A day after Mayor Ed Gainey offered a sunny vision of Pittsburgh’s financial future and his administration’s investment in it, city council heard a note of caution from budget experts about longer-term economic trends.
Although the city's finances look strong in the near term, its accounts are padded by some of the $335 million it received in federal pandemic aid money — support which will be tapped out by 2026, according to council budget experts.
In earlier budget discussions, Gainey officials forecast 2025 and 2026 to require leaner budgets, largely due to the phasing out of federal support. Debt costs will ease in 2027, according to projections, which would brighten the fiscal outlook, but budget officials noted the city will be paying off its debt until at least 2047.
A key concern is the future of the city's fund balance, an accumulated surplus. Previous financial plans have adhered to the city’s policy of maintaining a fund balance above 10% of the city's expenditures. A 2017 city report called for the city to establish a long-term goal of raising that threshold to 16.7%, a rate that amounts to two months' of expenses and is recommended by the Government Finance Officers Association.
But budget experts warned Tuesday that the Gainey administration’s proposal forecasts the balance dropping to 9.6% by 2026. That’s a sharp decrease from the estimated 18.3% fund balance for 2022, according to Rea Price, deputy director of the City Council budget office.
That trajectory was a concern for some council members. Daniel Lavelle, who chairs Council’s finance and law committee, warned that a lower fund balance could make it harder for the city to survive hard times.
“We would not have been able to withstand the pandemic if we allow[ed] the fund balance to continue in the current projected direction,” Lavelle said.
Councilor Deb Gross said an adequate fund balance can help the city absorb less serious shocks as well. She noted complaints in recent years that property tax payments weren't being processed — the kind of disruption a healthy fund balance can cover temporarily.
“It’s not just money sitting there for no reason,” Gross said. “Sometimes revenues do hit hiccups.”
Council president Theresa Kail-Smith said she shared concerns about the fund balance, but she was optimistic that the Gainey administration would work with council to resolve it.
Complicating the financial forecast are ongoing legal fights over two revenue sources.
One issue surrounds a court battle over property tax assessments, and whether property whose value has been assessed recently is being treated fairly when compared to properties assessed years ago. A lawsuit pending over that question could reduce tax bills for some property owners, but also dent revenues — and Pittsburgh's real estate tax accounts for the largest portion of the city's tax revenue.
Budget officials also warned about threats to a "facility usage fee" charged to visiting athletes who play in Pittsburgh's taxpayer-funded sports venues. The tax typically produces several million dollars a year in revenue. But in September, Allegheny County Common Pleas Judge Christine Ward ruled that the tax ran afoul of the state constitution because it charged non-resident athletes a tax not levied against athletes who live in the city — a violation of a constitutional requirement that taxes be applied uniformly.
The city has appealed that decision to the state's Commonwealth Court, and for now, at least, the budget still anticipates receiving more than $2 million a year from the tax next year, and over $4 million in each of the four years after that.
But Price said the city plan around the legal challenges to the fee. “A new fee structure should be implemented by the third quarter of 2023,” she suggested.
City Council will begin its public hearings on the 2023 budget Wednesday. The first meetings will focus on the departments of human resources, licenses and inspections.
