Let's Get the Pit out of Pittsburgh!

Pittsburgh, once in significant fiscal distress, is now seeking removal from the state’s “distressed” status. Scott Kunka, the Three River city finance director, notes: “In 2004, we were on the verge of missing payroll and our bonds were junk…We have made systematic improvements, have gotten upgrades from the bond rating agencies, have balanced budgets and a large surplus, and have reduced our debt.” The city yesterday was scheduled to formally appeal to Pennsylvania’s Department of Community and Economic Development to remove its stigma. More importantly, the PFM Group, which serves as the city’s Act 47 coordinator, notes: “There’s a strong management team at City Hall on the budget side.” Pittsburgh has reduced its debt from $824 million in 2006, when Mayor Luke Ravenstahl took office, to $581 million, and expects to lower it to $490 million in 2014, according to Mr. Kunka. Over nine years, the mayor and city council have embraced changes required by the Act 47 plans in 2004 and in 2009, when the city updated its plan. It has reached labor agreements with eight of nine city unions and downsized municipal government by 25% from January 2000 to January 2012, scaling down some city services and putting out others for competing bids from private providers. Pittsburgh has also worked out shared-services agreements with neighboring communities.  The city and its recovery coordinators anticipate completely paying off existing debt by 2026, meeting best-practice standards. In addition, the city has lowered its debt as a percent of its operating budget from 24% to about 18%, and expects to lower the ratio to 14% by 2017 or 2018. Last January, Moody’s and S&P revised their outlooks to stable from negative after city officials visited the rating agencies in New York and pitched upgrades. Moody’s rates the city’s general obligation bonds A1, while Fitch Ratings and S&P assign A and BBB, respectively. The law firm also participating with oversight responsibilities of the Steel City under Act 47 has cited Pittsburgh’s structurally balanced operating budget with recurring revenues consistently outpacing expenditures: “After weathering a deep recession while preserving its operating balance and reserves, the financial outlook for the City of Pittsburgh is positive.” Fred Reddig of the state department of Community The hearing, rescheduled from last week after Hurricane Sandy hit the Northeast, will be at 3 p.m. in the City Council chambers. Fred Reddig, a DCED official and the head of the governor’s center of local government service, will preside. There is no statutory deadline for the decision, but the city could expect one by the end of November. Because of continued legacy employee costs, Pittsburgh will remain under the budget purview of the Intergovernmental Cooperation Authority, which oversees so-called second-class cities. Pennsylvania groups its cities by population tiers. A member of the law firm oversight team commented: “Overall, the Act 47 program is a partnership between the affected community and the oversight team. It’s not a receivership, like some states have. Critics say it’s hard to get out, but Pittsburgh has shown that with the right plan of action, you can get out.” Nevertheless, Pittsburgh still confronts serious challenges, notably in pension funding, which is around 59%. As of January 2009, Pittsburgh’s combined pension plans were funded at merely 34%. A law passed that year requiring the state to absorb city plans if they remained at less than 50%, would have forced a spike in Pittsburgh’s contributions. To counter that, the city boosted its pension funding levels by earmarking $736 million of parking tax revenues as a new funding source through 2041.