Proposed 2010 Budget and Five Year Plan
Good morning members of City Council, men and women of our City's workforce, and residents of our most livable City of Pittsburgh. I am humbled and honored to present to you today Pittsburgh's proposed 2010 budget and updated five-year plan. As we prepare to make the difficult decisions to solve our City's toughest financial challenges once and for all, we should first take the time to remember all of the accomplishments and challenges of 2009, a truly unforgettable year in Pittsburgh's history.
If someone would have told me last year that President Obama would select Pittsburgh to host the world's most important financial discussion, the G-20 summit, or that Forbes would recognize our City again, this time as the 2nd best place to start a business, or that we would proudly celebrate both a Steelers Super Bowl and Penguins Stanley Cup victory parade, I don't know that I would have believed it.
These opportunities speak volumes to the greatness, vibrancy, and potential of our great City. It has been a banner year for Pittsburgh. The eyes of the world have been upon us for our successes, and it's important to note that we've also faced great challenges with resiliency and grace.
On April 4th, tragedy hit Stanton Heights. It was a time of great mourning for the families of our fallen heroes, our officers, and our City. But through these difficult circumstances, our police and public safety personnel continued to work hard to protect and serve the people of Pittsburgh, leading us to another 40-year historic low in our City's crime rate.
I would be remiss if I did not take a moment to acknowledge that two members of City Council will be leaving us at the end of this year. Both Councilman Jim Motznik and Councilwoman Tonya Payne served their constituencies and our City admirably during this historic period of financial recovery. Their years of service to our hometown and dedication to their Council districts and the people they represent have made Pittsburgh a better place. I was honored to call them my colleagues during my time as a City Councilman and to work with them once I became Mayor. It seems appropriate that the final vote I will ask them to take as members of this body will be the passage of our 2010 budget. Inasmuch as this budget sets Pittsburgh on firm financial ground for generations to come, I am honored to join them in their final endeavor. This year they will once again leave their mark with a budget that will finally return Pittsburgh to long term fiscal solvency.
Our budget is the underlying backbone that makes all of our successes possible. We've modernized and updated our public safety fleet, City workers have new equipment, police officers have new computers in their cars that help them track down criminals faster and more efficiently. We opened a new police station and curfew center, and hired a record number of young people for our summer youth employment program. Our families and children are enjoying new Spray Parks, renovated community centers, and playgrounds with new hockey and basketball courts.
This year's budget continues to invest in our City and its neighborhoods. Since I became Mayor in 2006, this budget nearly doubles the demolition of nuisance properties, increases paving by more than one-third, and provides funding for almost 100 more officers.
This investment is remarkable considering that only five years ago I served on City Council when decades of financial mismanagement forced us to face daunting cuts in services.
For years, Pittsburgh was literally running by issuing debt. Eventually, these irresponsible practices came to a head. Payments couldn't be pushed back anymore. Pittsburgh's "credit card" hit its limit and we were all in for a tough reality check.
In 2003, Pittsburgh entered Act 47 Distressed Status. As a Councilman I fought tooth and nail to save my City and district from devastating cuts. But, there was no easy way out of this financial mess. The City cut its workforce, reduced employee benefits, and lost community assets. Financial rating agencies downgraded our bond rating to "junk" status.
It was a dark time for our City, a time that broke all of our hearts. But over the last three years, we have turned the corner, and, with your support, the passage of this year's budget we will finally complete our financial recovery.
Together, we will continue to map out a bright future for tomorrow, next year, and for decades to come. We have reached a critical point in our City's history. We are just two bold steps away from solving our pension crisis and being financially healthy now, and forever. In order to accomplish this, we must continue the fiscal responsibility that has been the hallmark of my administration.
During my time as Mayor, we haven't just limited the issuance of debt, we've cut up the credit card, and continue to use our pay-as-you-go capital fund to invest in our infrastructure and neighborhoods. Our savings account holds steady at an average of 10 percent of expenditures.
We've been aggressive in addressing the biggest roadblocks preventing us from securing a healthy and sustainable financial future: the legacy costs of debt, healthcare, and of course, pension. We've driven down the cost of government and outperformed the mandates of the original Act 47 plan.
Where historically administrations would just continue to borrow, extending debt payments further and further into the future, we are living within our means and have paid off 15 percent of our debt during my time as Mayor.
Early in my administration we realized millions in savings by consolidating employee health plans. We have done everything in our power to improve our pension situation, but our fund remains significantly underfunded and our biggest obstacle to financial security.
To ensure the long-term health of our pension fund it requires a significant infusion of cash of at least $200 million. In the face of this reality my administration has mapped out and begun to execute a plan to do exactly that.
Of our $454 million budget, roughly $200 million is what it costs to operate our public safety and public works departments. We aggressively explored where that additional money could come from, refusing to raise taxes on City residents, small businesses, and property owners alone. A one time cash infusion to address our long-term pension liability makes the most sense to come from the sale or lease of a long-term asset. Leasing the city's parking facilities is the option that makes the most sense. We consulted with the best in the industry and they told us it was the right move, right now.
Understandably, many are concerned about how this transaction will affect them. Over the course of the next four months, members of my administration, the Parking Authority, and I will meet with business owners, council members, neighborhood business district managers, residents and the stakeholders whose input is critical to making sure that this deal is the right deal. City Council members, you will play an integral part in this process and ultimately vote on how this deal is structured. Current and future generations of Pittsburghers need your leadership. If you roll up your sleeves and work with us, I promise to work with you to make sure your concerns and the concerns of residents are addressed. But time is of the essence, and your leadership is needed now.
This summer, the state legislature introduced and passed a bill to address municipal pension problems statewide. The bill would have transferred Pittsburgh's pension assets to the state. I believed the bill, known as Act 44, would have severely hurt Pittsburgh, requiring us to make additional payments of $30 million a year, payments we couldn't afford.
To find an additional $30 million, we would have no choice but to raise property or income taxes or make serious service cuts - the equivalent of eliminating the entire department of public works, laying off 550 police officers, or raising property taxes on City residents by 22 percent. I would not accept that.
In what was a great victory for our City - my administration and I, City Council, the City Controller and organized labor led the charge to successfully petition the legislature for exemption under this bill. We were successful because we worked together.
But, under the exemption we fought for, we have little more than a year to find the $200 million for our pension fund. That's it. In order to do this, we need all hands on deck. In addition to increasing the assets in our pension fund, we must also increase our annual contribution to the fund by $15 million dollars, which creates the need for a new revenue source.
The time to make bold decisions is now. With the one time cash-infusion generated from leasing our parking assets, and increased annual pension payments, we have a clear roadmap to solvency. We are only two steps away from financial sustainability, but we have to generate $15 million in additional revenue.
Generating revenue through new taxes or fees is something I wish I did not have to do. But I refuse to raise taxes that fall on already overburdened residents, small businesses, and property owners. I also refuse to cut deeper into the services we provide our neighborhoods, or steal from our reserve funds, which we need to continue our pay-as-you-go capital budget. Those actions will only lead us back to the same place we were five years ago. City residents are already paying more than their fair share and cannot afford service cuts. My new revenue proposal seeks one simple thing: fairness.
Pittsburgh residents bear a disproportionate and constantly increasing share of the tax burden as large tax-exempt institutions continue to expand by acquiring properties and businesses which are removed from the tax rolls. And as the major non-profits thrive and grow, there is a greater burden on government to provide core services such as public safety and public works functions.
We value Pittsburgh's non-profit community. They are our major employers, and a big part of why our economy continues to be strong. However, we can no longer afford to provide City services to those who are not paying their fair share.
Today, in a City with a population a little over 300,000, there are nearly 100,000 students attending universities, trade schools, and colleges. Pittsburgh is, in many ways, a "college town."
As post-secondary institutions attract more and more students, City taxpayers are covering the burden of maintaining and building infrastructure, like paving and plowing roads, improving the sidewalks students walk to class on, and most importantly, keeping them safe.
As your Mayor I pay about $2500 a year in City property and income taxes. When a student at Point Park University walks to her dorm in Downtown Pittsburgh at night, and our beat officers are out on the street keeping her safe, who pays the bill? I do. Councilman Bill Peduto pays approximately $1600 in City property and income taxes. When Carnegie Mellon students spend their Friday night on the South Side, get a little rowdy, and Councilman Kraus calls the police to break them up, who pays the bill? Bill does. Larry Coyne, a father of four and a Lawrenceville resident, makes about $50,000 a year installing cable and pays about a $1,000 a year in City property and income taxes. When a resident calls 311 and a building inspector is sent to a student rental property in Bloomfield, or a Public Works crew has to clean up the mess left behind, who pays the bill? Larry does. When our firefighters rush out to the scene of a 2-alarm fire in Oakland, to protect the lives of Pitt students, who pays the bill? I do. Bill does. Larry does. You do. We do. We're paying the bill. It's time for everybody to pay their fair share especially if we're going to complete our financial recovery.
It's never easy to impose new fees or taxes, but this is the fairest way to share the cost for the services our City provides.
That's why my proposed budget calls for levying a Post-Secondary Education Privilege tax, or a "Fair Share Tax," on tuition at a rate of 1 percent per year. What does that mean? In its simplest terms, it creates a 1 percent tax for the privilege of attending an institution of higher learning here in the City. At the University of Pittsburgh, for example, in-state tuition is about $13,500, under the "Fair Share Tax," a $135 annual payment would be made to the City for every student paying tuition. That's less than one-tenth of what Councilman Peduto pays in property and income taxes. In-state tuition at CCAC is approximately $2,700 per year. Under the "Fair Share Tax," a $27 annual payment would be made to the City for each student. That's less than 3 percent of what Larry from Lawrenceville pays in property and income taxes. This is a fair way to share the burden of providing City services. I've heard the argument that taxing the privilege of attending Pittsburgh post-secondary schools is unfair, that it would create a situation where students can't afford their tuition. I don't agree. Between the many fees- orientation fees, lab fees, computer fees, application fees- and the tuition hikes at public and private colleges and universities that we hear about on an annual basis, the cost of attending post-secondary education increases annually, but the City and its taxpayers solely bear the burden of providing them with services.
Deciding what tax made the most sense wasn't easy. I will state once again that this is something I wish I didn't have to do. But we simply have no choice.
Over the last several months, I've discussed three other fee options, none of which I will be pursuing, because I believe that the "Fair Share Tax" is our best option. If Council members or the public have a better idea on how to generate $15 million, to solve our City's financial problems forever, I want to hear them, and I will work with you to explore these options. But I promise you, I will veto any budget that comes back to my desk without a viable solution or if it uses the fund balance to generate that $15 million dollars. The future of our residents and neighborhoods are at stake. The promise of retirement for our City's workforce is at stake. And the future of our City is at stake.
The 1 percent "Fair Share Tax" will generate about $16 million per year. Of that, my proposed budget commits $1 million dollars per year to support the Carnegie Libraries. Today, our libraries, like our City was in the past, are in crisis and have proposed closing some branches in the neighborhoods that need them most. Libraries are one of our City's greatest assets. They are more than just a place to get books, they are sometimes a resident's only access to the Internet, and they are a place for our children to learn. In order to keep all library branches open now and in the future, we need a long term, sustainable funding stream. An annual $1 million contribution from the "Fair Share Tax," in addition to increased contributions from the State and RAD, is the sustainable funding source we have all been looking for. In return, I will demand that the Carnegie Libraries keep all of their branches open and tighten their own belts, cutting out any waste and unnecessary expenses, as recommended by the audit I requested of them through the Regional Asset District.
My 2010 budget continues our commitment to neighborhood investment, keeps our libraries open, and will at long-last complete our financial recovery. If you stand with me, work with me, and pass this budget, our financial recovery will be complete.
If you approve this budget, in 2010 I will ask you to join me in petitioning Governor Rendell to remove Pittsburgh from Act 47 Distressed status.
Together, we will remove the stigma of financial distress that has been attached to our name for too long. We will show the world that we are not just a great City, but a financially healthy City for years to come.
Our progress to date is due in large part to the efforts and sacrifices of the women and men who make up the City of Pittsburgh workforce. I am honored to continue working alongside each and every one of them, as well as working collaboratively with the Intergovernmental Cooperation Authority, City Council, Act 47 Coordinators, and our representatives in Harrisburg to ensure that the 2010 Budget and Five-Year Plan continues the gains made over the past few years and maintains Pittsburgh's status as America's Most Livable City.