Controller says Allegheny County is in financial trouble, much like city and schools

Allegheny County may not be immune to the financial turmoil that is shaking the balance sheets of the City of Pittsburgh and Pittsburgh Public Schools, according to a report released by County Controller Corey O’Connor on Wednesday.

While city and school officials have for months sounded the alarm over a shrinking commercial property tax base and the end of COVID-era relief funds, the county had been mostly left out of the conversation. Until now.

O’Connor said the county saw an operating deficit last year, its first in more than a decade.

“Our revenue does not match out expenditures,” O’Connor said. “The federal aid that has propped up our budget and reserve fund is drying up. And our pension system is struggling for long-term survival.”

Abigail Gardner, a spokesperson for County Executive Sara Innamorato, said in a statement Wednesday that there are reasons to be “optimistic,” though the executive’s office also sees financial challenges ahead.

“It is time to be clear-eyed about Allegheny County’s finances and what changes need to be made headed into the next budget season,” Gardner said.

Innamorato took office this January shortly after the passage of the current budget. The county will devise its 2025 budget this fall.

Allegheny County government

• The county’s biggest responsibilities are human services, public health and the county jail.
• The county is governed by Executive Sara Innamorato and a 15-member legislative council.
• With an operating budget of more than $1 billion, the county receives about 40% of its funding from property taxes.

Spending overtakes revenue

The controller’s report shows the county spent 8.9% more in 2023 than in 2022, and spent $23 million more than it took in during that year. It was the first time the county’s spending outpaced its revenue since 2011, O’Connor said.

2011 and 2023 have something else in common: Both preceded the start of a new county administration. Rich Fitzgerald became executive in 2012 and served through 2023; Innamorato took over the office this January.

O’Connor identified large spending increases in health and welfare and at the county jail, but did not say the departments went over budget. He said the deficit stemmed from a revenue shortfall caused by the erosion of the county’s assessed property value.

He said a lack of nurses forced the county to turn to contracted nursing agencies, leading to big spending increases at the county-run nursing homes and at the jail.

Large swaths of the county’s giant Department of Human Services are contract workers, carrying out the functions of regular county employees but receiving paychecks and benefits from a third-party company. O’Connor said this practice, which has grown over the years as the county itself struggles to attract workers, drives up costs without contributing to the county’s pension fund.

Gardner said Innamorato’s office “broadly [agrees] there is a benefit to moving people who are doing civil servant work as contract workers to full-time county employee status.”

Property taxes slowing

In an echo of the city and school district woes, O’Connor said the county’s property tax revenue is cause for concern . The tax, which accounts for 40% of the county’s revenue, grew by only $500,000 in 2023 — just over 0.1% higher than the prior year. The tax usually grows by 1% or more each year.

Assessment appeals following a court-ordered change in how the county values properties led to a drop of more than $720 million in total assessed value in 2023, O’Connor said.

He nodded to the looming possibility of a countywide property reassessment, and warned that one should only be done with protections for vulnerable residents.

“We should not pursue a solution … that will fall on individual homeowners,” O’Connor said. He suggested maximizing the homestead exemption and offering protections to first time homeowners and longtime homeowners. Innamorato made similar proposals on the campaign trail but has not provided specifics on a reassessment plan since taking office.

Pandemic aid ending

The county received more than $380 million from the federal American Rescue Plan Act in 2021, and a sizeable portion of it went to health and welfare programs that benefit vulnerable residents. O’Connor said he fears those programs, which some residents have come to rely on, will falter as the federal funds run out in the coming months and years.

More than $20 million from the ARPA fund was allocated to childcare initiatives in targeted communities, $7 million went to promote “Strong Healthy Communities” and $5 million went toward services for unhoused people.

“Now is the time that we have, over the next few years, to plan for the future of this county,” O’Connor said. “If we don’t plan now, we will fail the residents of Allegheny County in the future.”

Pension ‘struggling’

“Our pension system is struggling for long-term survival,” O’Connor said.

The system, into which county employees contribute 11% of their pay, has only 31% of its obligation funded, according to the controller’s annual report, down from more than 60% in 2014. That drop occurred even as the employee contribution rose from 8.5% to 11%.

O’Connor said a big part of the problem is the large number of contract employees the county uses. The workers are paid using taxpayer dollars but don’t contribute to the pension fund. O’Connor predicts the pension could become insolvent by the late 2030s.

“Our recurring solution is to put it on the backs of our county employees,” O’Connor said. “They pay 11%. That is not feasible, it’s not fair to those hard working employees.”

Problems mirror city debate

Similar financial headwinds have rattled the city’s finances in recent years, so much so that Controller Rachael Heisler has warned of dire cutbacks and possible state oversight if the city doesn’t change course in its future budgets.

But Gainey’s office responded to Heisler’s alarms with optimistic calm, saying the controller’s projections are overly pessimistic and their plans account for “lean years ahead” — promising no cuts in next year’s budgets or later ones.

The dynamic in City Hall contrasts with Wednesday’s agreeable exchange between O’Connor and Gardner, and Gardner’s vow that the county will take a hard look at the next county budget.

Charlie Wolfson is PublicSource’s local government reporter. He can be reached at charlie@publicsource.org .

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