What Will Become of the Oversight Board?

What Will Become of the Oversight Board?

Next year marks the end of the current life span of the Intergovernmental Cooperation Authority (ICA) for Cities of the Second Class, commonly known as the Oversight Board.  Created by Act 11 of 2004, which was signed into law on February 12 of that year, the statute’s language declares the Board “shall exist for a term of at least seven years”.  An act of the Legislature is required to extend the life of the Board beyond 2011.  

 

 

Depending on how the statute is interpreted with respect to when the clock started ticking the seven year time frame can vary from February through December 31, 2011.  The statute additionally notes that the Board must have approved the City’s operating budgets and five-year financial forecasts for the preceding three years.  If that requirement is met, the Secretary of the Department of Community and Economic Development (DCED) will initiate proceedings to shut down the Board.  The Board did give approval to the City’s 2008, 2009, and 2010 budgets though there were thorny issues such as the proposed tuition tax, long-term debt, and parking tax reductions in each of those budgets. In light of the fact that Pittsburgh’s financial difficulties will not be going away anytime soon there is an urgent need to address the future of the Authority.

 

The new Governor (who appoints the Secretary of DCED) and a new Legislature will take office in January.  With all the other critical issues facing the new government, dealing with the Oversight Board could slip through the cracks and it might be shut down by default. 

 

Note the life span of Pittsburgh’s Oversight Board differs from Philadelphia’s cooperation authority in that the statute governing the latter specified that the board-in place since 1991-will exist “for a term not exceeding one year after all its liabilities, including, without limitation, its bonds, have been fully paid and discharged”.  The current estimate is June of 2023 based on its $534 million in outstanding bonds. The Act 47 recovery team for Pittsburgh is in place for an indefinite time period and is only disbanded upon determination of the Secretary of DCED (the City petitioned for termination of Act 47 distressed status in 2007 but was denied and a revised recovery plan was subsequently written). 

 

Taxpayers, City officials, members of the General Assembly and the Governor might be wondering about the upside of keeping two overseers in place, especially since the statutory clock is ticking on one of them. There are three major detrimental impacts of terminating Pittsburgh’s Oversight Board in 2011.

 

First, the criteria for arbitration awards will be weakened.  The law that requires collective bargaining and binding arbitration for police and fire personnel in the Commonwealth (Act 111) is silent on what factors have to be taken into consideration when there is a contract dispute.  The Oversight Board law has language that requires arbitrators in a City dispute to give consideration to the approved financial plan for the City as well as “relevant market factors, such as the financial situation of the assisted city, inflation, productivity, size of work force, and pay and benefit levels in economically and demographically comparable political subdivisions”. 

 

Act 47 has language that says a contract negotiated while a municipality is in distressed status cannot violate the fiscal plan, but Act 11 has specific language on what must be taken into consideration in arbitration awards, which are considered a mandate to the employer no matter the effect on costs or managerial control.  Thus, if enforced by the Oversight Board, the arbitration awards under Act 111 can be better controlled. 

 

Second, the door to a commuter tax is opened. A separate piece of legislation that created the payroll preparation tax stipulates that an increase in the earned income tax on non-residents (which would also be levied on residents) is prohibited in the City of Pittsburgh but the prohibition “shall expire upon the termination of the [Oversight Board]”.  The specter of a commuter tax in the form of a wage tax increase has been non-existent since the Legislature crafted the payroll tax and the numerous other tax changes that came along with it. 

 

To be sure, there have been other attempts to create new sources of taxation (tuition tax, sugary drink tax) to keep taxes that were to be reduced at higher levels (the parking tax prior to the passage of Act 44 of 2009) and there will be continued attempts to grab revenue from whatever possible source.  But the divisive and destructive consequences that come from a commuter tax have largely been silent as a result of the statutory framework in place.

 

Third, the state loses an extra set of eyes to oversee the City.  Recall that in 2005 there was a chance that the Oversight Board would go out of business because of its cost and a lawsuit with the Act 47 team over the firefighters’ contract.  When it was decided that the Board would stay in place, one state senator noted “I think there is value to the ICA being there, an independent body from the business and political community to watch over the city.”  The intent seemed to be that the Oversight Board would take a broader view than that of the Act 47 team. 

 

It is also important to recall that the Oversight Board has the power to intercept certain City funds and withhold them if the City fails to adhere to the board’s instruction. 

 

So what’s to be done now?  For the aforementioned reasons it seems simple.  The General Assembly needs to extend the existence of the Oversight Board.  Perhaps for another five years with the end date specified in the legislation. The legislation could state the Board will exist until December 31, 2016 unless action is taken to extend the board prior to that date. This is crucial to eliminate the murkiness as to the date of termination.  Extending the life of the ICA will ensure that five year contracts for police and fire, which could go to arbitration, would be done under the more stringent and limiting language of Act 11. 

 

If the Board is renewed, the Governor and the four Legislative leaders (two from each chamber and two from each party) will be in the position to appoint new members. Some of the members were appointed by people who no longer hold the power of appointment and by law must be replaced or re-appointed by the new leaders (the Speaker, House minority leader and the Governor). Those Board members whose appointing legislative official is still in place are subject to replacement at the discretion of the appointing official.  

 

Thus, all five members could be replaced, but three (the Governor and the two House appointees) are clearly in line to be removed.  And given the length of service of many of the Board members, it might be time for some changes, especially if the new Governor and Legislature wish to see more forceful application of the ICA’s powers to improve the City’s financial picture. 

 

Unless the General Assembly is prepared to rewrite Act 111, or to write prescriptive legislation that holds the line on existing City taxes and prevents the creation of new ones, forces the City to adopt a spending cap, it would do well to renew the ICA and appoint some new Board members who will bring new energy and ideas to the oversight efforts.