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Budget-balancing plan would cost $19 million

Wednesday, November 27, 2002

By Timothy McNulty, Post-Gazette Staff Writer

In his budget speech Nov. 12, Mayor Tom Murphy said the days of "one-time" financial fixes were over for the city, and that his proposals for levying new taxes and merging fire and emergency medical personnel next year would leave a "rock-solid financial system as our legacy."

But due to the debt refinancing next year that he is proposing, that legacy also will include $19 million in extra debt payments through 2013.

Murphy's $386.4 million budget has to fill a $60 million shortfall. He plans to balance it with a 0.5 percent tax on employer payrolls, a 10 percent tax on alcoholic beverages, increased aid from the state and by creating a single department for firefighters and paramedics.

But those proposals fall short of filling the budget gap entirely, so Murphy also has proposed refinancing $13 million worth of debt payments due next year. The city would save that amount of money in 2003, but pushing the debt off would cost the city an extra $4.5 million between 2004 and 2011 and about $14.5 million combined in 2012 and 2013.

The refinancing is the latest "one-time" revenue source Murphy and City Council have tapped to keep the city budget balanced. Others have included selling city assets, such as city water lines and tax liens, and dipping into city savings accounts.

The refinancing "is not something you'd want to make a habit of, but something that is necessary for the next fiscal year," the city's financial adviser, Linda Eremita of PNC Capital Markets, told council at a budget hearing yesterday.

Councilman William Peduto, a member of Murphy's PGH 21 financial study panel, criticized the refinancing and said he would "try like hell" to find other revenues to make it unnecessary.

During questioning from other council members, Finance Director Ellen McLean acknowledged the refinancing also could hurt the city's standing with New York bond rating agencies, but said the maneuver was needed to keep Murphy's "transitional" budget in balance.

The city's single greatest expense is the $87.8 million in debt payments it must make next year. After the $13 million refinancing, the expense is listed as $74.8 million on the city's books, which is its second biggest expense after $78.5 million in employee benefits next year.

In other budget matters:

McLean said the city might have to increase the city's 1 percent wage tax and cut staffing if it did not receive approval from the state and labor unions approvals for the tax and merger plans by July 1, as Murphy has proposed.

The tax on employer payrolls is estimated to raise $24 million the second half of next year, and the alcohol tax, $5 million. The 1 percent earned income tax is estimated to raise $49 million all next year, or roughly $24.5 million over six months. That means the earned income tax would have to be more than doubled to completely offset the revenues raised by Murphy's new taxes if they failed to win approval. (The city schools charge a 2 percent wage tax, making total wage taxes for city residents 3 percent.)

City Solicitor Jacqueline Morrow said council was not legally prohibited from including the revenue from Murphy's new taxes in the budget -- which must by law be balanced -- even though the taxes depend on state approval. Council members do not even have to vote on the new taxes themselves unless the state approves them next year.

Councilman Jim Ferlo called raises Murphy awarded to some city department heads "completely illegal" and said administration officials should roll them back next year.

The next budget hearing is Monday. Council canceled its scheduled meetings today and city employees are off Thursday and Friday.

Tim McNulty can be reached at tmcnulty@post-gazette.com or 412-263-1542.