Monday, October 28, 2013

Act 47: A crucial and welcome Enhancement

Fashionably Geek

Pittsburgh owes so much money...

By 2003-04, in the wake of suffering mass traumatic population loss, Pittsburgh voluntarily entered into State Act 47 Financial Distress status -- due to high debt to the banks, and due to mushrooming pension, workman's comp and other workforce costs.

At the dawn of Act 47, Pittsburgh cut the City's workforce and services way down. Firefighters, police officers, laborers and administrators accepted early retirements or were laid off, pools and recreation centers were closed and resources withdrawn. It was painful, shocking to many. But since that first wave, there have been few further cutbacks.

Eventually in interacting with the Act 47 Coordinators and with the ICA, Pittsburgh managed to get a lid on its debt to the banks -- meeting payments steadily, not borrowing anew for many years, receiving credit upgrades. It looks forward at this rate to having paid off a fair chunk of that debt by 2018.

However, Pittsburgh never made any progress on the mushrooming pension and other prior workforce obligations.

Near midnight on Jan. 1, 2011, a State repossessions vehicle was backed up against the City County Bldg., threatening not to leave until it had either a $220 million check made out to the City's own pension funds, or seized power to make all our pension fund investment decisions for us and enforce a payment plan of its own formula for most of the entire $700 million we are unfunded. Then come what may.

(Mayor Luke Ravenstahl said we ought to get the sought-after $220 million ransom for pension fund, and get as much again to play around with, to boot, by trading away the City's metered parking spaces and our public garages to a private firm backed by J.P. Morgan. City Council said, "Nah.")

At midnight Pittsburgh asked to the repo men from the State, "How about this. Here is the City's extra-last $40 million rainy day fund, all up front, and here is a revised payment schedule to start making up the balances. Sound good?"

An extra $13 million the first couple years, and extra $26 millions thereafter... a future payment schedule "equaling" the $220 million up-front required to make the pension fund merely half-full.

The State replied, "Ugh. Sounds good. Man, I hate you guys."


Utah Mud Wars
So Pittsburgh has and will again owe an extra $13 million, and soon an extra $26 million thereafter, into the pension fund.

To connect this with our reality, the City's annual capital budget for road work and neighborhood projects required a bailout recently. Although Pittsburgh certainly had improved its credit profile by refraining from borrowing for a long time, the City did finally borrow $80 million in order to top off the "capital budget" during 2012 and 2013 budget years at previous levels. But that money is now dried up, and presuming the pattern does not shift, we will continue to be impacted by this increased need of roughly $40 million more annually for roads, repair and rebuilding.

Consider the two together, and Pittsburgh will walk into future budgets with an approximately $53-66 million of increased annual tug-of-war budget pressure. Zero-sum squabbling, re-wringing the sponge, and scraping together efficiencies.

Here are several things that Act 47 has enabled the City do:

1) It puts a box around the raises that can be sought in collective bargaining (generally about 2-3%) based on the City's ability to pay.
2) Has ensured that employees pay a small percentage of their health care premiums.
3) Has ensured that workers compensation claims be verified by doctors approved by the City.
4) Created a new trust fund called "Other Post-Employment Benefit" for everything not covered by either pensions or worker's comp.

Every point is helping saving the City a ton of money in the current framework already.

Disengaging from the Act 47 financial relationship while our operating and capital budgets are experiencing increasing pressures of the pension tsunami seems inadvisable.

(Fleeing Act 47 with the intention also of embarking on something like a major police hiring spree, at a time of low general crime stats and problems implementing some targeted public safety initiatives, seems reflective of an alarming pattern of financial and/or political instincts.)

Thankfully we do benefit from the relationship with the State, and retain a fighting chance at balancing the books even while maintaining City services and providing workers with good pay, benefits and protections, if we make the right decisions. The improvement on the debt side allows for encouraging headlines and the ability to borrow more cheaply, but the wolves are at the door in as far as our contractual obligations to our workforce.

Pittsburgh's financial recovery is decidedly half-finished. Let's not turn around and go back.


  1. Bram,

    Recheck 2003 --- NO firefighters got laid off. They had and have a no lay off clause --- the same thing Theresa Kail-Smith is trying to give police through her most current legislation setting police strength at 900. Wonder if the ICA, Act 47 or even if the Council's budget guru has weighed in on the impact of this legislation on City finances in both the LNG and short term.

    Seems like they are just giving things away before this administration leaves with that events overtime pay ruling, residency and this Kail-Smith legislation.

    1. Changes in coast and coverage of firefighter health benefits(among other things), led to a retirement of almost 200 firefighters in a very short period of time. The city was then able to cut positions and fire units without layoffs.

      This also put a large burden on the pension fund, while reducing the number of employees paying into it.

    2. Thanks, I was wondering about early retirements and buy-outs, and those impacts.

      It's starting to sound like a lot was asked from the City in the beginning, but so far most of the security gains have been reserved for the bondholders and their banks. The circle was almost completed with Wall Street dangling a massive pension funds bailout, the but even the pensioners rebelled after seeing how the last infrastructure deal beat up Chicago. Now something needs to change.

      Either the City can rebel from constraints and cash in on more expansion as long as it can before bankruptcy, and/or try the privatization route, OR it can show the same discipline in showed for the retirees for 5 years, as it did for the bankers for the last 10.