Peduto fears Pittsburgh financial recovery is shaky, wants oversight to stay

A look at the forces that led to state financial oversight: The second of two parts

It was June 2004, roughly six months after Pittsburgh had become the largest city ever to enter the commonwealth's "financially distressed" program, also known as Act 47.

Now, the Act 47 plan was before city council in its fifth-floor chamber, and the room -- a regal space with wood panels and high ceilings -- was echoing wall to wall with boos and jeers. The plan was wildly unpopular with unions representing city employees, whose jobs and benefits were suddenly under threat. Union officials screamed betrayal and threatened to never forget.

The previous year was filled with one bad headline after another: layoffs; pool and recreation centers closings; and then credit rating downgrades that gave Pittsburgh the distinction of being the only major American city to have its debt rated "junk."

Two bodies created by the state -- an Act 47 recovery team and the Intergovernmental Cooperation Authority -- began to float plans to fix the city's finances. All involved pain: budget cuts, layoffs, tax increases, restructuring.

But that day, after three hours of raucous debate, council approved the plan by a bare majority, 5-4. Then-Councilman Luke Ravenstahl was among those who opposed it, saying he wanted to give unions the opportunity to craft their own version of the plan. Bill Peduto, a council member since 2002, was in favor.

Firefighters were among those who screamed the loudest about the plan. Firefighters union president Joe King objected to the proposed "restructuring" of the bureau that would ultimately shrink the workforce by a third.

Now, when he reflects on the past decade, he doesn't see Act 47 as a wholly bad thing for the city.

"But overall, when you look back now, we've got more money in the pension, we've got higher surpluses, we've got better protective equipment," he said. "I think it was a wake-up call for the managers and the budget directors."

When the city went back to the negotiating table in 2009, Act 47 meant the Ravenstahl administration gave the union a pot of money and allowed the bargaining unit to decide how to spend it. But they capped the amount and would not go above it.

"You know what? That worked," he said. "I've got to honestly say, that worked."

Neither Mr. Ravenstahl nor his finance team responded to requests for interviews.

Duane Ashley, who headed up CitiParks in the midst of the city's tough budget years, said the cuts forced the department to take a hard look at which pools were best used. In places where the pools had to be shuttered, he tried to open lower-cost spray parks so the community would still have a place to cool off.

In August 2003, Rob Kaczorowski, then an assistant director, hopped into a public works truck and drove to each of the city's public works facilities, where he rounded up those who were due to be laid off.

Mr. Kaczorowski, now the director of the department, said his workforce of laborers remains about two-thirds of what it used to be, which translates directly into how swiftly work can get done. There's only one crew of workers per division, for example, in charge of patching potholes, when there used to be twice as many. And the plan, which called for the sale of the city's asphalt plant, means raw materials to resurface roads are more expensive.

By 2003, the city had already begun to fall behind on road maintenance, which was typically funded through bonds, like most capital projects. But because the city had spent a huge amount of money paying off old debt, the recovery plan called for less reliance on borrowing, which meant less money for street paving and other capital necessities. Given the 10-year life of asphalt, the city should be paving 86 miles of roads a year, but it has never surpassed 60 miles and its "paving deficit" runs into the hundreds of miles.

As the city moves forward, though, city Controller Michael Lamb warns that the opportunities to put money typically used for city operations into capital projects will diminish, as expenditures rise faster than revenues.

Where we are now

On Nov. 12 of this year, in a rare public appearance, Mr. Ravenstahl delivered his final budget address before an audience that once again packed council chambers. Six months prior, he had announced he was dropping his bid for re-election just 10 days after he kicked off his campaign. His office was now under scrutiny by federal authorities, who are investigating city dealings.

But that day, he was confident as he reflected on the city's progress under his administration in a 3½-minute address.

"We have taken the city from the brink of bankruptcy to financial recovery," he said. "Five years without acquiring any new debt meant we all had to make sacrifices; we had to do more with less."

He ticked off the city's accomplishments, including that its bond rating had been bumped up several notches from its junk status, the last upgrade coming in June when Standard & Poor's raised the city to "A," still slightly below average for a municipal credit rating.

Last year, the city's Act 47 team -- made up of Jim Roberts, an attorney with Eckert Seamans, and Dean Kaplan, a consultant with Public Financial Management -- testified that the city should be removed from the program after Mr. Ravenstahl petitioned the state to get out of it. Eight members of council and Mr. Ravenstahl agreed, including council President Darlene Harris, who later wrote a letter to Harrisburg asking for the city to be removed from the program.

And while the mayor-elect acknowledges progress, he also believes the city has a long way to go. And he fears that when he takes office in January, his own finance team will find a situation far different from the one that has been portrayed by Mr. Ravenstahl.

He believes, that, to some degree, the administration has used disingenuous tactics to balance the budget. For example, one way the city has come in under budget is that it has understaffed some of its departments. Positions for high-priced department heads, for instance, have gone unfilled. The police bureau consistently has less manpower than it is budgeted for, a problem that in the past has been attributed to lags caused by recruitment and training.

Mr. Peduto also will start his first year with little bond money to spend on capital projects. An $80 million bond issue in early 2012 for capital investment was meant to last three years but has been spent.

He also fears what the city could lose at the negotiating table with police and firefighters unions next year without Act 47 in place. The act gives the state-appointed coordinators latitude to determine the parameters of the negotiations.

Without Act 47, negotiations often reach an impasse and agreements are hashed out by arbitrators who are not allowed to take into account a city's economic condition in outlining contracts.

The caps are part of the reason that Mr. King and other union leaders want to see the city out of Act 47. They believe it has made the needed progress and accuse Mr. Peduto of attempting to "handcuff" unions in the negotiating process.

"It's sabotaging the collective bargaining process," Mr. King said.

Mr. Lamb warned that the city will continue to struggle to fund infrastructure maintenance and predicted that operational surpluses will diminish as expenditures outpace revenues.

Also worrisome: The city is projected to collect less in property tax revenue after Mr. Ravenstahl lowered the tax rate at the beginning of this year to soften the blow of a property reassessment that pushed up values.

Mr. Peduto has grave concerns if the city leaves Act 47. Shortly after he won the Democratic nomination for mayor in May, he traveled to Harrisburg to lobby the Department of Community and Economic Development to keep the city in the Act 47 program.

"We set ourselves up for failure again in the next five to 10 years or lean cuts for everything but police and fire that will cut to the bone other services and potentially raise taxes," he said.

Moriah Balingit:, 412-263-2533 or on Twitter @MoriahBee.

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