Pittsburgh’s Woes

Atrios has a good summary of the problems that the city of Pittsburgh faces for the next year. I have gone into long details about the basic problems that the city faces in previous posts. However I will recap the basic problems and provide a quick update on what is going on. Basically the city is facing a massive structural deficit and it has very little maneuvering room for legal, financial and political reasons. The city has the basic infrastructure of a city twice its population and it is decaying which drives up maitenance costs. Additionally local political wills and realities means that we can not rightsize the city government services effectively. Finally the city has rung up a massive amount of debt in an attempt to “grow” our way out of the looming fiscal crisis by offering the $50,000 a year plus suburbanite crowd a good reason to visit the city.

The solution space is fairly limited. New taxes have been proffered on a variety of items and targets. Beer, payroll preperation, wages, deed transfers etc. have all had new taxes proposed. None of these proposals have been approved as of yet. Most of these proposals will require changes in state law, and the Republican dominated Assembly will not approve of actions that result in commuter taxes. The primary plan in action right now has been for the city to apply for and be declared a “distressed city under the 1987 law ACT 47 which is the municipal bankruptcy law for the state. Act 47 status has been granted to the city and it will allow for better bargaining power with city union contracts, technical assistance from the state and the ability to levy commuter taxes.

Mayor Murphy has for two years in a row proposed budgets that do not even come close to reality and rely on invisible sources of funding to even come close to balance. Last year it was pour taxes and wage taxes, now it is a commuter tax that is not yet approved and vocation tax increases. Last year’s gap was partially filled by closing down the city’s Parks and Recreation programs and stretching out some payments. Additionally approximately 100 cops were either laid-off or chose early retirement.

City Council voted the 2004 Murphy budget down and approved a budget that relies on a couple new taxes, including an increaes in the parking tax and some spending cuts. However the City Council budget is still assuming that there will be several significant increases in revenue that I do not believe are realistic. The City is expecting that the Sports and Exhibition Authority which owns the new football and baseball stadiums as well as the new convention center will be able to increase the payment in lieu of taxes. However the SEA (disclosure: I have a good friend working with the SEA) is currently running at a substantial deficit for this year. The Council budget also is assuming significant first year costs savings as they propose service consolidations with the county. I have doubts about that.

Fundamentally the city is stuck at the moment. It can not balance its budgets by cuts as too much of the expenditures are legally guaranteed at the moment. It will gain some flexibility in the next two years as the majority of the municipal employee union contracts will expire, but there are few cost savings currently available that would not devestate city services. New taxes are needed in the short to medium term in order but the state government is reluctant to allow the city to raise the needed revenue from suburban commuters. Local consolidation with the county will not proceed although service sharing will increase.

The city is screwed. The best solution for this year is to buy time with a series of additional one-off revenue enhancements such as debt refinancing, selling the city’s asphalt plant and rejiggering the pension plan yet again. All of these measures increase the long term cost to the city but will probably occur as the city has few to no other options left.

Cross-Posted at Fester’s Place