Tuesday, May 26, 2009

Inside New Act 47 Plan -- Quiet Rollout After Elections & Before Holiday Weekend

It was filed quietly with the City Clerk on the day after Election Day; City Council was not in session and Mayor Ravenstahl had taken Wednesday off.

It was Thursday before most City Council members started to read it. By that time, Mayor Ravenstahl was with the Steelers in Washington DC, visiting the White House.

That was when I got my first look at the state Act 47 team's new financial recovery plan for Pittsburgh --- in an e-mail on my BlackBerry; it's not the best way to read a 300 page, 6 meg file with charts and tables. I was told that no printed copies were available for the media. It was Thursday afternoon before the first news account hit the web, Thursday evening before my TV report aired, and Friday -- heading into a long Memorial Day Holiday weekend -- before newspaper reports started reaching the public.

I asked Act 47 Coordinator Jim Roberts about the timing of the plan's release in relation to the elections. He said:

"We don't really want the plan to become an election issue, a football during the election. So, we thought we're close enough now. We'll just wait until the end of the -- made the decision to wait until after the primary."

The draft plan provides a heads-up about the potential for the City of Pittsburgh to dip back into deficit spending. It reveals the potential for annual tax increases in the years ahead. They're all described in the new financial recovery plan proposed by Pittsburgh's Act 47 state-appointed overseers --but they say none of those things are guaranteed to happen if tough decisions are made to prevent them.

Arriving just a day after Ravensthal's primary win, the draft of the state's financial recovery plan for Pittsburgh warns that if nothing is done, beginning next year 7 to 10 million dollars a year in deficit spending would start eating into the 100-million dollar cash reserve which Mayor Ravenstahl spoke of as a surplus during the campaign.

"These improvements represent steps in the right direction for Pittsburgh, but without this amended plan financial projections show that Pittsburgh will return to a structural imbalance by 2011."

-- Acting PA Community & Economic Development Secretary George Cornelius

In plain words, it warns that if nothing new is done, starting during the next year in 2010, city government will again start spending more than it's taking in.

"If they don't take steps that are outlined in the plan. But the plan says you will generate operating balances" says Act 47 Coordinator Roberts. He says the baseline projections depict only what would happen if the new blueprint is not implemented.

The plan also warns about the city's $1-point-2 Billion unfunded legacy costs. It says the city has "a unique opportunity to apply its resources to a full financial recovery", but admits the city "faces daunting challenges to sustain progress". The Act 47 draft plan warns that the city pension liability has reached "crisis proportions". It alerts that "for the first time, fewer active employees are contributing to the pension fund than there are retirees drawing benefits". The pension fund lost $100-Million in the market downturn last year and is only 29 percent funded.

It calls for the city to make millions of dollars in extra payments into the pension fund, over and above the millions previously directed by the city's overseers. The plan says the money could come from the mayor's proposal to lease out the public parking garages, for example -- or it could come from tax increases in each of the next five years. "That's up to the city", said Roberts. "As long as those funds are substantially increased in amount, we're not going to tell them how to do it."

There is a "failsafe option" that would require city tax hikes that are big enough to bring in $10 Million a year.

The draft plan says the Act 47 team will provide for default city tax increases in each year that another option for making increased payments to the city pension fund is not identified. The higher taxes would be triggered if there's no specific legal alternative nailed down by the time the budget is proposed. Roberts says taxes raised would be "the taxes that are in the control of the city, as opposed something that you'd have to go to the legislature to ask about. So, that's earned income tax, real property tax" and others.

The draft notes that the city may try asking the legislature for permission to boost the tax on suburbanites working in the city from $52 to $145. However, the Act 47 team is telling the city not to rely on power it does not have when it budgets tax increases.

There are other steps proposed to raise money. For example, boosting revenue from fees for city services by 30 percent. Roberts says his team also endorses the city asking the state legislature for permission to keep the parking tax at 37-and-a-half percent, instead of dropping it to 35 percent next year.

Ravenstahl's budget and finance director Scott Kunka told me Thursday afternoon that the mayor's position is clear: that he is not going to raise taxes.

Kunka also says that the mayor's latest budget projections do not show the city in danger of going into the red. He cautioned "we just literally received this this morning ourselves" and that they need the opportunity to review the draft and vet the numbers. Kunka observed that "a lot of the plan is an endorsement of actions the mayor has already taken".

You can look at some highlights in this post, "My New Act 47 Scrapbook".

[The state Department of Community & Economic Development didn't issue a news release on the new plan until Friday. A search of its website turns up a page with a link to download the complete draft.]


1 comment:

EdHeath said...

Mayor Ravenstahl was a guest in first 15 minutes of the KD/PG edition Sunday, filmed (I believe usually and as you no doubt know) on Friday's sometime. The Mayor had a red face, probably from his visit the day before to the White House. It might have been a trick of the light, but I could swear his face got redder as Stacy Smith asked him about not returning Pat Dowd's question (he didn't answer except to say he had not so at that time).

More importantly, the Mayor said, maybe for the first time, that the EMS tax hike, the non profits participation in payroll preparation tax (I believe that is correct) and the maintenance of the parking tax at 37.5 percent are in the Act-47 proposal. He continued that line in the PG (http://www.post-gazette.com/pg/09143/972298-53.stm), going on to say that the Act 47 proposal is a “golden opportunity”. Doesn’t sound too upset about raising taxes to me. By Friday, the Mayor was citing numbers of how much the new taxes would bring in.

I think the Mayor’s line is going to be that higher taxes is what the Act-47 people command. I think that is clearly not the intent, but it is one of those things where because the possibility is raised in the Act-47 proposal, the Mayor can say it is so. It is the path of least resistance for Ravenstahl to have these taxes raised. Whether they can get through the State Assembly is another matter altogether. Right now it looks like City Council might pass the Act-47 proposal (the Mayor would sign) with the understanding the State will grant us these taxes. What happens when we don’t get the tax hikes?