The government needs to make fiscal discipline a way of thinking
May 15, 2014 12:00 AM
Since Pittsburgh earned the label of a “distressed municipality” back in 2003, there has been a lot of political turnover, including four mayors, five citywide elections, five council presidents, 16 different members of City Council and three controllers. So it’s not surprising that political stability has been a hurdle in Pittsburgh’s efforts to mount a sustained campaign to achieve fiscal health.
Now it’s 2014 and, as Mayor Bill Peduto emphasized Tuesday, the pressure to find new sources of revenue continues, as does the need to contain, reduce or eliminate legacy costs.
Municipal bankruptcies in recent years have roiled cities across the country, including some in Alabama, California, Rhode Island and elsewhere. Philadelphia has been under financial oversight even longer than Pittsburgh, since 1991, and continues to struggle with legacy financial issues.
Former Pittsburgh Mayor Tom Murphy first sought to get under the umbrella of distressed-municipality status through Act 47 early in 2003. But it didn’t happen. At the time, the financial rating agencies gave the city a high credit rating. By October of that year, though, those same agencies had slashed Pittsburgh’s ratings to junk-bond status, sending a tremor through the municipal financial markets and all but eliminating the option for our cash-strapped city to borrow money.
The General Assembly, recognizing Pittsburgh’s critical role in the commonwealth’s economy, quickly sought to avoid bankruptcy by creating the city’s Intergovernmental Cooperation Authority. The ICA assessed the situation and recommended corrective actions to fix the structural weaknesses in the city’s fiscal operations.
Its plan called for replacing archaic tax laws that were riddled with loopholes and erecting a more progressive tax structure that would provide a balanced and reliable stream of revenue. This signaled to the rating agencies that the structural problems facing the city were being addressed.
Mayor Bob O’Connor then took office, and he too fully embraced the need for financial oversight and real fiscal reform, but his term was short-lived due to his untimely death.
Our most recent former mayor, Luke Ravenstahl, initially embraced oversight but was unable to implement a legislative agenda with city council or the General Assembly that would foster a sustainable fiscal recovery. Further complicating the city’s ability to make progress was the recession of 2008-2009, followed by a series of missteps. At least the city’s debt load was significantly reduced during the Ravenstahl years.
Now, recently inaugurated Mayor Peduto has signaled a willingness to accelerate measures required to reach good financial health — including a joint statement with Gov. Tom Corbett calling for continued state financial oversight. This decision was driven by Community and Economic Development Secretary Alan Walker and the recognition by the Peduto administration that the 2009 Amended Recovery Plan needed an update to reflect current conditions.
We’ve learned by this point that there are no shortcuts to fiscal recovery. While this already has been a decade-long process, we need to step up action in areas that continue to threaten the city’s fiscal stability. Threats include a grossly underfunded pension system, an inability to develop capital budgets that can fix big problems without increasing debt burden and a long overdue overhaul of the manner in which the city conducts financial transactions and basic accounting to eliminate potential for fraud, waste or abuse.
Case in point, after several years of promised implementation of a shared financial management system with Allegheny County, the city has continued to drag its feet when it comes to converting its payroll system to a shared platform. Doing so would immediately eliminate a third-party vendor expense of at least a half-million dollars a year and provide greater transparency to taxpayers and those who oversee payrolls. And that’s just one example.
We can all agree that Pittsburgh is a great place to live, attend college, work, play and raise a family. However, getting Pittsburgh’s financial house in order, including full implementation of a financial management system, is necessary now so that fiscal oversight becomes a way of thinking — and is not imposed by a government authority like the ICA that is meant to be temporary.
Nicholas D. Varischetti, an attorney with Burns White law firm, is board chair of Pittsburgh’s Intergovernmental Cooperation Authority.
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