Archive for June, 2011
Monday, June 13th, 2011
I would like to thank you for taking the time to contact me regarding the recent changes in the metered parking rates in the City. I appreciate your frustration and agree with you about the negative impact of higher parking rates and increased enforcement hours. To be certain, a bad situation rarely results in a good outcome. That is what we were faced by a state mandate to come up with $250 million in new revenue in one year in order to fix a broken pension system, that has needed help for over 40 years. Failure to come up with the needed cash would have resulted in a state takeover, which would have cost the city twice as much as the new payments.
We were given a puzzle where all of the pieces do not fit, however City Council did their best to come up with a plan that would have the least negative impact on our City. Like you, I am concerned with the harm this may do. To help you understand the dire situation, here are some answers to the most commonly asked questions I have received these past two weeks.
What initiated this rate increase?
In 2009, the state legislature passed Act 44, which required the City’s pension system to be funded at a 50% level by December 31, 2010 or be taken over by the state. As a result of this law, Mayor Ravenstahl proposed privatizing the City’s meters, lots, and garages under a 50-year lease with private financial interests. City Council, which was opposed to the Mayor’s proposal, developed an alternative. The City Council plan used guaranteed future revenue (parking tax) to get the plan up to the 50% threshold. This averted both privatization and state takeover. In order to fill the gap in the annual budget created by promising parking tax revenue be dedicated to pension, the parking rates at meters were increased. Council hired the consulting firm Financial Scholars Group that was headed by the former Chief Economist of the Security Exchange Commission and present CMU Tepper Business School professor to analyze all plans before making any decisions. We also conducted public meetings in all Council districts and a series of special meetings downtown over a nine-month period.
Prior to 2010, the City’s annual pension payment obligation was approximately $45 million. If the state took over the pension system, they would raise the obligation to $100 million per year – an increase of over $50 million annually. The Council alternative that raised rates required an additional $9.3 million in annual revenue (achieved through the rate increase) and met the required state threshold. This is due to two specific criteria. First, the State would require that the pension fund be 100% funded, under Act 44, the city is only required to fund the plan to 50%. Secondly, the state would use more conservative estimates in determining the rate of investment over the long-term of the plan. Although this would be a better way for the city to operate, it was not something that we could afford without doubling the present increases or raising property or wage taxes.
Why not privatize the system?
The Mayor’s proposal to privatize the system would have resulted in the loss of this public asset for fifty years. It included raising parking rates at meters, garages, and lots 300%-400%. Parking meter rates would have been as much as double the increases that went into effect – for example, in Shadyside, the Mayor’s privatization proposal would have increased rates to $3.50 per hour instead of $1.00 per hour. In other neighborhoods like East Liberty and Garfield, privatizing the system would have resulted in meters costing $2.00 per hour. The affects to our neighborhoods would have been devastating.
It also would have added enforcement until 10:00 PM and added Sunday enforcement. This City would have lost billions of dollars in revenue of the 50-year period. This plan would have raised rates to a level that would have devastated our city’s business districts. Furthermore, it would have driven drivers to park on residential streets, lowering property value and decreasing quality of life for city residents. Additionally, any closing of a street or removal of a meter would have required taxpayers to pay the bank for any lost revenue. This plan would have resulted in a loss of over $2 billion in revenue over the life of the lease.
Why not change the pension systems?
While the state legislature passed Act 44 mandating we bring our pension funding up to 50%, they gave us no authority to change the pension system. All pension requirements and laws are controlled by the state legislature. City Council has no authority to change local pension requirements. State laws obligate municipal governments to provide a defined benefit program. In terms of the age of retirees or any other significant cost to our pension plan, the rules are also governed by the state, not local government.
The State controls the rates of most revenue sources for the City. The City only has the right to increases property tax, wage tax, deed transfer tax, and parking rates. Property taxes, when combined with the school district, are one of the highest in the County. Additionally, we must prepare for the upcoming reassessment that may raise property taxes as soon as next year.
The deed transfer taxes are one of the highest in the State and the highest in the County. It is a deterrent to homebuyers to move into the City and is full of loopholes that allow the purchasers of large properties to remain exempt.
Combined with the School District, the wage tax is the highest in the County and second highest in the State. State law mandates that it can only be applied to City residents – we do not have the right to tax people that work in the City, but live outside of it (like almost all other cities in the country). State law also prohibits us from having the right to tax non-profits or create a new source of revenue. We were under a state mandate to come up with additional revenue, but only had the options to increase wage tax, property tax, deed transfer tax, or parking rates.
Parking rates at City meters had not been increased for most neighborhoods for over twenty years. Since the mid-1980s, they have remained at fifty cents per hour for most neighborhoods, far below the national averages. It is difficult to find anything, including parking rates, which cost the same today as they did in the 1980s. Again, we were required to find $250 million in new revenue and of the four choices that we had only one – parking rates – that were below the average rates and had not been changed in over twenty years.
How were these rates determined?
The rates were chosen through analysis by multiple outside consultants. The initial report was conducted by a national parking consultant in conjunction with the Mayor’s plan to privatize parking assets. Further analysis was provided by Financial Scholars Group and compared with national parking averages through 20 comparable cities by City Council. In general, rates were increased by half of what the Mayor proposed through his plan. Rates remain on average or below with most other cities.
The rate increase as a percentage is even across the City (other than Downtown and the North Shore) to what the Mayor proposed and what had been debated last year. The original proposal was to also have Shadyside and Squirrel Hill increase at a larger percentage, but I amended the legislation to protect neighborhoods where the majority of businesses are local, even if shoppers are city residents or from elsewhere. Parking rates are one of the only fees that are paid equally between city residents and commuters. The goal was not only to lower the rates proposed by the Mayor, but also to make them more equitable by neighborhood.
Instead of increasing rates, why not reduce the cost of government?
First of all, the City was required to have cash to fund the pension system; a reduction of services would not have met the requirements of Act 44. Second, since 2004, the City has been under Act 47 status with the State. This requires that both the Act 47 Coordinators and the Intergovernmental Cooperation Authority (ICA) approve all financial decisions. This includes having an approved five-year financial plan. As result of Act 47 and state oversight, the City has already reduced the workforce by 25% (1,000 employees). There have also been cuts in almost all city services, including fire stations, police, pools, recreation centers, senior centers, and street cleaning. While there is always room for improvement, the City is operating in a much more lean and efficient position than we did in 2004. Even if we were permitted to fund our pension system with reductions in city services, eliminating $250 million of services would decimate operations to a point that would be unacceptable to city residents.
What can we do now?
The rates are dedicated to the pension. Removing them would trigger state takeover of the pension fund and as described above, we would need as much as an additional $50 million annually. This is something we cannot afford. Under the plan approved by City Council the increased rates will be met by 2018 with additional funding from a reduction in our debt payments. It may not be apparent, but the plan that was approved was by far the lowest cost to the taxpayers of Pittsburgh. But, that is not enough.
It is obvious, the entire parking system needs to be overhauled. We are operating a 1970s system, while other cities have transformed into a 21st century transportation plan. While this new approach would need to guarantee the $9.3 million annually for the pension, it would also include reforms and improvements that would benefit residents and businesses. Cities like San Francisco are moving toward a market-driven rate system for meters, Washington DC has utilized smart phone systems for payments and cities throughout the world have realized of the importance of parking as a key ingredient in a successful urban development planning strategy. In the next few years, we must do the same – or better.
Once again, I appreciate you taking the time to contact me about the parking changes. I sincerely appreciate your concern and share that concern with you. I hope the information provided at least helps you to understand the difficult position that state mandated and the decision process we struggled with for over a year. I remain committed to protecting our City and the businesses and residents that choose to locate here. If you have any other questions or concerns, please do not hesitate to contact me.