State maintains Act 47 controls over Pittsburgh

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A little more than a decade ago, Pittsburgh laid off more than 700 employees, became the only major city in the country whose debt was rated "junk" and was declared financially distressed under the state's Act 47 program.

Since then, it has made dramatic strides toward solvency, paying off around $430 million in debt, reducing its workforce, reining in spending and seeing its bond rating upgraded several times.

But Thursday, Gov. Tom Corbett and Mayor Bill Peduto announced that Pittsburgh had not made enough progress yet and will remain in the program, a move that will keep the city under the tutelage of two state-appointed coordinators and will compel it to formulate another five-year recovery plan, which will have to be approved by city council. The plan will place limits on how the city spends its money, including in its contract negotiations with police and firefighter unions this year.

"While the city has already made those great strides, a united effort and a strong amended recovery plan will ensure that the city is positioned to flourish for generations to come," Mr. Corbett said, speaking at a news conference alongside Mr. Peduto. "While it might have some distance to go in this journey, I believe the city is headed in the right direction."

Mr. Peduto has been lobbying aggressively to keep the city in the program for some time. In 2012, when the city's own Act 47 coordinators -- Jim Roberts and Dean Kaplan -- recommended it graduate from the program, Mr. Peduto, who was then a councilman, was the sole public official to take the opposite stance. Since winning the Democratic primary last May, he has met on several occasions with Alan Walker, secretary of the state Department of Community and Economic Development, who made the determination to keep the city in the program.

He argues that the city's long-term legacy costs -- particularly those related to the pension and debt -- still threaten its well-being. About one-sixth of the city's total spending this year -- or $87 million -- will go toward paying off old debt. The pension is about 64 percent funded.

And, during the last decade, Pittsburgh has failed to maintain its infrastructure, falling far behind on its street paving schedule.

"The tools of Act 47 that will allow us to finally solve long-term problems that we've finally addressed and not really gotten to the core of," he said. "There is light at the end of the tunnel."

Mr. Peduto believes remaining in Act 47 means the city won't have to raise taxes, even though expenditures are projected to rise faster than revenues. He spoke of a "new approach" that includes slashing expenditures while seeking more revenue from the city's tax-exempt nonprofits and more aggressively pursuing tax scofflaws.

Pittsburgh is already poised to see its debt payments fall from $87 million in the next few years to $38 million in 2019. That year the city had already planned to use some of the savings to augment its payments to the pension plan.

But Mr. Peduto wants to go further with the next recovery plan, increasing spending on the pension by 6 percent more than planned. He also wants to increase capital spending by one-third and cut 5 percent from the city's projected spending on future operations budgets by 2020. That would be about $16 million for that year alone.

He plans to achieve those cuts by partnering with Allegheny County on some services. He added that a buyout program will usher out between 60 and 100 employees, and some of their positions will not be back-filled. The city could reap cost savings once the program is paid for.

Remaining in the program also will give the city additional leverage as it heads to the negotiating table with police and fire unions because the terms of any resulting contract will have to abide by the new recovery plan. Empowered by Act 47, the city eliminated retiree health care for firefighters and allowed the fire bureau to shrink by nearly one-third over the last decade.

For that reason, firefighters union president Joe King vehemently opposed the decision. On Thursday, he spoke with disdain for the decision and the public officials involved.

"Mr. Corbett and 'Billy-boy' Peduto can go to hell," Mr. King said. "Do all the plans you want because the firefighters are not going to abide by them. We have sacrificed enough on the backs of the men and women in the trenches."

Bryan Campbell, attorney for the Fraternal Order of Police, Lodge 1, said the union will challenge the city's claim of financial distress if the two parties get to loggerheads over the contract.

"If we can't negotiate a contract with them that's suitable for our membership, and we have to go to binding arbitration ... we're going to make arguments that ... [the city] can afford a contract that's better than what's afforded to us under Act 47," he said.

Nicholas D. Varischetti, chairman of the Intergovernmental Cooperation Authority, said in a statement that the board is "encouraged that our state government recognizes that while the City of Pittsburgh has made progress in recent years, there is more to be done to reach a sustainable financial recovery."

"This decision is an important indicator that local and state government, and in particular, Pennsylvania’s Department of Economic and Community Development Secretary Alan Walker, acknowledges the fragile nature of Pittsburgh’s continuing recovery and need for more economic reform,” he said.

Moriah Balingit:, 412-263-2533 or on Twitter @MoriahBee. Jonathan D. Silver contributed. First Published March 13, 2014 2:21 PM

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