Pittsburgh to weigh cuts and revenue ideas for June 30 recovery plan deadline

Council to debate long-delayed Act 47 funding operation

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The metaphor Nicholas Varischetti prefers is a house with the air conditioning running and all the windows open.

"We need to make sure all the windows in the house are closed so there's not just money flowing out," he said.

Mr. Varischetti is chairman of the Intergovernmental Cooperation Authority, the state-created financial overseer that approves Pittsburgh's operating budgets under Pennsylvania's Act 47 program for distressed municipalities.

As the city council prepares to debate the recommendations in the proposed five-year Act 47 plan that Pittsburgh's recovery coordinators prepared, Mr. Varischetti and Mayor Bill Peduto traded volleys last week over the city's long-delayed commitment to implement a comprehensive financial management system, a provision that Mr. Varischetti said was included in the last plan adopted in 2009 and remains a crucial step for the city to fully regain its financial footing.

"These recommendations underscore the need for the city to first address the systemic weakness of its own financial management by completing a conversion to a comprehensive financial management system that more precisely tracks spending and analyzes data in order to effectively understand cash flow from operations," Mr. Varischetti wrote in a June 2 letter to Mr. Peduto and to the city council and the city controller.

Mr. Varischetti said the ICA has expressed doubt about the accuracy of city data on inventory, head count and payroll costs, among other areas, since 2004. The city and Allegheny County struck a shared-services agreement to consolidate financial management functions in 2012, though an integrated payroll system has not yet been implemented.

"The city has no ability to get an accurate and timely picture of its present and future expenses and operating needs," Mr. Varischetti wrote. "During 2013 the city failed to properly respond to questions doubting the collection levels of real-estate taxes. They did not recognize or react properly to the fact that real estate tax collections were materially lower from the levels continually asserted as accurate by city managers."

That tax gap is among the factors that will have the council and the mayor's office weighing cuts and revenue increases, including a potential real estate millage increase, to avoid what could amount to a $21 million yearly shortfall by 2018. The city has until June 30 to adopt its recovery plan, which also recommends increased pension contributions and capital spending, and city council has scheduled a public hearing on the plan for June 16.

Before tax increases or attempts to institute some form of a payment in lieu of taxes from the city's nonprofits, Mr. Varischetti also called on the mayor and city council to honor commitments in the 2009 plan to reducing the city's operating expenses, which he claims could cut costs by up to 20 percent. The city is also heading into negotiations this year with its two biggest unions, police and firefighters.

"There needs to be buy-in from everyone," Mr. Varischetti said in an interview. "It has to be administration, it has to be city council. It has to be support across the board from city employees."

Mr. Peduto, who spent last week attending conferences out of state -- first in Denver as a guest of the Allegheny Conference on Community Development and then at the Mayor's Institute on City Design in Louisville, Ky. -- said in a letter that he agreed with many of the structural overhauls proposed by the Act 47 team and the ICA.

His administration is also committed to installing a financial management system, though Mr. Peduto said that when he came into office this year, he and his staff discovered a project that, despite millions of dollars in investment, could not "reliably perform even the most basic of tasks."

Mr. Peduto said he halted the contract and hired another firm to perform an audit of the work and come up with a new plan.

Tim McNulty, the mayor's spokesman, said the initial contract for the payroll system, the first phase of the joint city-county financial management system, was to be delivered by Jan. 1, 2013, at a cost of $263,000 by Denovo, a technology consulting firm.

After eight change orders that totaled about $1 million later, the system still wasn't ready, Mr. McNulty said.

"We definitely want this payroll system, but we're not going to invest any more taxpayer money until we get a system that works," Mr. McNulty said. "That's what we're actively doing right now."

He added that a consultant has been selected and will be put before the city council for approval "very soon."

The mayor -- pointing to cuts he has already made to the city budget and other cost savings implemented by his administration, such as an early severance program for city employees -- also questioned assertions that city operating costs can be reduced by 20 percent,

"Given the challenges we both acknowledge with the city's data collection abilities, and the lack of clarity that exists on the state of our current operations, I am unclear as to how this determination could be made," Mr. Peduto wrote.

Mr. Varischetti's response on Thursday said the figure was drawn from the city's 2009 plan, when ICA hired "nationally recognized experts who produced roadmaps for consolidating and reconfiguring the workforce, setting parameters that would allow the city to be competitive in collective bargaining and arbitration matters and to provide the direction as to how to implement best practices that would allow the city to drive down costs."

Despite the back-and-forth between the mayor and the chairman of the city's oversight board, several council members don't see cuts alone solving Pittsburgh's financial dilemma.

Councilman Daniel Lavelle said many of the city's budget problems need to be addressed at the state level, through statewide pension overhaul and allowing the city to collect a commuter wage tax, for example.

He added that although potential efficiencies exist -- such as no longer staffing Steelers and Pirates games with police at city expense when other organizations have to pay their own way to have officers at their events -- they won't bridge the budget gap on their own.

"You're talking thousands, not $18 million," Mr. Lavelle said. "It's going to be hard to cut our way to a balanced plan."

Both Mr. Lavelle and Councilman Dan Gilman say pursuing more revenue from the nonprofits that use city roads and services is a crucial part of the equation.

"I don't think there's a lot of room to trim expenses," Mr. Gilman said. "The city has done a lot of trimming over the past 10 years. You need to provide basic services. ... You can't trim your way out of a problem. At some point you need revenue."

Robert Zullo: rzullo@post-gazette.com, 412-263-3909 or on Twitter @rczullo.

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