2011 Budget Proposal Overview2011 Budget Proposal Overview

Bill Peduto, Finance Chair

City Council Budget Office

Bill Urbanic, Director

The 2011 Ravenstahl BudgetThe 2011 Ravenstahl Budget

Police staffing reduced by 25 Officers offset by $3m Federal grant to hire new officers for 3

years. Recruit class funding cut by half

2% salary increase for all non-union employees

668 Fire Fighters (includes 15 from Wilkinsburg fire merger)

$25m PAYGO Budget

$456m Revenue and $446m Expenditure Budget

Expenditures remain at the 2010 budget level

Pension Expense Account for Majority of Increase

2007 Expenditures2011 Proposed Expenditures2011 Proposed Expenditures

$446 Million

Public Works7%

All Other Gov12%

Public Safety

29.5%

Debt 19.5%Benefits 32%

All Other Gov13%

Public Works8%

Benefits25%

Debt20%

Public Safety34%

Cost of Government

2003 vs. 2011

$401 Million Budget $446 Million Budget

Public Works7%

All Other Gov12%

Public Safety

29.5%

Debt 19.5%

Benefits 32%

2011 Capital Budget Proposal2011 Capital Budget Proposal

$52.1 Million

CITY$25.1 Million

48%

Federal, State and other matching

funds $10.5 Million

20% CDBG $16.5 Million

32%

CDBG and Operating Funds Allocations by Function

2011 Budget

% of Budget

Community Programs (ULO, Senior and Employment programs) $ 4,015,000 10%

Equipment Leasing Authority $ 5,000,000 12%

Facilities Maintenance $ 4,420,000 11%

Infrastructure (includes $9 Million for Street Resurfacing) $ 12,700,000 31%

Transportation Improvement Program (TIP) $ 1,240,000 3%

Public Safety (Includes $3.25 Million to Demolition) $ 3,865,000 9%

Administration and Technology Upgrades $ 3,280,000 8%

URA $ 7,100,000 17%

Total City Funds $ 41,620,000 100%

2011 Proposed Capital Budget2011 Proposed Capital Budget

CDBG Vs. City Funds

TIP5%

Equipment Leasing

Authority20% Public Safety

Includes Demolition

10.01%

Ad

min

& T

ech

6.1

2%

Facilities Maintenance

11.23%

URA 15.53%

Infrastructure (includes Street

Resurfacing)32.16%

Public Safety Includes

Demolition8%

Admin & Technology

11%

Facilities Maintenance

10%

Community Programs (ULO,

Senior and Employment programs)

24%

URA 19%

Infrastructure (includes Street

Resurfacing)28%

Debt Service improves moving closer to be in Debt Service improves moving closer to be in compliance with GFOA Best Practicescompliance with GFOA Best Practices

•Best practice would be no more than 10% of Budget

• Debt service is reduced from 20.6% in to 19.5% in 2011

PAYGO has begun to work to pay off debt but won’t be fully realized until 2018

•Bond Dollars are now exhausted

•The PAYGO Capital Budget will be depleted following 2011 will need to borrow for capital in near future

•Additional Fund Balance Dollars are being proposed to be used to defease future bonds ($37.7 Million)

2003 vs. 2011 Benefits as % of Budget

SS-Severance-Unemploymt

3%

Pension7%

Worker's Comp5%

Healthcare11%

All Other74%

2003 Budget 2011 Budget

SS-Severance-Unemploymt

2%

Pension14%

Worker's Comp6%

Healthcare15%

All Other 63%

Employee Benefits $133 MillionSSI- Unemployment-

Severence5%

Personnel Leave Buyback/Severance

1%

Unemployment Comp16%

Pension38%

Healthcare40%

PENSION COSTS INCREASED 85% ’03-’10

4,453,670 2,629,163

32,438,342

Healthcare Worker's Comp Pension

85%

• Municipalities are asked to run a Social Security Program for Public Safety employees

• Can’t sustain a social security system where the beneficiaries retire at age 50 with ½ their salary or better for the next 30 years

• Older municipalities are at a disadvantage with aging, reduced workforce

• More pensioners than active employees Payout is more than Pay-in

• Now, many newer municipalities are 100% funded by state aid - while older communities have their aid diminished

• Current formulas rely on excellent market returns and discourage full funding of pensions

A Broken Pension System for Cities and Older Municipalities

The underfunding has to stop at some point!

• Pittsburgh’s State Pension Aid decreased by nearly $9 Million Dollars since $24 Million in 1988

• Meanwhile other “distressed” communities such as Upper St. Clair, Fox Chapel, Mount Lebanon, etc. continue to realize substantial State subsidies

• Since State Pension Aid comes from the same pool of funds, payments to wealthy communities adversely effect truly distressed communities such as Pittsburgh and other Act 47 communities

• Some correction has taken place, but not enough

Deficiencies in ACT 205 for “Distressed Pensions” Costs the City

PENSION – State Required Payment Increases

Act 205 STATE PENSION AID Decreases

CHART A

CHART B

2010 2003 Difference

$ 54,227,150 $ 23,875,262 $ 30,351,888

2010 2003 Difference

$ 15,352,000 $ 18,214,489 $ (2,862,489)

City, Penalized by the City, Penalized by the Commonwealth, in “Catch 22”Commonwealth, in “Catch 22”

•State Pension Aid Formula has worked against city recovery efforts

1 Police Officer or 1 Firefighter = 2 Units

•Reductions in Police and Fire positions penalizes the City by reducing aid

Aid System that helps people that are working that don’t pay in?? Ridiculous!

Aid should be based on number of retirees

• In 1988, Philadelphia was locked in at 25% of Pension Fund pool and received $30 Million

• Pittsburgh received 19% of pool in 1988 or $24 Million Dollars

• Wealthy communities opt in during the 1990’s by substituting pension enhancements for wage increases

• 20 years later City receives less than 9% or $15 Million

Pension Aid HistoryPension Aid History

Revenues 2011Revenues 2011

$456 Million

Provision of Services 3%

Payroll Prep. Tax10%

Non-Profit Payment 1%

Authority Payments2%

All Other3%

Slots Revenue1%

2% Share of Slots 2%

State Approp.1%

Breakeven Centers5%

Federal & State Grants5%

Other Taxes, including Penalties & Interest

9%

Deed Transfer Tax3%

Earned Income Tax16%

Parking Tax10%

Real Estate Tax29%

Who Paid in 2010?

City Taxpayers44%

Government/Act7713%

City Business31%

Parking10%

Non-Profits0%

Suburban Workers2%

Tax-Exempt Problem Continues•Although significant strides were made with a $13 million commitment over 3 years - Some large profit-making Hospitals & Universities still aren’t paying their fair share

Tax-exemptproperties

Taxpayingproperties

City residentsand businesses

($124.5 million in tax burden)

HospitalsUniversitiesCollegesNon-profits

•Large Hospitals & Universities also Exempt from Payroll Tax

•$17 Million in lost payroll tax revenue

1/3 of City Real Estate is Tax Exempt = $70 Million worth of taxes – City Residents and Business Subsidize

•Whether you are a business, a resident or a non-profit if you don’t pay your electric bill – your lights get shut off

•It costs money to run government and the City of Pittsburgh and its shrinking tax base can no longer afford to give away services

•Non-profits provide valuable services to the region but only a 56 square mile area of the poorest population are impacting with paying for the hosting of those services.

•For future agreements we need to determine in a scientific manner what the value of services are that are provided to each non-profit sector and determine a real number that can be depended on in the City’s annual budget or figure a way to be able to spread out the costs of those services to the region that benefits from the services the non-profits provide.

Tax-Exempt Problem Continues

All Other

Medical

Education

Medical

Education

All Other

$11.3 Million

$4.4 Million

$1.3 Million

Non Profit Breakdown based on Payroll Tax $17 Million

Revenue Proposed BudgetRevenue Proposed Budget

•Majority of taxes stay flat or under perform in out years

•Real Estate, LST, and Payroll Tax, Increase in prior year RET collection with Jordan

•Payroll Tax is performing but does not supply as much as Business Privilege and Mercantile Tax did

•Parking Tax had been growing better than expected – and the State froze the tax at 37.5%

•State eliminates other taxes via “State Tax Package” of 2004 (Act 222) $9 Million Eliminated with loss of the Business Privilege Tax

2011 through 2015

2011 2012 2013 2014 2015

Expend   446,487,573 456,948,847 498,838,636 506,562,279 518,159,120

Revenue   456,109,600 487,137,100 475,372,100 481,980,000 493,524,000

Surplus / (Deficit)   9,622,027 30,188,253 (23,466,536) (24,582,279) (24,635,120)

• Pittsburgh’s taxes have weathered the Pittsburgh’s taxes have weathered the storm so far– storm so far– Job losses in retail nationwide are well Job losses in retail nationwide are well knownknown

• Real Estate 28% of Revenue Shielded by Real Estate 28% of Revenue Shielded by base year assessmentbase year assessment

• Salary Based Taxes – Pay Roll & Earned Salary Based Taxes – Pay Roll & Earned Income Taxes have not been severely Income Taxes have not been severely effectedeffected

• Gaming RevenueGaming Revenue• State Appropriations will be unreliableState Appropriations will be unreliable

Effects of Economic Crisis on RevenueEffects of Economic Crisis on Revenue

Discussion for State Legislative Adjustments

Expenditure Side:• Pension Reform

– Pension pooling with other communities– Attempt to fix the Pension was half hearted– All municipalities need to be in 1 plan

• Assistance with Retiree Healthcare• Pittsburgh is not the only Commonwealth municipality

with these problems – most urban job centers – Erie, Johnstown, New Castle and other Act 47 communities (Urban Job Centers)

• Assistance with shared service items such as Public Safety, CIS and Public Works

Discussion for State Legislative Adjustments

Revenue Side

• Must revisit tax reform package of 2004

• Potential other opportunities:• Allow increase in the Amusement Tax

currently 5% - each % = $1.9 Million • Revise $52 LST to a percentage of

income 0.25%= $16.5 Million

Discussion for State Legislative Adjustments

Revenue Side• Create Formula for Non-Profits

– One that can apply to all Commonwealth host communities

– Suggest using payroll tax as a measure for contribution 0.55% = $17 Million

• Split Earned Income Tax = $29 Million– Half where you live 0.5% where you work– City of 300,000 residents supports 600,000– Landscape has changed (sprawl)– Statewide issue – this is why Act 47 creates a non-

resident tax, it was also in Act 250 for Pension relief

Who pays wage taxes in Pittsburgh?

Two out of three jobs are held by non-City residents!

City Residents pay

$72 Million in Wage and LST (Occupation) Taxes

Non-residents pay just

$8 Million in LST (Occupation Tax)

The Real Problem 2003

Is the Same Problem Today

Picture the State’s Cities as amusement parks

It costs money to maintain rides and pay staff – everyone has to pay to keep the park open

There are Day passes, Senior Passes, resident passes and deals for charities

There are NO FREE RIDES except in Pittsburgh - non-profits, suburban workers etc……….

Conclusion: 2011 Budget has an ICA induce $16m hole Conclusion: 2011 Budget has an ICA induce $16m hole Out-years - New Revenue & Expenditure savings from State Out-years - New Revenue & Expenditure savings from State

legislative action are still needed for futurelegislative action are still needed for future

• The cost of providing services will continue to increase in The cost of providing services will continue to increase in both the private and public sectors. both the private and public sectors.

• Long term public safety expenditures will continue to Long term public safety expenditures will continue to increase we must take advantage of all grant and other increase we must take advantage of all grant and other subsidiessubsidies

• Service reductions and sacrifices by employees and Service reductions and sacrifices by employees and residents are no longer in the City’s best interestresidents are no longer in the City’s best interest

• Additional sustaining revenue and adjustments in State Additional sustaining revenue and adjustments in State Pension Laws Pension Laws Must BeMust Be in the equation for continued success in the equation for continued success

• Major issues are still in the control of the CommonwealthMajor issues are still in the control of the Commonwealth

• Continued lobbying effort by the Administration and CouncilContinued lobbying effort by the Administration and Council

ICA rejects Mayors budget

• Rejection #1 – included lease plan, which has not been passed

• Rejection #2 – Pension payments $12 Million less than mandated by Act 47

• ‘Unverifiable Revenues’ – non-profit $20 million dollars in 2012 – not contiguous with the Act 47 Plan

• 2011 Budget is now Council’s