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(April 2004) There's no magic bullet for Pittsburgh or other municipalities facing unhealthy changes in their tax bases, little or no growth in revenue sources, and the challenge of meeting ever-increasing demands for services. So what's the answer to Pittsburgh's fiscal crisis? IssuesPA investigated.

The answer begins and ends with the city's revenues and services … and a quest for balance and stability.

In its preliminary report, Pittsburgh's Intergovernmental Cooperation Authority, a state-appointed oversight body, said reductions in public safety service costs - a substantial part of the city's budget - is one target. The authority also advocated a review of all contracts, practices and spending patterns including "no-cut or minimum staffing clauses."

Even if all other city services were cut deeply (such as a 25% cut in general government and parks; and a 10% cut in refuse, environmental services, and public works), they'd yield less than $20 million in savings and adversely impact Pittsburgh's overall quality of life. Significant savings are likely only through reductions in public safety personnel costs, by far the largest part of the city's budget. Possible approaches include merging the fire and EMS bureaus, closing underused fire stations and reducing the police payroll.

One roadblock in the short term? Existing union contracts would need to be reopened and renegotiated, a difficult task at best. In the longer term, however, there may be some relief to the City budget through Act 47. Under Act 47, the fiscal condition of the city must be considered in contract arbitration.

What about combining city and county services?

Reducing costs could involve delivering services differently - perhaps by privatizing functions such as trash collection and vehicle maintenance - or merging them with neighboring municipalities or the county. Allegheny County already provides services to other municipalities, such as county detectives. And Pittsburgh and Allegheny County may increase their shared purchasing activities, an initiative that likely would deliver significant annual savings.

The city and county have formed committees to study merging other services. In March, City Council approved the merger of Pittsburgh's 9-1-1 dispatch operation into the county's dispatch center. And the mayor and the county chief executive have discussed publicly an even more dramatic step of merging the city into the county, similar to the recent city/county merger in Louisville, Kentucky.

How to increase revenues?

Beyond reducing costs, the city could also seek to increase revenues. Here are six talked-about options - most requiring legislative authorization.

1. Increase taxes and/or fees for city services. The city could increase rates of taxes it already levies, even though the tax burden on Pittsburgh residents already is among the highest in Allegheny County and the state. For example, a 1-mill increase in the city's property tax would generate more than $11 million. Another way? Charge fees for specific city services. For example, a $5/month trash collection fee for residential properties would generate $5.1 million annually.

2. Re-direct existing revenues. The authority's report specifically calls for the school district, which currently has a $90 million budget surplus, to re-direct $4 million in local option sales tax revenues to the city. It also calls for re-directing local option sales tax revenues used for debt service to fund direct operating costs.

3. Increase the tax contribution of commuters. One possibility - consider an increase in the city's occupational privilege tax. It's been a flat $10 per individual since 1965 and generates about $3.25 million a year. An increase to $60 per year --with an exclusion for low-income workers-- would yield $10.9 million. A new 0.5% commuter wage tax would yield about $50 million annually.

4. Seek increased state funding for pension costs. State pension funding laws put the city in a "Catch 22" situation. If the city cuts personnel, it'll reduce its future pension liability (and, of course, save on salaries and benefits), but it'll also reduce state funding for pensions. State pension aid is based on the number of current employees, not on those already retired and collecting benefits. For Pittsburgh to receive more state pension assistance, the current aid program would have to be modified to direct more state aid to distressed municipalities.

5. Increase the tax contribution of businesses. Options for increasing payments from for-profit businesses include eliminating exemptions from the gross receipts tax, adding an employee-based tax (such as a payroll tax), and creating other specialized taxes. For example, a payroll tax on employers equal to $8.25 per month per employee making more than $10,000/year would generate $12.7 million annually.

6. Increase the tax contribution of non-profit employers. The authority's recent report calls for the participation of non-profits in the city's financial recovery. Currently, over 30% of Pittsburgh's total assessed value is exempt from the property tax. Nonprofit employers such as universities and hospitals employ approximately 40% of people working in the city. Potential strategies here include removing property tax exemptions, adding an employee-based tax (such as a payroll tax), adding a customer-based tax (such as a student service fee), formalizing payments in lieu of taxes, and obtaining state funding in lieu of taxes.

So what are the chances for real change?

Crisis brings opportunities for change, and in some respects those prospects have never been greater. But change won't come easily. There are substantial obstacles. Will Pittsburgh's financial woes bring true change or a band-aid approach? Time will tell.

Meanwhile, the crisis continues. And status quo is not an option.