being negotiated: those negotiations involved the former County Executive, the former Governor, PAT and ATU officials, and other national unions when meetings were whisked away from Pittsburgh to Washington, DC.

The status quo on the expiring contract is as follows based on the December 2, 2008 contract ratification notice: ATU bargaining unit employees got a 3% pay increase on January 1st of this year following increases in the three previous years; they are paying 3% toward health care but that level of contribution was met on January 1, 2011; a $500 monthly pension supplement is firmly in place; and employees were segmented into various groups based on age and length of service to determine eligibility for post-retirement medical insurance.

Outsourcing has not been made mentioned in a contract negotiation since 2005, but an outside vendor is operating a bus route as a result of service reductions in March of 2011 (PAT vacated routes and the vendor was granted approval to operate them).

Those could be considered the "micro level" issues; big picture items include what the state does in regards to transportation issues (roads, highways, transit); fundamental changes to the PAT structure (the right to strike, monopoly powers, bankruptcy provisions for legacy costs); and the opening of the North Shore Connector and how the public views service and fares on that extension in light of any planned service reductions system wide due to the budget situation.

A Big Year for PAT

Tomorrow is the first day of the 2011-12 fiscal year for the Commonwealth, virtually all of the state’s school districts, and for special purpose agencies like the Port Authority. The operating budget for PAT is $322 million, with a gap between revenue and expenses covered by the final piece of the flex money Governor Rendell found and was approved by SPC as well as budgetary reserves. The employee headcount for PAT is 2,495, which is unchanged from the end of the 2010-11 fiscal year.

Obviously PAT is waiting with anticipation for the results of the Governor’s transportation task force, which is to deliver its recommendations on how to fund all of the state’s transportation needs in a month. Already increases in registration and licensing fees have been floated as a real possibility, but it is unclear if the revenues from those sources will be tied to a particular use. PAT’s budget presentation opines that "unless statewide transportation funding crisis resolved satisfactorily over the next 14 months, massive unfunded deficits will be projected in FY13".

Unfortunately as we have pointed out on many occasions there are numerous cost-side drivers behind PAT’s funding problems. First and foremost is the cost of labor, which is front and center in the next year as the authority is entering the final year of its four-year contract with the Amalgamated Transit Union. This year workers get a 3% raise (non union workers’ wages are frozen), and there is projected to be a jump in pension contributions from PAT ($20 million to $33 million) and healthcare expense for active and retirees are still around $70 million. It is also important to look at the ratio of retirees to actives at the agency: in 2002 there was 0.71 retirees to every 1 active; now there are 1.13 retirees to every 1 active. If PAT and, by extension, County officials, feel the 2008 contract did "good" things then the 2012 contract is going to have to be even "better".

And last, but certainly not least, let us not forget that spring of 2012 will mark the commencement of service via the North Shore Connector. If the timeline holds as well as cost projections did, look for the first trips to occur well after the anticipated launch of service.

New PSEA Head Certified to Teach Economics—But What Kind?

The morning news brought the startling revelation that the newly elected head of Pennsylvania’s largest teacher union (PSEA) has a certification to teach economics. Two questions come to mind immediately: what kind of economics is he certified to teach and does it bear any resemblance to real economics?

Bear in mind that the first principle of economics is the law of scarcity. The first principle of unions is to ignore the law of scarcity. Any student with a knowledge of Economics 101 sufficient to get a B grade in the course can tell you that wage rates are a price and that competitive markets for labor are the efficient and best way to allocate labor and determine wages. He would also know that wage rates in different occupations and industries must reflect worker productivity and the price of the product being and sold.

The objective of unions is to do away with market forces and ignore the role of supply and demand. The results, as we have seen, have been catastrophic for U.S. industries such as steel and autos. Now with the Obama administration becoming the heavy-handed advocate in chief for unions, their ability to wreak havoc on the economy is being renewed and the impact on our ability to grow curtailed. When the head of the AFL-CIO is the President’s leading economic advisor, the nation is in serious trouble.

Moreover, and to our great misfortune, in the public sector, where the new PSEA head operates, the forces of international competition can play no countervailing role in suppressing the destructive force of rapacious unionism. Many government services are monopolies that cannot be outsourced. So when unions enter the picture with incessant demands for compensation, favorable work rules and endless grievance procedures, government services become more expensive and are of lower quality than they would otherwise be.

In light of union antagonism to the laws of economics, one must wonder; just what was the nature of the economics covered by the PSEA head’s economic certification?

Soon, PAT Benefits will Outpace Wages

According to a budget presentation made to the Port Authority this month, the agency’s two largest expenditure categories of wages/salaries and employee benefits are expected to grow at rates of 24% and 71% respectively from their audited FY08 amounts of $133 million and $108 million through FY15.

What does that mean? It means that in FY08 PAT paid $1.23 in wages/salaries for every $1 in employee benefits. This year the ratio fell to $1.10/1. By FY13, if projections hold, the ratio will be less than $1/$1 with $0.97 in wages/salaries to $1 in benefits. Two years later it will be $0.89/$1.

It would be hard not to argue that PAT is becoming a place for dispensing legacy cost payments instead of providing mass transit service. Pension costs and current healthcare expenditures are going up. Note that the category of benefits does not include the $30 million paid toward its unfunded retiree health care liability. Was this the future that the 2008 contract negotiations envisioned?

Councilman Pushes Job Killing Wage Bill

Councilman Burgess-along with his allies in the campaign for "living wage" bill-are still pushing hard for the legislation. In a comment filled with irony, the Councilman said at a hearing that it is unfair for "government to profit from the misery of the people who work for us."

Perhaps it has never dawned on the Councilman that the "miserable" City workers (if there are such folks) could always look for other employment that pays better. And perhaps the Councilman might consider the pain and misery his bill would cause already hard pressed City taxpayers who would have to reach deeper into their pockets to pay these "miserable" workers. Or maybe the City would have to layoff some workers or enter into fewer service contracts in order to save money to pay the higher wages of those workers fortunate to keep their jobs and other benefits. How miserable would the laid off workers be?

There is no free lunch Councilman. Where will you find the additional revenues or budget cuts to fund the living wage? In a City that is struggling to find money to meet its already enormous personnel legacy costs, plans to increase spending even more without any idea of where the money will come from are the last thing the City needs.

We ask again: Where are the oversight board and Act 47 coordinators? They should make it clear that this bill is a non-starter as far as they are concerned. The whole episode points to the lack of seriousness of City government and its overseers in solving the City’s problems.

Could Transit Pact Pave Way to PAT Savings?

If a proposed agreement between Washington County and the Port Authority is executed bus riders in Washington County could see an estimated 15 minutes shaved off of their 90 minute trip to Downtown. How? By the Port Authority permitting use of its busways to GG and C Company, a private operator, to get people to and from Downtown from Washington (the company cannot pick up riders in Allegheny County due to state laws).

And the surrounding counties could adopt SmartCard technology (sort of like the Turnpike’s EZ Pass) that would eliminate the use of cash and coins for transit use.

Good innovations both-but could the presence of neighboring counties’ bus service (some of whom contract out service) be a way to whack away at the Port Authority’s costs? Consider that the Port Authority has a monopoly on bus service and the transit union has a monopoly on labor and enjoys the right to strike and shut the system down. That means there are never really any major changes to the labor force aside from attrition.

The Port Authority management could commit to a hiring freeze and state that when 20% of the workforce is gone they will turn that portion of service over to another operator, the neighboring counties with their contracted service certainly being in the mix. That would hopefully bring competitive pressure on wage and benefit growth downward, instead of a regional transit authority merger which would likely push wages and benefits up to the unsustainable Port Authority level.