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Pittsburgh finances improved, but more work remains

Bob Bauder
| Sunday, Oct. 28, 2012, 11:24 p.m.

Nine years of budget austerity, cost-slashing and debt repayment have Pittsburgh on the road to financial recovery, city officials and observers agree.

The city, they say, is in better health than in 2003, when chronic budget deficits, debt approaching $1 billion and a junk bond credit rating put it on the brink of bankruptcy.

“The city really did have to make a lot of hard choices, but they bit the bullet and they turned the city around,” said Brian Jensen, executive director of the Pennsylvania Economy League of Southwestern Pennsylvania. “They've cut their annual deficits. They're now on a track to produce a little bit of a surplus in the next five years. They went on a debt diet.”

As Pittsburgh gears for a public hearing on Monday to help decide its partial release from state financial oversight, it still copes with heavy debt, flat-lining revenue, a pension fund deficit and soaring retiree health care obligations. The hearing is scheduled for 4 p.m. in City Council Chambers. Pittsburgh is one of 21 municipalities under the oversight of an Act 47 team, which created a financial recovery plan for the city in 2004 and updated it in 2009. The city would be the seventh to be released from Act 47 oversight.

The state declared Pittsburgh financially distressed in 2003 after then-Mayor Tom Murphy sought a bailout and began downsizing government to pay the bills. Murphy's budget director at the time, Ellen McLean, said the city needed alternative revenue sources and went into Act 47 as a strategic move. Murphy referred questions to McLean.

“Act 47 was a tactical move to change the complexion of our taxing power,” said McLean, now chief financial officer for the Port Authority of Allegheny County. “Did we get everything we wanted? We did not, and that was a disappointment.”

The change since 2003 has been drastic, but Jensen said long-term recovery hinges on pension and tax reforms, which can be implemented only by state government, which is not likely to take action anytime soon.

Gov. Tom Corbett is more worried about state pension liabilities, which represent 4 percent of the state budget and are expected to double in five years, according to spokeswoman Christine Cronkright. The unfunded liability for state employees and teachers is $41 billion, and that's expected to increase by more than $4 billion in four years, she said.

State Rep. Mike Turzai, the Republican House majority leader from Bradford Woods, declined comment.

Pensions remain an issue

Over the past eight years, Pittsburgh retired $279 million in debt and replaced annual deficits with surpluses. Bond rating agencies upgraded the city's credit score. David Jacobson, communications strategist for Moody's Investors Service, said the agency this year gave Pittsburgh its highest bond rating, a stable designation. He said the upgrade was tied to the city avoiding state takeover of its pension system by committing $736 million in parking taxes over 30 years to the pension funds.

“The stable outlook means you probably will be staying in that level for the foreseeable future,” he said.

Mayor Luke Ravenstahl in 2012 borrowed money for the first time since taking office in 2006, arranging an $80 million bond issue to put toward capital improvements delayed since the early part of the last decade.

Debt principal increased to $607 million under the new borrowing, and annual debt payments represent about 18 percent of the city's $468 million budget.

But the mayor's office said debt payments will drop by nearly 20 percent in 2018, and by 46 percent the following year, as the city pays off older bonds.

The city continues to pay out more in pension benefits than it takes in; the difference in 2011 was $8.3 million. City officials, however, call the funds stable and predict $24 million in growth this year.

Controller Michael Lamb said the city must increase pension contributions to gain ground on its $1 billion liability. He said pension input vs. payout has been at a deficit, or about even, in recent years. He thinks the city needs new sources of revenue and agrees it must address infrastructure problems and fill positions that remain empty because of budget cuts.

The city workforce since Murphy's tenure has shrunk by 28 percent — from 4,377 employees in 2000 to 3,149.

“While they're coming in under budget, they're not getting the job done,” said Lamb, a likely candidate for mayor next year.

David J. Malone, CEO of Gateway Financial, who chairs the Greater Pittsburgh Area Chamber of Commerce and served on two committees that sought answers to Pittsburgh's financial trouble, said infrastructure improvements are sorely needed.

“I don't think there's any doubt there's been an improvement (financially),” he said. “You're seeing a lot of good things happening, but you can also walk down the street and see that we've got to pay attention to the infrastructure. The roads and sidewalks are starting to fall apart.”

Quality of life next

Mayor Luke Ravenstahl's office vows the next step is improving roads, bridges and cultural and recreational assets. The city slashed spending on culture and recreation by 16 percent since 2003.

“In 2003 and 2004, we were just looking at how not to sink,” said Ravenstahl's budget director Scott Kunka, who was council's budget director in 2003. “We spent the last six years digging ourselves out of that. Now we can start focusing on more quality of life-type issues.”

Ravenstahl spokeswoman Joanna Doven said the city began an aggressive street paving program this year. Volunteers through Ravenstahl's ServePGH program are planting vegetable and flower gardens in vacant lots along with the Department of Public Works' Green Up crew. City crews finished major repairs to the South Side Market House, which reopened in June after being closed since 2011.

The city will put about $40 million a year from the bond money toward capital improvements in 2012 and 2013, and intends to tap its budget surplus in order to spend that much again in 2014, Kunka said.

Residents applaud improvements but say it's not enough.

Judy Hackel, 59, a lifelong Allentown resident, said prostitutes and drug dealers once worked openly on Warrington Avenue. They left after the city moved the Zone 3 police station to Warrington, she said. Volunteers, using materials provided by the city, repaired and painted city steps that were falling apart.

“I would like to see major investment in the hilltop neighborhoods,” she said. “Give me something that shows you want to invest in south Pittsburgh.”

Bob Bauder is a staff writer for Trib Total Media. He can be reached at 412-765-2312 or

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