The Best Laid Plans Not Good Enough

The Best Laid Plans Not Good Enough

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When the Secretary of Pennsylvania’s Department of Community and Economic Development rejected Pittsburgh’s petition to have its Act 47 designation lifted last July, he noted that the City needed “a blueprint for it to exit Act 47 and address pending legacy costs of debt, pensions, post retirement benefits, [and] workers’ compensation”.

 

 

A tall order indeed: first and foremost the price tag for those four items stands at about $1.5 billion, roughly what the City would spend in total through 2013.  Second, only six municipalities that have been in Act 47 have come out.  For every one rescission there are three communities still in distressed status.

 

As of this writing the amended plan for Pittsburgh is before City Council.  It prescribes a five-year forecast that would modify the existing five-year plan (the “baseline”) that was contained in the City’s 2009 budget and was approved by the Oversight Board this past October. 

 

If all of the Act 47 initiatives are enacted, the plan projects that the City will be spending $462 million in 2013, nearly 6 percent more than this year’s planned expenditures and not much different than the baseline.  The plan hopes to beat the spending increase by getting revenues to grow by 7 percent instead of the 3 percent forecast in the existing baseline. 

 

Comparison of Budget Scenarios, 2009-2013 (Projected % Growth)

Item

Existing Baseline

With Act 47 Initiatives

Total Revenues

2.7%

6.9%

   Taxes

1.5%

3.4%

   Other

6.2%

12.5%

Total Expenditures

5.1%

5.7%

    Salaries

9.2%

6.5%

    Fringes

27%

25%

    Pension

4.3%

36%

    Debt Service

-19.6%

-19.6%

 

The Act 47 amended plan calls for a significant increase in the amount of money put aside to fund pensions, something that is a necessity in order to get the massive unfunded liability down.  However, it makes little substantial change on the items of salaries and fringe benefits.

 

In the baseline plan, by 2013 salaries and fringe benefit outlays would total $269 million, or 58 percent of total expenditures.  Under the Act 47 initiative-driven plan-with workforce recommendations that call for no contract enhancements and increased health care contributions from active workers and no retiree care for those hired after July 1, 2005-salaries and benefits would total $262 million, or 56 percent of total projected expenditures.  Not a very heroic effort and certainly not enough to make a significant difference in the accumulation of long-term legacy costs related to present day workers. 

 

The Act 47 team wanted to avoid a repeat of the 2003 instance where the City laid off 446 employees.  With the 2004 plan and the new amendment the focus is on winning concessions at the bargaining table. Contracts for police, fire, crossing guards, and various white- and blue-collar unions are up at the end of the year. 

 

In terms of actual employee headcount, the Act 47 data shows a drop from 3,657 in 2004 to 3,294 in 2009, a 10 percent decrease.  Nonetheless, on a per 1000 resident basis, the City still has close to 11 employees, the same level it had five years ago.  That ratio is far out of line with better performing cities around the country. Not coincidentally salaries and benefits represented about two-thirds of general fund expenditures then.

 

And, as the amended plan notes, “City workers receive health, retirement, and paid leave benefits superior to private sector norms and competitive with public employer standards”. Yet just this past week Council members proposed scrapping the Act 47’s $1,000 per employee bonus and replacing it with a 2.5 percent pay increase and a fifth week of vacation.  Not the way to go. 

 

The combination of above average workers per capita and very generous employee benefits means Pittsburgh has to face up to the fact that it has to reduce employees and their associated costs. There is no substitute that will work over the long run if Pittsburgh wants to declare its independence from state watch.