Pittsburgh budget monitor has own budget woes


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In two weeks, the five-member board of the Intergovernmental Cooperation Authority will vote on whether to extend the contract of its sole employee overseeing Pittsburgh's budget: executive director Henry Sciortino.

The discussion of Mr. Sciortino's future has caused at least one member of the authority to question its budget process, lack of timely audits and financial reports and the practice of covering regular overspending of its annual budget with reserves from previous years.

Mr. Sciortino and the authority's chairman say its budget is so simple that more detail is unnecessary, but the state is withholding its 2012-13 allocation until it gets more budgetary information.

At $168,000, Mr. Sciortino's salary constitutes the lion's share of the budget of the ICA, one of two state-appointed bodies created nearly a decade ago to oversee the city's finances as it tilted dangerously toward insolvency.

But as Pittsburgh's finances have stabilized, state funding for the authority has dropped off significantly, from a peak of $900,000 in the 2008-09 fiscal year to $228,000 in the 2012-13 fiscal year, when the authority was budgeted only to pay Mr. Sciortino's compensation package and to conduct its annual audit.

In 2003, the city was declared financially distressed under Act 47, meaning the state appointed a team to serve as financial recovery coordinators. In early 2004, Republican lawmakers who wanted a say in the city's finances sponsored a bill to create a second oversight board, the Intergovernmental Cooperation Authority, whose board members include appointees by the governor as well as the Democratic and Republican caucuses of the state House and Senate.

While the state Department of Community and Economic Development is weighing whether to remove the city from Act 47, only a legislative act can spell the end of the ICA. Unlike Act 47 coordinators, the authority is considered "independent" and does not answer to DCED.

The ICA has wielded a powerful stick to get the city to comply with its demands. The authority holds the purse strings on taxes collected from gaming revenue, which total at least $10 million a year.

When the city did not make adequate progress on benchmarks established by the authority, like setting up financial management software or negotiating a new contract to get voluntary money from nonprofits, it threatened to withhold the gaming revenue.

Earlier this summer, as the board prepared to renegotiate Mr. Sciortino's salary and benefits, board member Ann Dugan raised questions about the authority's own fiscal health and whether it could afford Mr. Sciortino at his current rate. She said she found little information about the board's current finances because Mr. Sciortino prepares no operating statements.

"We had to see what was left in our accounts and what we could afford," said Ms. Dugan, who also serves as the board's treasurer. "It became important to understand our current financial condition, and that was when we realized we didn't have the financial statements we needed to make a decision about his compensation."

What Ms. Dugan found was that there was little in the way of comprehensive, up-to-date financial information about the authority. And the most recent information forecasts trouble for the agency, which for the past two fiscal years has overspent its annual state allocation and dipped into unspent state allocations from previous years.

Lack of accounting

When Ms. Dugan began asking questions about the authority's finances, she said she got few satisfying answers. She discovered that Mr. Sciortino kept no monthly operating statements.

"We don't know all the numbers and what we're dealing with," she said. "We were operating a bit in the dark."

Mr. Sciortino acknowledged that he uses no accounting software to manage the authority's budget, even though the authority has campaigned vigorously to get the city to purchase financial management software. It even withheld $7.2 million in gaming money earlier this year because it was dissatisfied with the city's progress in implementing the software.

But Mr. Sciortino argued the authority -- which also serves as a pass-through for millions in gaming revenue -- is simple enough not to need financial software.

The authority also has an unusual -- and perhaps incomplete -- budget. Mr. Sciortino provided a budget for the past fiscal year, which ended on June 30, 2012, but it described only how the ICA planned to use its $228,000 state appropriation and included no information about using funds from previous years.

Dana Yealy, chairman of the authority board, explained the authority has expenses it can't anticipate and therefore can't account for in its budget. For example, it decided to spend money on a forensic audit of the city's cash management after former police Chief Nate Harper was indicted on charges he diverted money from the city.

Mr. Sciortino also noted that the state's appropriation to the ICA, which comes through the state, is often delayed by several months. The $228,000 appropriation for fiscal year 2012-13, which ended on June 30, has still not been disbursed, for example.

"That's what confuses the picture," he said.

Mr. Sciortino pinned the delays on the state agency, which notified the authority that it would appropriate only $228,000 and then asked for a budget before it disbursed the money. Mr. Sciortino, in turn, provided one with just two line items: one for his compensation package ($220,000) and a second for an audit ($8,000), which all state agencies are obligated to perform.

"The ICA and DCED have been unable to agree on the appropriate level of detail required in identifying the activities to be undertaken and the cost of those activities," spokesman Steven Kratz wrote.

State statute also says the board must vote on a budget before Oct. 1 of every year. At least in recent years, that has not happened. Instead, Mr. Sciortino said, board members give their input on an appropriation request in closed-door meetings, but the matter is never voted on.

Mr. Yealy called Ms. Dugan's concerns "totally unfounded. We have audited financial statements ... and we're very comfortable with the audited financial statements," he said.

Still, Mr. Sciortino has agreed to produce monthly operating statements in coming months to alleviate Ms. Dugan's concerns.

"As a fiscal oversight agency, we have to hold ourself to the highest standard of financial reporting that we're holding the city to and that's important to me as we move forward," she said.

Sustainable?

The audit for fiscal year 2011-12 -- the most current audit available for the authority -- shows that it spent $469,342. That's about $84,000 above it's state allocation of $385,000 for that year.

That year, Mr. Sciortino's compensation package cost the authority $305,401, which represented a more than $55,000 jump from the previous year. Sam Stephenson, a partner at ParenteBeard who performed the audit, said the increase might be explained by a policy for unused vacation and personal days.

Under his contract, Mr. Sciortino is allowed 40 vacation days and 12 personal days. If they're not used, Mr. Sciortino can either be paid for them or can roll them over to subsequent years. If he chooses the latter option, the money is put in an encumbrance account and shows up on the budget because he's permitted to cash some portion of them out at a later date or when he leaves the authority.

Neither he nor Mr. Sciortino knew exactly how much of the increase was attributable to unused vacation days.

In the most recent fiscal year, which ended June 30, the authority again overspent its state allocation, although it's unclear by how much. The $228,000 that will be given to the authority includes money only for Mr. Sciortino's compensation package and for an audit.

In that same time period, the authority gave out contracts that could total more than $100,000. After former police Chief Nate Harper was federally indicted for siphoning off around $70,000 in city funds, the authority issued a contract for up to $90,000 to a forensic accounting firm to study the city's cash management policy.

The authority awarded another contract for up to $22,000 to a firm to create a right-to-know section on the authority's website.

That means the authority once again ate into its reserves in the last fiscal year. This year, the state provided $220,000 for Mr. Sciortino's compensation package. Given that his salary, benefits and accrued vacation days have typically cost in the range of $240,000, the authority is likely to exceed its appropriation again this year.

Right now, Mr. Sciortino estimated the authority has about $200,000 in funds not spent in previous years to help cover this year's expenses.

Asked about the financial sustainability of the ICA, Mr. Yealy said that "spending will have to fall in line with funding." But he also raised the possibility of dipping into the city's gaming money if the authority's state money runs out, which he believes the authority has the legal authority to do.

"I hope it never gets to that point," he said.

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Moriah Balingit: mbalingit@post-gazette.com, 412-263-2533 or on Twitter @MoriahBee.


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