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Is it time to pull the plug on Act 47 in Pittsburgh?

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By Jim Roddey & Jake Haulk
Thursday, Oct. 11, 2012, 9:01 p.m.

Earlier this week, Act 47 coordinators sent a letter to Department of Community and Economic Development Secretary Alan Walker recommending the City of Pittsburgh be removed from Act 47 status. The coordinators told the secretary the city has made progress in reducing its debt and producing recurring surpluses, and is moving in the right direction on pensions.

All of this is true, but it is not nearly enough to warrant eliminating state oversight of city finances. Many serious concerns remain.

While the city has reduced its debt payment from 26 cents of every dollar of spending to 19 cents, it is a far cry from the recommended maximum of 12 cents. It is also important to note that the city continues to pay out more than is coming in for employee pensions. And while the city avoided state takeover of its pensions by dedicating future parking tax revenues, the pensions are still just above 60 percent funded, a danger zone for the pension systems. Moreover, it has been pointed out that the 8 percent rate of return on pension fund investments is almost certainly too high. That means the funded ratio is in effect being overstated by a significant margin. Finally, the unfunded liability for retiree health care is very large at $488 million and needs to be dealt with before oversight can be lifted.

Further, the city must demonstrate the willingness and ability to continue making progress toward achieving financial sustainability and be convincing that it will not slide back into old habits once state oversight is lifted. It is important to point out that many of the Act 47 recovery recommendations have yet to be carried out. For example, the recovery plan called for privatizing 25 percent of garbage collection and recommended city-county consolidations of duplicative functions. This failure to implement plan recommendations does not inspire confidence that backsliding won't happen.

At the same time, there are two oversight bodies, Act 47 and the ICA — known as the oversight board — that are in theory equal. That is clearly not the most desirable approach to any management situation. It might be time to allow Act 47 to be rescinded — but if and only if the ICA is maintained and certain legislative changes are made to the ICA-enabling legislation.

First, powers held by Act 47 coordinators should be made available to the ICA. Second, the lifetime of the ICA should be made indefinitely long, with termination occurring only after several key indicators of unambiguously sustainable financial conditions have been reached.

Thus, our recommendation is for Secretary Walker to take the proposed ICA changes to the Legislature and governor and ask for quick passage. As soon as the amended ICA legislation has been signed into law, the secretary can announce that the end of Act 47 status in Pittsburgh will occur on the date the new ICA law goes into effect.

Moving to one organization should save taxpayers money and improve the efficiency and quality of the oversight performance. And since the coordinators are asking for the rescission of Act 47, they should have no objection to these recommendations.

Jim Roddey is a former chief executive of Allegheny County and a former member of the ICA board. Jake Haulk is president of the Allegheny Institute.

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