Update on April 22, 2024: Pittsburgh City Council unanimously passed a measure Monday to ensure added scrutiny of the city's five-year spending plan.
Members voted to require the city controller to certify revenue projections for each year of the city’s five-year spending plan. That's an expansion of the office’s current role, which only requires certification of the coming year's numbers.
An earlier version of the bill would have required the controller to certify expenditure projections as well, but that provision was removed during a council meeting last week. Bob Charland, the bill sponsor, explained at the time that since revenue projections are certified in September and expenditures aren't finalized until late December, the process would need to be spelled out differently.
"The choreography of that would be really challenging," Charland said during last week's meeting.
He intends to draft a separate bill to address the expenditures side of the balance sheet in the coming months.
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While there was no substantive discussion of the bill prior to Monday's vote, Council discussed the legislation at length last week.
Pittsburgh City Controller Rachael Heisler, who joined members at the table Wednesday for what became a broader discussion of the city’s financial health, called for the change herself. Heisler has been outspoken about her concerns over the city’s long-term fiscal health — going as far as to write a letter to Mayor Ed Gainey and council about her desire for the city to reconsider the current budget amid the financial fallout of the coronavirus pandemic.
“My big concern, that I've expressed to this body and to the mayor, is for the subsequent four years… where we end at the end of 2028,” Heisler said. “I think this [change] … will allow a collaborative, ongoing conversation between the three branches of government to really paint an accurate position of where we'll be at the conclusion of the five-year window.”
As it stands, Heisler said the controller’s office is only required to certify revenue estimates for the year to come by the end of September. That work involves checking the math of projections made by the city’s Office of Management and Budget.
Councilor Bob Charland, who sponsored the legislation, said he found it odd that the controller, who serves as a fiscal watchdog for the city, wasn’t required to certify the numbers for the “out years” in the spending plan, which offer a longer-term perspective of the city’s finances.
“I thought it was surprising,” he said. “Ultimately [the controller is] the one that’s seeing the money leave … this building.”
An earlier version of the bill would have required the controller to certify anticipated expenditures as well. But council approved an amendment striking that portion of the legislation after Charland said such a change didn’t align with the intent of the bill, which was to add a layer of scrutiny over the city’s revenue estimates.
Jake Pawlak, who heads the city’s Office of Management and Budget, said the bill would provide a “welcome change,” from his perspective, as it could improve council’s confidence in the city’s financial plan.
“It can give you all greater certainty and clarity about what is actually being presented,” Pawlak said, adding that under Mayor Ed Gainey, the department of finance has drafted fiscal plans that were ready to be certified by the controller’s office. But without a requirement, they haven’t been.
“We have prepared projections on the basis that they are ready for certification for that period of time,” Pawlak said. “[This] won’t change anything about the way we prepare the numbers that we propose.”
The bill prompted a wide-ranging discussion of the city’s financial picture during council’s committee meeting among members, Heisler and Pawlak.
While Pawlak warned during last year’s budget debate that the next few years would require leaner budget plans thanks to a scheduled increase in debt payments, three new headaches have emerged for the city since then that could require even more belt-tightening.
The first is the cratering real estate value of Downtown skyscrapers brought on by the move to remote work in the wake of the coronavirus pandemic. Around 15 major downtown commercial property owners have won assessment reductions totaling nearly $410 million for 2023 and $353 million for 2022. That could cost the city more than $6 million in refunds combined.
With her office more involved in outer year fiscal projections, Heisler argued the city could have a more “robust” discussion about how to confront the evolving landscape.
“I think what our office is looking ahead … [to] the downtown reassessment process. What's happening with downtown property?” Heisler said. “That's my big concern.”
She added that the dramatic change downtown is not unique to Pittsburgh.
“Every municipality in the country is dealing with changes to their downtown tax base,” she said. “It is a byproduct of the pandemic.”
Pittsburgh resumes collection of the 'jock tax'
Another issue raised by council is the uncertain future of the city’s so-called “jock tax,” which is a fee for performers at the city’s major venues. Players from three major sports leagues sued the city in 2019 and lower courts have so far found the tax unlawful. The city stopped collecting the tax earlier this year as it prepared to appeal the matter to the state supreme court.
As WESA has previously reported, city projections anticipate on average $4.6 million each year from the fee, roughly 1% of the overall budget.
But Pawlak told council Wednesday that — now that paperwork for an appeal to the state’s highest court has been filed — the city resumed collecting the tax this month. He noted that similar cases before the state supreme court have taken two years to reach a conclusion. That, he said, gives the city confidence that it can expect revenue from the jock tax for now.
“It's very reasonable to expect that we'll be continuing to collect under this stay for potentially that long,” Pawlak said. “We're also confident in our case and in our ability to ultimately prevail.”
Still, there are hundreds of open refund claims stemming from the lawsuit, and if the city loses, more claims could be filed in the years ahead. With a three-year window to file a claim, it’s hard to know how much money the city could end up repaying if it loses its court fight.
A third issue Heisler cited was lower revenue from the deed transfer tax, a 5% levy on the value of real estate transferred within the city. Heisler said the city saw $12 million less revenue from the tax than projected in 2023.
One reason for that, as cited by Councilor Deb Gross, is a potential loophole in real estate sales that allows property owners to sell an LLC attached to an address instead of simply transferring the real estate. Gross said the city should do more to make sure the tax is fairly applied across real estate sales in Pittsburgh.
During Wednesday’s debate, several council members expressed a desire to be more involved in the dealings of the finance and budget departments moving forward.
“I was always adamant that council has a role to play here,” said Councilor Theresa Kail Smith, adding that while the mayor drafts the budget, council must approve it.
“It’s the mayor’s budget [until] he sends it over to us, then it’s ours,” she said.
