In an annual report of city finances, Pittsburgh Controller Rachael Heisler depicted an ominous future for the city’s long-term financial health, repeating her earlier warnings about the city’s precarious financial standing.
Mayor Ed Gainey’s office maintains that the city is on stable footing.
The report found a $21 million shortfall last year in revenue from the deed transfer tax — a 1% fee on the value of a property sold — as well as a $10 million shortfall in property tax revenue. With downtown property owners winning recent reductions in the taxable value of their buildings, Heisler warned that problem could likely get worse.
So far, the impact of those changes has been cushioned by $335 million in federal aid provided to local governments as part of the response to the coronavirus pandemic. But Heisler warned that such relief won’t be part of the calculation in 2025.
“We have been buoyed by the American Rescue Plan Act for the last four years,” Heisler said at a press conference Wednesday. “That money goes away in December effectively.”
A Gainey administration official cast city finances in a more optimistic light Wednesday.
“I think we still maintain a more confident outlook on the overall state of the city finances than what the controller has articulated,” said Jake Pawlak, director of the city’s Office of Management and Budget.
Pawlak has previously said the city’s budget for 2025 and 2026 will be “lean." But he stressed that the budget process for next year has just begun, leaving time to negotiate savings to compensate for revenue loss. City services will not see any “immediate” cuts, he said.
Heisler acknowledged that the city hasn’t seen an overall budget deficit and likely won’t see one this year, thanks to the pandemic aid. Her report did note some other bright spots: Two tax revenue streams hit hardest by the pandemic — parking and entertainment — have rebounded to roughly the same level as before onset of the pandemic.
The city also saw $43 million more in grant money in 2023 compared to 2022. And in all, the city took in $38 million more than it spent last year. That left its "rainy day fund" with $198.7 million at the end of 2023, which is more than twice the amount recommended by financial experts.
But the report projects operating losses in both 2025 and 2026. Heisler warned that without significant budgetary changes, the city could see a net deficit by 2025, and the reserve fund could be depleted by 2028.
Pawlak argued that policy changes could reverse those projections.
“[It’s] incorrect to assume that the projections for several years from now will automatically come true because there are multiple points in which we could make policy changes between now and then to prepare for them,” he said.
“We just simply haven't seen evidence to suggest some of the assumptions that underpin [those] scenarios,” he added. “[Those assumptions] could be true. Other scenarios could also be true.”
Heisler’s evaluation partly echoed her predecessor who repeatedly warned that city finances have at times been solely stabilized by federal pandemic aid.
But while former Controller Michael Lamb presented a sunnier assessment of the city’s finances just one year ago, Heisler said unforeseen challenges including cratering downtown real estate values and an uncertain future for the city’s tax on out-of-town athletes have changed the picture.
Heisler's report indicates that as of December last year, downtown saw a 20% vacancy rate which contributed to real estate reassessments for ten “landmark buildings” — which include the U.S. Steel building, PPG Place, PNC Plaza, the K&L Gates Center and others — and a tax revenue drop of $3 million.
Given those trends, she said Wednesday, “When you anticipate the budget that we already have, I think it's unrealistic that nothing is going to change."
The city’s five-year plan already anticipates a drastic reduction in street paving, she noted. Spending on those repairs will drop from $20 million to about $5 million in 2025 and 2026.
“If [residents] have a pothole or a rough street that they've been begging to get repaved, it's probably not going to happen until 2027 at best,” she said. “I think having those conversations is the best thing we can do for city residents.”
Those concerns have been shared by multiple members of Pittsburgh City Council.
Freshman Councilor Bob Charland, who previously served as a staffer in multiple council offices, has made city finances one focus of his legislative work so far. Council passed last month a measure to require the controller to certify the finance department’s projections for the next five years as a way to increase fiscal oversight.
The body also preliminarily approved additional tax relief for downtown property developers Wednesday. Though the plan cuts taxes on new construction, advocates argue it could jumpstart new development and stabilize the critical downtown tax base.
“This bill is really important for one simple reason: to save a quarter of our real estate tax base. I believe it’s important that we make sure the downtown towers don’t stay vacant,” Councilman Bobby Wilson, who sponsored the legislation, said Wednesday. “This bill… will at least provide a really good tool” to accomplish that.
Heisler’s office does not have a policy-making role. But she urged that the city explore the possibility of establishing payments in lieu of taxes — voluntary contributions made by tax-exempts who don't pay a tax on property — for UPMC and other large employers.
It's unclear what the prospects for such a concession would be, given the city's ongoing litigation against nonprofit property owners challenging those exemptions.
But in any case, Heisler said, “Everything should be on the table."
