Friday, December 26, 2003

By Timothy McNulty, Pittsburgh Post-Gazette

Being in Pittsburgh this year was like water torture: The bad news kept dripping and dripping, with the grave promise of more on the way. Inevitably, that is going to have a strange effect on people.

	CLOSE-UP 2003 One of a series Tomorrow: A Jordanian student at La Roche College took center stage in a debate over a controversial government program that tracks foreign students.

It was a sign of how strange things became when, earlier this month, financial investigators said the city's budget is indeed distressed, and the Murphy administration was not disappointed. It was elated.

In 2003, the problems Pittsburgh city government has juggled for decades collided like a pile-up on the Pennsylvania Turnpike.

It was ugly to watch and to feel.

The budget Mayor Tom Murphy proposed for his 10th year in office assumed, incorrectly, that the state Legislature would give him new taxes and that the firefighters union, which Murphy shielded from layoffs in a contract extension on the eve of his 2001 election, would agree to job cuts. Those miscues blew a $35 million hole in the budget.

While those new initiatives failed, the city's old budget problems grew worse.

Debt payments ate 19 percent of the 2003 budget, twice what rating agencies like, and the obligations will remain unchanged through 2012 -- even with no more borrowing for a decade, said the report issued early this month by fiscal investigators Public Financial Management of Philadelphia.

Pension obligations could nearly double from $23.9 million in 2003 to $45 million next year. A majority of city employees are contractually due wage increases greater than inflation next year. Health care costs are growing 10 to 15 percent annually.

Things aren't better on the other side of the ledger, where revenues are growing much slower than those expenses, meaning the city will be running $100 million deficits by 2007, Public Financial Management found.

Of the four main taxes the city uses to fuel its budget -- property, wage, business privilege and parking taxes -- only property tax growth is expected to outpace inflation the next three years, and that is only because of the 2006 reassessments. The rest are stagnant.

The city has the highest city-school wage tax in Allegheny County. Its tax on gross business receipts hurts new business and is riddled with exemptions, and the 31 percent parking tax is by far the biggest on the East Coast, even dwarfing the 18.25 percent levy in New York City.

In May, the Murphy administration announced it was studying bankruptcy and financially distressed status under state Act 47. The act is a barrier of sorts to bankruptcy, where the state steps in and works triage on city budgets, by writing recovery plans and providing for possible commuter taxes and controls on union contract awards, among other things.

In November, Murphy applied for the status, after months of suffering on Grant Street. The application is pending.

Meanwhile, throughout the year task forces called for new city revenue sources, but only after spending reductions enforced by a state-appointed board. For months, state legislators said they were too busy with state budget issues to address Pittsburgh's problems, but finally approved an oversight board this month. It was not matched with revenues, so Gov. Ed Rendell has said he will veto the plan.

With his budget a failure and no help from Harrisburg, Murphy slashed some 16 percent of the city workforce in August, cut services and facilities, including senior centers and the West End police station.

Police staffing and management were affected citywide. Protests rocked the City-County Building for days. City Council canceled its traditional month-long recess. A Lawrenceville man went to court to impeach Murphy for mismanagement and failed.

An audit of the city's finances created worries that Pittsburgh would have trouble paying its bills, leading the country's three major bond rating agencies to drop the city to junk bond status, a plunge unmatched even during the steel industry collapse a generation ago.

Suddenly Pittsburgh had the worst credit rating of any major American city. If people around the country had not noticed Pittsburgh's problems so far, they did now. Soon, the rating drop coupled with uncertainty over US Airways to hurt regional business-recruitment efforts, said Bill Flanagan from the Allegheny Conference on Community Development.

Even Elsie Hillman, a beloved Republican civic booster married to a multi-billionaire financier, failed in trying to help. A budget plan she forwarded with U.S. Steel Chairman David Roderick in October broke down in squabbles about tax increases with state Sen. Jane Orie, R-McCandless.

Hillman -- who said Orie asked for her help, which Orie denied -- felt betrayed.

"When you're asked to do something then called a liar two months later, that's bad," Hillman said last week.

It got worse. Murphy then further inflamed Orie and other suburban legislators by saying suburban racism would hinder efforts to consolidate city and county operations. That was a day after he was publicly censured by City Council.

A council majority was mad that Murphy's proposed 2004 budget was at least $42 million underfunded and depended on state approval of Act 47 status to be balanced.

In other words, Murphy's budget was like the one he proposed for 2003, which led to the pain, layoffs, national embarrassment, protests and confusion that plagued the city all year long.

Taxes will probably go up next year, there could be more layoffs and further credit rating drops. Overall, the uncertainty about exactly where the Pittsburgh is headed is seeping into another year.

"It is impossible to contest that it was not a very uplifting year for the city, a year where the stars seemed to line up in a way that adversity always seems to be coming," said Frank Ghinassi, chief of adult services at Western Psychiatric Institute and Clinic and assistant professor of psychiatry at the University of Pittsburgh School of Medicine.

But Ghinassi, a depression expert from Point Breeze, said the city has historically weathered such adversity and is poised to do it again.

"Adversity is an opportunity for challenge, for setting things right, and often calls to the very depths of people, to a wellspring of inner strength," Ghinassi said.

"There are moments when people are called to action. When you look at a year that went less optimally than it could, it is an opportunity to say the sky is falling, or to dig in, and say 2004 is going to be a lot better."

E-mail this story   Print this story