‘Good position’ or looming crisis? City Hall divide emerges over Pittsburgh finances

A growing chorus of current and former Pittsburgh officials see a financial crisis in the city’s future and say big changes are needed to prevent layoffs and service cuts. The mayor’s office, meanwhile, maintains the city is in a strong position and does not plan any cutbacks.

While real estate tax revenue crumbles and federal COVID-19 relief funds dwindle, even the optimists in City Hall forecast lean years ahead. But a difference of opinion has emerged on just how bad it will get — ranging from a tight-but-stable budget predicted by the mayor’s office to deficits and depleted reserve funds predicted by the controller and some council members.

“We have been buoyed by the [relief funds] for the last four years,” said City Controller Rachael Heisler during a Wednesday press conference to release her office’s report on the city’s finances in 2023. “The reason we won’t have an operating deficit in 2024 is because of the [ American Rescue Plan Act ]. We need to start having a realistic conversation both with the public and with the leaders in this building.”

Mayor Ed Gainey’s administration has nodded to coming financial challenges but maintains that the city’s budget will remain balanced. The city announced April 5 it would create a task force to generate recommendations on city finances, and acknowledged its Finance Department now expects revenue for the year to come in short of its December projections.

“They’re not the kinds of gaps that are going to have what I believe are a material impact on our ending financial position this year,” Deputy Mayor Jake Pawlak said in an interview. “We expect to end the year with a surplus again.”

Heisler, in her first year on the job tasked with providing independent oversight of city finances, paints a much bleaker picture of the city’s future. In a letter to City Council last month, she urged members to amend the budget to reflect a worsening situation.

She said Wednesday that real estate tax revenue was $10 million below budget last year and deed transfer tax revenue was $21 million short. With new collective bargaining agreements increasing personnel costs, she said last year’s financials represent a “drastic demonstration of expenses outpacing revenue.”

Differing forecasts

Heisler’s office produced a five-year forecast for the city’s finances that differs significantly from the budget council approved in December. The controller’s forecast predicts operating losses of more than $23 million both in 2025 and 2026, with the city’s reserve fund dropping precipitously from more than $100 million at the beginning of this year to a deficit by 2027.

The gloomy projections assume the city will have to pay massive refunds to Downtown property owners who have received reduced tax assessments via appeal and performers and athletes who have paid a facility usage fee that a court ruled unconstitutional.

Heisler’s office projects the city will need to pay $10 million in real estate tax refunds over the next two years.

Heisler also said she thinks the administration’s projection for interest earnings is too high; her forecast calls for about $10 million in interest earnings in 2025 and 2026, compared to $30 million predicted by the mayor’s team.

Pawlak said Heisler’s projections were made with faulty assumptions. “The assumptions they’re making are simply not borne out by the 2023 financials or the first quarter financials,” Pawlak said. “They could happen, but we take the view that we evaluate, on an ongoing basis, real, hard data.

“There are maybe informed guesses about refunds here but nonetheless they’re not reflected in the data we see.”

One of the latest blows to city revenue came when the Commonwealth Court outlawed the city’s facility usage fee levied on performers and athletes at the city’s stadiums. The city appealed the decision to the Pennsylvania Supreme Court, and until the high court rules on the case or declines to take it, the city can keep collecting the fee, which brings in about $4.5 million annually.

But if the Supreme Court declines to hear the case or reinstate the fee, the city could owe refunds for all collections over a period of three years — something Heisler factored into her projection to the tune of $9 million, but Pawlak did not, citing the potential for a court ruling that does not order refunds and the likely long wait for any decision.

A chorus of worry

Multiple current and former city officials told PublicSource they see major problems in the city’s financial future — and some see a mayor who has not done enough yet to address them.

“I just want the city and all the branches of government to realize that we have to tighten our belts, and we have very concerning financial years ahead,” Heisler said. “And the sooner we address those problems, we will be able to deal with them in the least painful way possible.”

Bob Charland, a city councilor elected last year after working as an aide to his predecessor for several years, has been quick to make the city’s financial headaches a focus of his work. He sponsored a bill that passed last week that tasked the controller with certifying the city’s annual revenue estimates projecting out five years instead of just one.

“How big of an issue we’re facing depends on how quickly we move,” said Charland. “If we don’t address it quickly, the challenges that we will face and the difficulty we will face will be greater and greater.”

Council Finance Chair Erika Strassburger cautioned that differences in opinions about the coming challenges stem from the fact that “there’s a lot we don’t know.” But she said that she does “think the city is in a precarious financial position. The extent of it we just don’t know.”

She said cost cutting could be in order, though she hopes to avoid laying off staff.

“If we can tighten our belt a little now, and look within each department to be able to cut just a little bit now,” the city could avoid more drastic measures like shuttering rec centers and laying off public safety personnel, she said, also suggesting the city slow down or fully pause hiring for open positions.

Two former fixtures of city government, each of whom were present when the city entered financial crisis and austerity measures in 2003, said corrective action is needed today. Those officials, former City Controller Michael Lamb and former Council President Doug Shields, said they see similarities to the situation in 2003 when the city went under state oversight and laid off nearly 25% of its staff.

“I would say we’re not quite where we were in 2003 but we could get there within the next two years if we’re not careful,” said Lamb, who was controller from 2008 through last year.

Shields, who served on council from 2004 to 2011 and as its president for four years, said deferring action will only lead to “a more abrupt solution later.”

“Taking your lumps now makes it easier, and your trough downward isn’t as deep and you come out of it” faster, Shields said.

Despite statements of alarm from outside, Pawlak said the city has no plans to cut costs or find ways to generate additional revenue.

Heisler poured cold water on that approach Wednesday.

“Expenditures are outpacing revenue, period, by more than 2%,” Heisler said. “We will need to make up the money somehow. I think it’s unrealistic that nothing is going to change.”

The return of Act 47?

The city last went under state oversight in late 2003, shortly after massive layoffs for city workers, with nearly a quarter of the then 4,000-member workforce cut. The state’s oversight program, under Act 47, assigns a coordinator to oversee city finances and gives the city additional tools to raise revenue and negotiate contracts. Pittsburgh didn’t emerge from oversight until 2018.

The city does not currently meet any of the 11 criteria that can serve as a qualification for oversight, such as failure to make payroll or pay creditors. But both Heisler and Charland said Act 47 could return to the city if nothing changes.

“I think state oversight is something we really need to caution here,” Charland said. His former boss, Councilor Bruce Kraus, served much of his tenure under state oversight. “I do worry that a lot of our leadership has not had to grapple with what Act 47 really means. The people that are hurt the most by something like Act 47 are the kids. Rec centers, playgrounds and after school programs are the first things on the chopping block when Act 47 comes to town here.”

Pawlak said the administration does not see a risk of state oversight returning, pointing out that the city meeting any of the 11 criteria is “entirely outside the realm of what we can foresee … We don’t foresee any of them occurring at any point in the next five years.”

While the city could avoid going under state oversight, there are already some signs that services will wane under financial pressure. Heisler cited the city’s capital budget, which calls for a steep reduction in money for street paving in the coming years — from $20 million per year to $5 million.

The city needs to further communicate with residents about coming challenges, Heisler said. “If they have a pothole or a rough street that they’re hoping to get fixed, it’s probably not going to happen until at least 2027.”

Charlie Wolfson is PublicSource’s local government reporter and a Report for America corps member. He can be reached at charlie@publicsource.org.

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