Allegheny County spent more than it took in last year, the first time that’s happened since 2011, county Controller Corey O’Connor said.

Against that backdrop, O’Connor cautioned Wednesday that serious financial problems lie ahead for county government unless urgent action is taken.

O’Connor called last year an “inflection point” for the county. He warned that minimal growth in property tax revenues and the impending exhaustion of federal pandemic emergency aid signal challenges for its finances.

He suggested the county can counter these pressures by trimming administrative costs at the county’s pension fund, decreasing its reliance on expensive contract workers and boosting development efforts to put properties back on the tax rolls.

Allegheny County spent over $921 million in 2023, which is $23 million more than it took in that year, according to the Popular Annual Financial Report released by the controller Wednesday. County spending was also $76 million higher last year compared to 2022, primarily driven by increased labor costs.

O’Connor said the county’s substantial “rainy day fund” should allow the government to weather the storm in the short run, but long-term challenges await.

He said federal aid from the American Rescue Plan is shrinking and can’t be relied upon to deal with the county’s rising labor costs from health care staffing and shrinking local revenue caused by declining commercial property reassessments.

“Federal aid that has propped up our budget and reserve fund is drying up,” O’Connor said at a Wednesday press conference at the Allegheny County Courthouse in Pittsburgh.

The county’s rainy day fund stands at $113 million, said O’Connor, and he warned that dipping into it continually is not sustainable. He said he wants to avoid any cuts, which he said would disproportionately hurt marginalized communities. O’Connor said county officials should ensure those communities aren’t hurt by its worsening financial situation.

He said the county moved $40 million in federal funds into the county’s general fund last year, and added that those federal funds have to be spent by 2026.

After that, the realities of the county’s budget situation will become more stark.

O’Connor said cost increases at the county have come from jumps in health care staffing costs at the Kane senior centers and the Allegheny County Jail.

Increased occupancy at Kane centers has brought in $16 million for the centers, but nursing costs rose more than anticipated, hitting $12 million last year. O’Connor attributed the sharp increase to an overreliance on contract nurses amid staffing shortages, O’Connor said.

At the jail, costs increased by $10.6 million; nearly $3 million of that increase was attributed to contract nurses.

Those cost increases come at a time when property tax revenue is stagnant, O’Connor said.

From 2020 to 2021, property tax revenue saw an $11 million increase, then only a $1 million increase the next year. Revenue from property taxes grew only $500,000 last year.

O’Connor said the county lost $720 million in total assessed property value last year, which translated to a $3.3 million loss in revenue.

Large commercial properties have won appeals shrinking their value by millions of dollars and causing a declining tax base. Many of those properties are in Downtown Pittsburgh, but as the controller’s office has pointed out, the suburbs are also losing millions of dollars worth of property, thanks to appeals.

O’Connor said a reassessment, which is up to the courts as a result of a lawsuit, would help this issue by narrowing the deficit, but it will not be a cure-all.

“If the courts force us to do a reassessment, a reassessment is not alone the solution to our financial situation,” O’Connor said.

Abigail Gardner, spokeswoman for Allegheny County Executive Sara Innamorato, said the executive appreciated the “balanced” report.

She said Innamorato, who took office this year, acknowledges that the county is facing mixed economic indicators, with some areas of growth and some “challenging headwinds” caused by a lack of meaningful revenue increases over the last decade.

Gardner said the county is grateful for the $400 million in federal funds it has received following the pandemic but understands that revenue stream will be ending soon.

“As the nearly $400 million in (federal) funds winds down, it is time to be clear-eyed about Allegheny County’s finances and what changes need to be made headed into the next budget season,” she said.

Another growing area of concern is the county’s pension fund obligation, O’Connor said.

He said a shrinking pool of county workers and an increased reliance on traveling contract workers is setting the stage for a shrinking pension fund that could dry up by the late 2030s without reform.

O’Connor, who sits on the county’s pension board, hinted the pension fund has too many managers and could make cuts to trim some spending.

He also said increasing the number of county workers, who contribute to the pension fund, could help avoid a downward spiral.

County workers recently saw a 1% increase in pension fund contributions from their paychecks. O’Connor said there have been preliminary discussions among county pension board members about instituting another 3% to 4% increase.

He warned that could make finding county workers even harder because the jobs will look less attractive with higher mandatory paycheck deductions.

“This is a long-term conversation that should have been had years ago but it never did,” he said.

To counteract these negative trends, O’Connor suggested the county increase its efforts to hire and train local nurses and decrease the reliance on traveling, contract employees, who don’t contribute to the pension fund.

The entire region is struggling with finding enough nurses and health care staff, including large hospitals at UPMC and in the Allegheny Health Network.

O’Connor lauded efforts at Community College of Allegheny County to expedite nursing training and said the county can rely on that pool to help deal with the shortage.

He also said the county needs to improve efforts at increasing development and bringing vacant properties back onto the tax rolls.

Property taxes make up 40% of county revenue. O’Connor said more should be done to boost development, but he didn’t offer any specific suggestions.

The financial situation could portend some tougher decisions, Allegheny County Councilwoman at-large Bethany Hallam said.

She reiterated her call for a countywide property reassessment. But Hallam recommended being patient and gauging the impact of a reassessment on the county’s finances before putting into practice any other revenue-generating measures.

“It’s difficult for us to truly understand the financial landscape of the county while operating on a such a broken, ineffective, and unjust system,” Hallam said of the county’s current property assessment system.

The last time the county significantly grew its shrinking rainy day fund was in 2012.

According to the controller’s report, the county’s fund balance doubled in 2012 and 2013, correlating with a 2012 increase in the property tax millage. The county increased its millage rate from 4.69 mills to 5.69 mills that year.

Hallam didn’t specifically advocate for a millage increase but said “everything should be on the table” to increase revenues. She said she would have more specific suggestions after a countywide reassessment.

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