1 Fixing Pittsburgh’s Finances Robert P. Strauss Professor of Economics & Public Policy The Heinz School, CMU

2 To do what’s right is easy, to know what’s right to do is hard ---LBJ Goals of my remarks: Briefly discuss some implausible scenarios that would make things politically easy Identify meaningful actions the City can take to generate trust in Harrisburg

3 Some Unlikely Scenarios City defaults on its debt and/or pension debt, bond insurance are used, and City winds up with a clean balance sheet Federal bankruptcy judge terminates existing pension plans, and makes them less generous Federal government writes Pittsburgh a check and wipes out the unfunded pension and health liabilities Governor Rendell writes Pittsburgh a check and wipes out the unfunded pension and health liabilities

4 Some Unlikely Scenarios (cont.) Wage tax and payroll tax bases start growing at 8-10%/year and tax revenues grow radically allowing increased funding of pension plans without tax rate increases City population begins to grow at 5-10%/year Allegheny County Council and County Executive decide to go to market value and ditch 2002 base year

5 Some Unlikely Scenarios (cont.) Judge Wettick finds the base year approach unconstitutional and orders an immediate across the board increase in assessed value to reflect economic growth from without revenue growth cap Pittsburgh Public Schools write a check to the City for $50 million/year for 5 years. TIF beneficiaries voluntarily give up their tax incentives (10% of the tax base)

6 More Likely Scenarios (cont.) Moribund wage and payroll tax growth (under 2%/year) Flat real estate tax revenues Continued spending pressures (over 2%/year) Continued indirect financial hemorrhaging of Convention Center, PNC Park, and public authorities’ budgets Jumps in required pension contributions

7 Defining the City’s Objectives Getting out from Act 47 and ICA Receivership Stabilizing the population of the City Stabilizing the enrollment in the Pittsburgh Public Schools Two Value Propositions: Residents get a fair trade of services for their tax dollars Businesses get a fair trade of services for their tax dollars

8 Finding Monies through Management Addressing workmen’s compensation in the City Merging EMS and Fire Bureaus Opening up fire and police contracts Improving the collection rate of the real estate tax County takeover of City police detectives Implementing O’Neill report recommendations

9 Achieving Financial Transparency Conformity of public authorities fiscal years Consolidated quarterly and annual financial reporting that includes all related entities Public disclosure on the web of consolidated quarterly financials

10 Home Rule Charter Issues Formal review of Home Rule Charter with special emphasis on: 1. Powers of Council vs. powers of Mayor; 2.Requiring financial transparency 3. Collective bargaining issues (ratification authority, limitations on length of contracts, grounds for reopening contracts) 3.Redefining the role and authority of the City Controller and the Mayor 4.Non-voting members of City Council representing the suburbs

11 Trades with the General Assembly Limited commuter tax at 1/3 the resident rate or.33% with suburban representation on City Council and financial transparency reforms Consolidation of local pension debt into state- wide plan for police, fire, with state determined benefit structure (defined contribution?) and contribution rates from employee and employer

12 Other ways to make the numbers work Emergency real estate surcharge to amortize part of the pension debt (3 years?) Downtown amenities fee based on real estate value to pay for improved public safety and other services

13 The costs of drift … There’s always another election … Pittsburgh as Toledo? Oakland as the City’s economic engine? The people leave and the teams stay?