Governor Rendell Asks General Assembly to Support Crucial Measures Needed for Pittsburgh Financial Recovery Plan
Governor Rendell appealed to the Pennsylvania General Assembly to consider and pass legislation needed so that Pittsburgh can avert a budgetary crisis that threatens its economic future, its residents� way of life and its historic position as one of the Commonwealth�s most vital cities.
In a letter (see comments) sent to all senators and representatives, the Governor called a consensus plan developed by the several groups working on the financial situation �tough and realistic.� For the plan to be implemented, the General Assembly needs to enable the city to fill its remaining budget gap by changing the way the city taxes business and individuals.
Saturday, November 13, 2004
Gov asks house and senate to support critical measurs
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November 10, 2004
Dear Members of the General Assembly:
As you know, the City of Pittsburgh is experiencing a budgetary crisis that threatens its economic future, its residents’ way of life, and its historic position as one of the commonwealth’s most vital cities. The situation is grave. Without corrective action, Pittsburgh will experience a $469 million cumulative deficit by the end of 2009, an amount larger than Pittsburgh’s annual budget. Clearly, something must be done; the future of Southwestern Pennsylvania hangs in the balance.
Fortunately, progress is being made towards a constructive solution to this serious problem.
On November 5th, the Pittsburgh Intergovernmental Cooperation Authority, established earlier this year under Act 11, and consisting of members appointed by each of the four legislative caucuses and the Governor, approved a 2005-2009 City Financial Plan for Pittsburgh that represents a consensus solution to Pittsburgh’s financial problems. This Plan was developed after extensive negotiations between the city government, the Act 47 Recovery Team, and the ICA.
The plan is tough and realistic. It is based on a balanced mix of cuts in city expenditures (over $269 million in expenditure reductions over five years), as well as improved collections of existing revenues, reform of Pittsburgh’s archaic business tax structure, and new fees and taxes designed to ensure that both sacrifices and benefits are shared fairly among Pittsburgh’s businesses, residents and commuters.
This plan represents months of study and deliberation by its authors, who collectively believe the recommendations set forth are the very best hope for restoring Pittsburgh to fiscal and economic health. The key elements of the plan are described in the attached analysis.
City officials, the Act 47 Recovery Team, and the ICA have done their part to help Pittsburgh. Now the commonwealth must do its part. For this carefully crafted financial plan to succeed, the state government must grant the City of Pittsburgh the necessary taxing powers it needs to reform its tax structure and to restore itself to fiscal stability.
Specifically, the General Assembly needs to enable the City to fill the remaining budget gap in Pittsburgh’s 2005-2009 Financial Plan. This can be done through the following changes:
* Allowing the City of Pittsburgh to raise its Occupational Privilege Tax from $10 per person a year to $144 per person a year (excluding those earning less than $12,000 a year);
* Granting the City of Pittsburgh the authority to impose a new tax of 0.55% on the gross payroll of each for-profit business operating in the City;
* Eliminating the requirement that the city pay $ 4 million annually to the Pittsburgh School District;
* Repealing the City of Pittsburgh’s Business Privilege Tax; and
* Repealing the City of Pittsburgh’s Mercantile Tax.
These state-authorized changes – when combined with all of the revenue and expenditure adjustments already included in the 2005-2009 City Financial Plan – will produce a sustainable balanced budget for the City of Pittsburgh for the first time in years. These three changes will produce approximately $80 million a year – $50 million will make possible the repeal of Pittsburgh’s archaic business taxes, and $30 million to close the remaining annual deficit in the recovery plan.
These measures must be approved by the General Assembly before its adjournment for the year on November 30, 2004.
Pittsburgh’s fiscal year begins January 1st and the city must have its new taxing authority in place by then. If the city is unable to demonstrate to the financial markets that it has been granted the new revenue-raising powers it needs to produce a balanced 2005 budget by December, the city will be unable to borrow in the short-term markets, causing a cash flow shortfall that could paralyze the municipal government by January 2005.
If the General Assembly does not pass the tax measures anticipated in the 2005-2009 City Financial Plan, Pittsburgh will be forced to consider other, much less desirable ways to raise revenues, balance its budget, and stave off a cash flow crisis.
Pittsburgh’s budget gap could be closed with a 34% increase in city property taxes, if no new taxing powers are granted to the city. But this would require property owners to bear an unfair portion of the burden to relieve the city’s fiscal woes. Pittsburgh’s municipal property taxes are already the 4th highest among 129 jurisdictions in Allegheny County, and the city lost over 45% of its population between 1960 and 2000. City officials, the Act 47 Team, and the ICA all concur that such a huge increase in Pittsburgh property taxes would further cripple the city’s ability to compete for new residents and businesses.
Another alternative available to the city and the Act 47 Coordinators is to increase the earned-income tax on city residents and establish a new earned-income tax for non-residents who work in the city. This approach is problematic for several reasons. The city needs court approval to impose that tax; that approval must be renewed annually, and the authority to levy the tax lasts only until the city returns to fiscal health.
As the Act 47 Recovery Plan points out, Pittsburgh’s major current revenue sources – including the property tax and the earned-income tax – are already at prohibitively high levels. Further increases in these taxes would make the city even less competitive as a place to attract businesses and skilled employees – the very ingredients necessary for a robust economic recovery for the city and the region.
For these reasons, it is imperative that the General Assembly act decisively to pass legislation that will close the gap in the Pittsburgh 2005-2009 Financial Plan with realistic, reliable, recurring revenue sources that will balance the budget without harming Pittsburgh’s future economic growth potential.
I strongly urge you to support the measures Pittsburgh needs for its recovery before the General Assembly adjourns on November 30, 2004. Your support is crucial.
Sincerely,
Edward G. Rendell
Governor
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