Where was the Oversight on the City’s Last Minute Budget?

Where was the Oversight on the City’s Last Minute Budget?

Legislate in haste, repent at leisure.  Recent developments indicate that axiom applies to the City’s budget, especially the New Years’ Eve plan aimed at avoiding a state takeover of pensions. The axiom’s admonition applies equally to the other parties involved in the unseemly last minute machinations.

 

 

To recap: City Council’s plan made a one time transfer of funds set aside for debt service ($45 million) and dedicated a share of parking tax revenues ($13.7 million annually through 2018 rising to $26 million after that) to the underfunded pensions.  Along with what the City was already putting in as a minimum (around $40 million a year, but increasing over time) and what the Act 47 team asked for as extra (around $12 million a year), the present value of the thirty year package was estimated at about $735 million.  Whether the plan was enough to avert the state pension takeover will be decided sometime this year.

 

The budget and five-year plan passed as a result of the alternative plan called for a jump in Parking Authority payments in lieu of taxes to the City from $1.3 million in 2010 to $2.6 million this year to closer to $9 million in 2012. Note that these payments are over and beyond the parking taxes collected by the Authority and remitted to the City. This was to be accomplished through rate hikes at garages, meters, and lots.  The Mayor appointed Authority board has yet to authorize a rate increase telling Council in a letter that the Authority has its own costs and obligations to meet. The Council has volleyed back a charge that the Mayor is stonewalling on the increases.  Bear in mind that the Mayor vetoed the legislation and it is not entirely clear as to whether he or the Council can force the Authority to take a certain action. “The Council plan will force the City to come up with millions of dollars in tax increases or service cuts” according to the Mayor’s letter. 

 

The Intergovernmental Cooperation Authority (ICA, or the oversight board) entered the fray last week by requesting “…to hear, again, how City Council is going to balance the City’s 2011 budget”.  Note that the oversight board took four votes in the waning months of 2010 on the 2011 budget.  They rejected the budget in October because of the impending defeat of the Mayor’s parking lease scheme (the ICA chair noted at the meeting that there was an “…understanding that if [the lease agreement] was not passed in the time we had this meeting that we would be sending the budget back…”).  In November a second budget failed to gain approval because it was out of balance and did not comply with the five-year plan. The budget included $20 million in revenue from non-profits that was deemed too uncertain by the ICA board.

 

On December 8th the board approved another reworked version of the City’s budget and probably thought its work on the 2011 budget was complete. But it was not. In an emergency meeting on the morning of December 31st, the board gave the okay to changes in the approved budget including the diversion of parking tax revenue and higher payments in lieu of taxes from authorities.  The board also approved transferring debt service reserves to the pension fund.  One board member emphasized that “…it is not the ICA’s role to determine whether or not a takeover of the City’s pension funds is averted”. They interpreted their role as determining if the transfer of money from debt service to the pensions and the dedication of the parking tax revenue were consistent with the Act 47 recovery plan.

 

According to the unofficial transcribed minutes from that New Year’s Eve emergency meeting, deliberations lasted fifteen minutes.  None of the members raised a single specific question regarding the projected higher authority payments or the parking tax diversion impact on the budget. Did the lateness of the hour and the pressure facing the City cause the ICA to succumb to the same last minute urgency of frenetic grasping at a pension funding solution that overwhelmed City government during the last week of 2010? 

 

One has to wonder if the members took a good hard look at the numbers or if they took the advice of others. Certainly, fifteen minutes is not much time to review and evaluate such large and dramatic changes to revenue and expenditure plans the board was facing. A letter from the City Controller to the chair of the oversight board dated December 31st and submitted into the minutes stated “while these revenues will require the completion of a new cooperative agreement with the Parking Authority, City Council has granted that authority to the Mayor and has taken steps to generate significant new revenue through city owned parking assets.  Given those actions, this revenue appears to be reasonable”.  The Act 47 coordinators likewise weighed in with a letter to the ICA chair that the amended budget plan measures “…appear to be in compliance with the Amended Recovery Plan”. 

 

In retrospect, does “appears” seem a strong enough endorsement of the last minute budget scheme to warrant approval in a mere fifteen minutes? Was enough time dedicated to examining the budget by the City’s overseers to determine the validity of what was put forth? Or said another way, was due diligence exercised?  It is no stretch to think that if the board felt strongly enough to reject the first two proposed budgets because of plans or revenue that were unlikely to materialize, they would have been very wary and on guard about a last minute budget that aimed to solve the huge pension problem. 

 

Are fresh eyes needed on the board? As we pointed out in a previous Policy Brief (Volume 11, Number 13), there is a major issue with the makeup of the board.  One member appointed by the former Governor is still on the board, as is another member who was appointed by a Republican state representative who is no longer in office.  This latter appointee is a union leader that almost certainly has Democratic leanings, making the current makeup of the oversight board 4 to 1 Democratic when it should be 3 to 2 Republican as a result of the election of a Republican Governor. If the ICA is going to be kept in place by the Legislature, it is high time for appointing officials to consider selecting new members to reflect the more fiscally conservative power structure in Harrisburg.