Municipalities Financial Recovery Act City of Pittsburgh
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Municipalities Financial Recovery Act Amended Recovery Plan City of Pittsburgh Allegheny County, Pennsylvania Prepared on behalf of the Commonwealth of Pennsylvania Department of Community and Economic Development Governor’s Center for Local Government Services As Revised and Adopted June 30, 2009 Public Financial Management Eckert Seamans Cherin & Mellott, LLC Two Logan Square, Suite 1600 600 Grant Street 18th & Arch Streets 44th Floor Philadelphia, PA 19103-2770 Pittsburgh, PA 15219 215 567 6100 412 566 6000 www.pfm.com www.eckertseamans.com Table of Contents Chapter Page 1. Executive Summary 1 2. Introduction 6 3. Legacy Cost Challenges a. Pensions and Other Post-Employment Benefits 23 b. Workers’ Compensation Program 38 c. Debt Service 49 4. Workforce and Collective Bargaining 57 5. General Government a. Office of the Mayor 70 b. City Council and City Clerk 72 c. Personnel and Civil Service Commission 74 d. City Information Systems 79 e. City Planning 86 f. Department of Law 91 g. Commission on Human Relations 95 h. Office of Municipal Investigations/ 97 Citizen Police Review Board i. Equal Opportunity Review Commission 100 6. Financial Management a. Department of Finance 102 b. Bureau of Procurement, Fleet and Asset Services 113 c. City Controller 123 d. Enterprise Resource Planning System 128 e. Insurance and Risk Management 134 7. Public Safety a. Bureau of Administration (Public Safety) 137 b. Bureau of Animal Control 142 c. Bureau of Building Inspection 147 d. Bureau of Emergency Medical Services 161 e. Bureau of Fire 169 f. Bureau of Police 178 8. Public Works and Parks and Recreation a. Department of Public Works 194 b. Department of Parks and Recreation 210 9. Economic and Community Development 220 10. Intergovernmental Cooperation 230 11. Capital Improvement Plan 240 12. Revenues 248 13. Appendices Appendix A: Baseline Revenue and Expenditure Projections A-1 Appendix B: Amended Recovery Plan Initiatives B-1 Appendix C: Revenue and Expenditures with Initiatives C-1 Appendix D: Sample Compensation Component Calculation D-1 1. Executive Summary Executive Summary In late 2007 Pittsburgh’s Mayor and City Council petitioned Pennsylvania’s Secretary of the Department of Community and Economic Development to review whether the City’s Act 47 distressed status could be rescinded and, if not, asked for a “blueprint” to complete its financial recovery. In 2008 the Secretary acknowledged Pittsburgh’s considerable progress in turning projected multi-million dollar deficits into positive annual operating balances, but also required the City to address the legacy costs that threaten its future financial stability. These legacy costs – hundreds of millions of dollars in liabilities that the City shoulders now for services rendered in the past – consume a large and growing portion of the City’s annual budget. To be financially healthy, Pittsburgh must address the financial threat to retirees who depend on these benefits and the residents, businesses, and others who must pay for them. Therefore, in response to the City’s request, the Secretary determined that: “Pittsburgh needs an amended recovery plan that would provide a blueprint for it to exit Act 47 and address pending legacy costs of debt, pensions, post retirement benefits, workers compensation along with a long-term capital plan, while maintaining positive operating budgets well into the future.” This Amended Recovery Plan provides an aggressive strategy to meet these objectives so the City can complete its recovery, fund its legacy costs, and exit Act 47 oversight. At a time when most cities in the country are struggling in the national recession to make ends meet on an annual basis, Pittsburgh has a unique opportunity to apply its resources to complete a full financial recovery. That opportunity is even more remarkable given the City’s financial condition in the early part of this decade. History and background Pittsburgh entered Act 47 in late December 2003 after several years of severe financial distress. The depth of the City’s financial problems were described in the independent auditor’s report for the year ending December 31, 2002: “The City’s general fund has suffered recurring losses from operations and has negative net assets that raise substantial doubt about its ability to continue as a going concern.” The 2004 Recovery Plan projected that the City would end FY2004 with a $34.3 million deficit, worsening to an annual deficit over $100 million in FY2008 unless the City took action to reduce expenditures and increase revenues. In response to this dire situation, the 2004 Recovery Plan contained over 200 initiatives to reduce costs or control their growth and improve the equity and revenue-generating capability of the City’s tax structure. Subsequent to the 2004 Recovery Plan’s passage in June 2004, the Governor and General Assembly reached agreement on a set of tax increases, tax reductions, tax eliminations and expenditure reductions that also affected City finances. Since adoption of the 2004 Recovery Plan, the City has recorded positive annual operating results in place of the large deficits projected if no action had been taken. Key changes that have contributed directly to the City’s improved financial situation include: • Increasing cooperation with Allegheny County and other local governments on purchasing, 911 emergency center operations, energy auctions, and garbage collection; • Reaching new collective bargaining agreements with all City unions, incorporating major Plan initiatives; • Improving training and securing new vehicles for the Fire Bureau, combined with organizational restructuring and increased spending on the demolition of dangerous buildings; • Competitive contracting of fleet maintenance, animal control, and solid waste collection services; • Controlling expenditure growth across multiple departments; Act 47 Recovery Plan 1 Executive Summary City of Pittsburgh, PA • Improving financial reporting and budget presentation; • Contributing funds toward capital projects on a “pay-as-you-go” basis rather than borrowing. Legacy Costs: Pittsburgh’s Remaining Challenge Despite the impressive progress made by successive Mayors, City Council and all stakeholders in returning to annual balanced budgets since 2004, the City faces daunting challenges to sustain that progress: • Pensions and other post-retirement benefits (OPEB): Pension liabilities for current and former City employees have grown to crisis proportions. Pittsburgh’s pension funding levels were already among the lowest of any major city in the country before the 2008 market downturn. Between January 2007 and November 2008, market declines resulted in losses of more than $100 million in the City’s pension investments, and revised estimates find the City’s pensions only 29 percent funded. Compounding this problem, for the first time the City has fewer active employees contributing money to the pension fund than retirees drawing benefits from it. Moreover, the City must pay substantial annual debt service (more than $400 million over the next 16 years) on pension obligation bonds issued in 1996 and 1998. The City’s OPEB liabilities, the most significant of which is retired employee health care, receive less attention. However, the City’s first OPEB valuation identified an unfunded liability of approximately $320 million as of January 1, 2007 and determined that the City should make an annual required contribution (ARC) of $26.7 million for such benefits. • Debt service: After employee salaries and wages, the City spent more on debt service in FY2008 ($84.9 million) than any other item. Debt service consumed nearly 20 percent of the City’s annual revenue last year, far higher than comparable cities. To reduce its outstanding debt, the City has embarked on an aggressive program to self-fund capital expenditures in lieu of borrowing. These efforts have been successful, but the remaining outstanding City General Fund debt was still $723.1 million entering FY2009. • Workers’ Compensation: The City has made progress in reforming and strengthening management of workers’ compensation claims, but still faces an estimated $128 million in outstanding liabilities. The City’s annual costs of $25 million well exceed the norms for a government of Pittsburgh’s size. The City has taken initial steps to confront most of these challenges by increasing its pension contributions, paying for capital projects without issuing new debt, and better managing its workers’ compensation backlog. However, bold action must be taken now to build upon these efforts with significant increases in resources to resolve the legacy cost crisis that threatens current and future workers and those receiving City services. Amendment Process and Parameters This Amended Recovery Plan has been prepared to meet the objectives laid out by the Secretary, including a plan to address the City’s legacy costs and a “blueprint” for exiting Act 47 oversight. To meet these goals, the Amended Recovery Plan includes two key principles that shape the form and content of its recommendations: • The Amended Recovery Plan maintains the progress achieved under the 2004 Recovery Plan and sets parameters so the City can continue its financial recovery while giving the City greater flexibility to manage its own way toward that objective. As a result, the Amended Recovery Plan provides specific financial goals for legacy cost funding, but gives the City the ability to identify funding sources. Also, while preserving core provisions from the 2004 Recovery Plan that allowed the City to Act 47 Recovery Plan 2 Executive Summary City of Pittsburgh, PA better manage the deployment and costs of its workforce, the Amended Recovery Plan provides more latitude for the City and its unions to bargain. • The Amended Recovery Plan relies on tools that are currently at the City’s disposal to meet the remaining obstacles to its full financial recovery. The Act 47 Coordinator received many well- conceived suggestions for changes to State laws that would facilitate the City’s financial recovery. However, the Amended Recovery Plan must provide a strategy that the City can execute to complete its financial recovery under current existing statutory constraints.