Tuesday, April 27, 2010

OVERLORDS: Come in, come in, where ever you are.

Policy Brief
An electronic publication of
The Allegheny Institute for Public Policy

April 27, 2010 Volume 10, Number 22
Pittsburgh’s Financial Watchdogs Lose Their Bark
Pittsburgh City Council recently enacted a prevailing wage bill and is now considering a living wage bill. Both measures will almost certainly increase City spending either directly, by raising the wage rates of its employees, or indirectly, as contractors push the costs back to the City through higher bids. The question that cries out for an answer is; where are the Act 47 coordinator and the Intergovernmental Cooperation Authority (the oversight board)? Why are they silent about these legislative efforts?

The prevailing wage bill, passed in March, requires all City contractors and subcontractors to pay its building service and food service workers a prevailing wage for those occupations as determined by the City Controller. It also requires that “(b)uilding service, food service, hotel, and grocery employees shall be paid at least the prevailing wage according to their job classification for all work performed on or related to projects that receive a City subsidy…” While firms feeding at the public trough get no sympathy from us, this law will have two unintended consequences. First it will cause firms to ask for greater subsidies to compensate them for having to pay higher wages and secondly it will throw up one more signal to any firm looking to locate in the City that Council is willing to meddle in the private market and mandate wage rates.

Now a living wage ordinance is currently under consideration by City Council. An earlier version was introduced and passed nearly a decade ago. It was to go into effect only after Allegheny County enacted a similar law, which at the time County Council was unable and unwilling to do. Apparently City Council is now willing to go it alone. The proposed new version of the law states that “…City employees, employees of City service contractors, subcontractors, and employees and contractors of City financial assistance earn an hourly wage that is sufficient to live with dignity and to achieve economic self-sufficiency.”

This law will directly increase the City’s personnel costs. When the bottom rung of the wage ladder is raised, higher wage earners will expect some increase as well.

Contractors forced to pay higher wages and benefits will ask for an upward adjustment in their contract payments to cover the mandated compensation increases. The City will have to shoulder some of that burden. If the City refuses, contractors could be forced to lay off workers and cut services. Then too, there is the effect on other wage earners below the “living wage” and their employers who are not covered by the by the living wage law. A two tier wage system will develop for comparable jobs and skills, one for jobs with a City government connection and another for comparable jobs with no City government connection. Eventually, the lower tier wage workers will press for wages beyond what employers can afford and unnecessary workplace tensions will develop—yet another City created worsening of the City’s business climate.

Which brings us back to our original question: where are the Act 47 team and the ICA in all of this? Why haven’t we heard their opinion on what these bills will do to the City’s budget?

In its 2009 Plan, the Act 47 team had this to say about Workforce and Collective Bargaining: “With almost 74 percent of the annual budget allocated to employee-related expenses, workforce costs are a critical factor in the City’s fiscal condition. If workforce costs are not maintained at affordable levels, the results can not only erode the City’s budget health, but can also have adverse impacts for municipal employees and City service levels.” So the Act 47 team has stated in writing the City needs to be mindful of its workforce spending, but is now strangely silent in the face of two bills that will almost certainly raise employment costs.

Furthermore the 2009 Act 47 Plan states that “(g)oing forward, the City’s primary workforce challenges are twofold:

1) Continuing to contain overall personnel cost growth at levels that can be sustained within the City’s fiscal resources;
2) Actively addressing the longer term, $1 billion legacy cost crisis.”

Have the City’s fiscal resources improved while no one was looking? It wasn’t very long ago the Mayor was proposing a tax on post secondary tuition on students in the City—
evidence the City’s fiscal situation has not improved, certainly not enough to shake free of financial oversight.

The living wage legislation will almost certainly increase the City’s personnel costs. And since pensions are based on worker pay, legacy costs will rise as well. Yet not a peep from the state appointed overseers.

Has the City promised financial overseers it will make expenditure cuts to offset the higher personnel costs arising from the living wage bill? Has the City promised to find revenue to cover the higher expenses? If the City has done neither, the oversight panels should be very vocal in opposing any legislation that increases City spending. Otherwise they are not fulfilling their responsibilities.

Frank Gamrat, Ph.D., Sr. Research Associate Jake Haulk, Ph.D., President

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