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Pittsburgh begs state for help with fiscal crisis

'Financially distressed' label would let it tax commuters

Tuesday, November 11, 2003

By Timothy McNulty, Pittsburgh Post-Gazette

Mayor Tom Murphy threw the city at the feet of state government yesterday, requesting designation as a financially distressed municipality along with the commuter taxes and other assistance that may come with it.

Mayor Tom Murphy announces yesterday that the city is seeking a state designation that it is financially distressed. (Kurt Weber, Post-Gazette)

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He also introduced a $398.6 million operating budget with a whopping $42 million deficit. That is unlawful under the city charter, which requires annual budgets to be balanced, but the administration says the state's Municipal Financial Recovery Act, where the city's turned for help, trumps the charter.

Murphy said he was forced to apply for distressed status under the act, also called Act 47, because the state Legislature has not approved the city tax reform packages he has pushed for a year. He said the city has cut almost all the spending it can, outside of fire-fighting costs, and will not raise any more taxes on its dwindling tax base.

"The result of all this is the city we love is in severe financial distress," he told City Council yesterday morning. "Yet our distress arises from no failure on the part of our citizens or because the Pittsburgh region is destitute. Our distress arises from a collective failure to modernize the local tax structure to meet today's realities."

Murphy, going into his 11th year as Pittsburgh's mayor, laid most of the blame for the city's financial troubles on state laws that exempt businesses and non-profits from taxes, on a $10 occupation tax that has not changed in 38 years and on the firefighters union, which has not agreed to a merger with the Emergency Medical Services bureau.

The mayor said he has now abandoned the merger idea and will seek $15 million in concessions from the firefighters union, through increases in health care co-payments, wage freezes and station closings.

The mayor admitted he should have taken up the tax reform cross earlier.

"I take responsibility for not pushing harder and earlier to change a tax structure written for a city that doesn't exist anymore," Murphy said.

According to Murphy, the city will be out of cash by mid-January, probably forcing it to get a short-term loan to pay its bills. But loans and tax revenues will not cover all of next year's expenses, driving him to the state for help.

Under Act 47, a state coordinator writes a financial recovery plan that could include commuter taxes on nonresidents, tighter controls on future union contracts (current contracts would be unaffected) and spending controls.

The recovery plan has to be approved by the mayor and City Council. A common pleas judge would have to approve the commuter taxes.

Murphy sent the state Department of Community and Economic Development his five-page request for distressed status yesterday. Getting state help could take about six months, but Murphy is pressing for help by the end of December, when City Council is set to approve the 2004 budget.

Under usual Act 47 circumstances, the state has 10 days to set a public hearing, which has to be held within 30 days of that announcement.

Within that 40-day period, community development staff members study the city's financial situation. The department secretary, Dennis Yablonsky of Mt. Lebanon then has another 30 days to decide whether to declare the city distressed and another 30 days to name a coordinator. It usually takes another three months for the coordinator to write a fiscal plan for the city.

Gov. Ed Rendell issued a statement yesterday saying Yablonsky will work on the city's request "as soon as possible." Rendell said he preferred plans for a fiscal review board for the city matched with new taxes, as exists in Philadelphia, but that Murphy's Act 47 request was necessary given the "impasse" in the Legislature over those reform plans.

Murphy said he has discussed the city's Act 47 planning with both Rendell and Yablonsky. Rendell, a Democrat like Murphy, has said he would veto any state legislation on city budget reforms unless it contained new revenues.

Murphy has endorsed recommendations by a civic and business group calling on the Legislature to authorize a $50 increase in the occupation tax and a $99 worker fee on for-profit businesses; city-approved increases to property, parking and garbage taxes; and a fiscal review board to ensure spending cuts.

Republicans in the House and Senate have introduced different plans for a review board, but neither plan includes changes in the city's taxing powers. Their measures also would bar the city from seeking Act 47 status.

While all that work goes on in Harrisburg, City Council will be left with an odd budget document that makes little effort to be balanced.

Murphy faced an $80 million shortfall in the 2004 budget, requiring $40 million in cuts and $40 million in new revenues. He cut 2004 expenses by $25 million by keeping in place the layoffs and service and facility cuts (such as swimming pool and recreation center closings) he announced in August. He wants to cut another $15 million through concessions from the firefighters union.

On the revenue side of the ledger, Murphy did nothing, raising no taxes and leaving overall revenues at $356.6 million, or $42 million less than expenditures. Property taxes are left at 10.8 mills and wage taxes at 1 percent.(City residents pay an additional 2 percent wage tax to the Pittsburgh Public Schools).

In a message attached to the 303-page budget, Murphy said raising those taxes further "would adversely affect the long-term viability of the city and may encourage people to move outside the city limits."

Normally, City Council fights and claws to balance the budget by the end of December, as required by law.

There will still be council fights over such issues as the city controller's office (which Murphy wants to cut 16 percent); the city clerk's office (which faces a 55 percent spending cut); and whether to cooperate with Murphy's Act 47 plan.

But given that the budget is so wildly out of whack, council may not have anything close to a balanced budget to vote upon. City Solicitor Jacqueline Morrow said the city can't run afoul of the balanced budget requirement as long as the city is under state oversight.

"The bottom line is as long as we're in an Act 47 proceeding, I think that pre-empts the charter," she said yesterday.

That means that, pending state government decisions, City Council -- like city residents, workers and businesses generally -- will be in for a confusing time, not knowing exactly what next year's budget and taxes will look like.

"We will never have another budget process like the one we're about to go through this year," Murphy said, just after walking into the council chamber yesterday.

Tim McNulty can be reached at or 412-263-1542.

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