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The View of Pittsburgh from the Mayor’s Office
James Lange, CPA/Attorney
Guest: Bill Peduto, Mayor, City of Pittsburgh
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- Guest Introduction: Bill Peduto
- Act 47
- The August Wilson Center
- Pittsburgh’s Major Non-Profits
- Technology Upgrades
- New Transportation Options in Pittsburgh
- Public Parking
- Commuter Tax
- City-County Cooperation
- The Site of the former Civic Arena
David Bear: Hello, and welcome to this edition of The Lange Money Hour, Where Smart Money Talks. I’m David Bear, here in the KQV studio with James Lange, CPA/Attorney and author of three best-selling books, Retire Secure!, The Roth Revolution, and now, Retire Secure! For Same-Sex Couples. Today, we welcome a very special guest to The Lange Money Hour, Mayor Bill Peduto, to discuss the state of the city. After serving three terms on city council, representing the east end, Bill Peduto was elected the 60th mayor last November, capturing 84% of the vote. Inaugurated on January 6th, he recently completed his first six months in office. A self-described progressive Democrat, he’s also been a strong and consistent voice for fiscal discipline in the city. Jim has a long list of questions for the mayor, so we’ll get right to it.
Jim Lange: Anyway, thank you so much for coming, Mayor Peduto.
Bill Peduto: My pleasure, Jim.
Jim Lange: Bill, you describe yourself as a progressive Democrat, but you seem to be a fiscal conservative. For example, you have been a proponent of Act 47 and the need for the city to remain under state supervision or oversight to take care of long-term problems such as pension, debt and the need for capital improvements. Don’t you think the city, under your leadership, is capable of taking care of itself without interference from Harrisburg, or do you still think we need that?
Bill Peduto: You know, on a personal level, my first year in, Mayor Murphy proposed a budget that had revenue that would be coming from the state that didn’t yet exist, and I remember very vividly him at the table, looking directly at me and saying to the council, “This is a leap of faith.” And I took that leap of faith that first year. My second year on council, the mayor proposed another budget that, again, had revenue in it that was going to be lobbied in Harrisburg, but there was no assurance we would get it, and myself and four other members completely rewrote the budget and presented a different budget that raised rates where they needed to be raised and made cuts where they needed to be made. It was pretty Draconian, and at that year, that second year in office, I said, “We have to go under Act 47. It’s the only way. We are facing the double barrel of a $90,000,000 structural deficit that, within three years, would raise to a $120,000,000 structural deficit.” So, at that point, I was the only member of council. I couldn’t get a second on council to even have the discussion. A year later, we were applying for Act 47.
Now, during that time, I was one of five votes to keep us and to make sure that we went under Act 47. It was a very bitter fight. The four on the other side (Jim Mottsnick, Wendy Bodack, Torn DeCarlisle and Luke Ravenstahl) were adamant that there was a way to solve this. There wasn’t. And then, five years later, for the next five-year plan, I was the finance chair, and I wrote that plan. Most recently, I was the only person who opposed then-Mayor Ravehstahl’s decision to try to get out of Act 47. I likened it to the patient on the operating table who said, “Really, doc, I feel better. I can go home now.” We have very serious problems within the city’s finances, and they are legacy costs that are associated with pension and debt, that if we don’t address them over these next five years in a very real way, will cripple us in the ability to provide services for the long-term. However, there’s a light at the end of the tunnel. Our old way of solving problems was always borrow more, borrow more, and we have a debt structure that is greater still than New York City’s was when they went bankrupt. Twenty percent of our annual revenue goes to just paying off old debt. By 2019, and under the plan that we’re adopting now, that will drop down to a manageable 10% to 12%, meaning that there will be as much as $30,000,000 to $40,000,000 freed up in the budget. We’ve gotta get to 2019. How do we get to 2019? By staying under Act 47 these next five years. It’s a long-term plan that started back in 2002 and 2003, and it will be done by 2019. If we do it, the city will have stability, a stable pension fund, a stable capital budget, a managed debt and the ability to pay for the services that people expect without raising taxes. We have to stay under Act 47.
Jim Lange: Well, that sounds like a true fiscal conservative to me. You mentioned ‘bitter fights.’ So, why don’t we talk about a bitter fight that is going on right now, which is the August Wilson Center, which is in bankruptcy, and a private company says, “Okay, we will buy it. We’ll pay top dollar. We’ll put up a hotel,” (which, frankly, the city needs anyway for convention centers), “We will open the bottom portion, which is the, let’s call it, the public portion, 120 days per year.” They’ll presumably be paying significant real estate taxes in the future. That, offhand, sounds like a pretty good deal. I understand that you oppose this. Can you tell me what’s wrong with that deal, and what solution you would propose?
Bill Peduto: Sure. So, there were a couple different actions that had been taken over the past more than ten years at the August Wilson Center. The money that’s owed to the banks is only a fraction of the money that was invested into this, and the investments not only came from public entities like the URA and the State of Pennsylvania, but they also came from the foundation community, and together, they put in over $30,000,000 compared to the $9,000,000 that was borrowed from the banks. To simply try to make the banks whole is to fail what the mission was that the investors made under that center. And it even goes further than that because there are rules that have been applied, and there are covenants on the actual center itself that are part of redevelopment laws of the State of Pennsylvania. And for a judge, or for a receiver, or even for somebody that’s trying to challenge those, would strip away and create a precedent that has never been done in the state.
When the URA invested, it invested with the understanding that this center would be, and would remain, for the use of a cultural center, not a hotel. And there is no receiver or judge that can take that part away. That’s what the investment was made for. The same with the foundations. That doesn’t mean, however, that there aren’t opportunities to have a center that also has a hotel. Unfortunately, the receiver was not negotiating in that manner. She was charged by the banks to simply try to get the most money possible.
Secondly, we do our own research. There’s a reason that there are only three bids on this, that there weren’t the major hotel operators, not only from the city, but around the state and the country, who are bidding on this because the market, and the study around that, is questionable whether it could actually make sense. And the investor who is being courted by the receiver put in the bid without ever doing an engineering study, which should raise many red flags to anybody who understands real estate. Secondly, he’s never done a development like this, and there’s no proof of financial equity to be able to afford to do what’s being proposed, which also should put up many red flags. And finally, you have the foundation community, which has basically been supportive of not just the August Wilson Center, but the entire cultural district. You have the Cultural Trust, which is willing to be a partner much in the same way as the O’Reilly Theater, where the Pittsburgh Public Theater performs and runs its own performances, but it’s managed by the Cultural Trust and is able to create a sustained way to be able to serve. What a great thing if we can extend the cultural district, carry out the mission, look for other revenue sources, whether they’re a hotel or a restaurant (which is supposed to be a part of this), and make sure that the goal of what that investment was done by everyone who contributed to create the August Wilson Center is realized. Yeah, the banks may not be whole, but the banks made the investment knowing the covenant was there.
Jim Lange: All right, and just to clarify: When you talk about engineering study, are you talking about the ability of the existing building to withstand a hotel being put on top of it?
Bill Peduto: Yes.
Jim Lange: Okay. And when you’re talking about the potential buyer not having sufficient funds, I think that that probably kicks up a lot of memories about what’s going on with the old Civic Arena and Consol and some of the problems that we had when there was an investor that didn’t have financial strength to pull through, and we’re still suffering from that today.
Bill Peduto: Yeah. What we want to make sure is that there isn’t somebody who’s coming in on spec that would only try to control the site, which is certainly worth more than $7,000,000 or $8,000,000, without the intent to ever really have it be developed as it is. Ask yourself this: If you were that person, wouldn’t one of the first people you’d call be the mayor or the chairman of the URA to try to work through the deal? We’ve never been called.
Jim Lange: Well, that is kind of odd. It seems to me that if I was in that position, I would want a win-win, and working with you and the other foundations and non-profits that have already put money in this thing. It seems like a pretty rational step.
Bill Peduto: And I think that that could be a proposal. You know, we’re still working with the banks and we’re still working with the judge and we’re still trying to pull together, and I say we need to partnership with the county executive and the foundation community in a way to be able to see that happen because a hotel would be a revenue source for a new center that could provide a long-term stability, just as a restaurant could be. And there’s probably about a dozen other ways to be able to do it. Now, no one’s talking about bringing back the old board of the August Wilson Center, and that has been made clear by both the county executive and myself. You know, what had happened in the past will not be something that would be supported in the future. The idea would be to create a new board that would carry out the mission of producing a cultural center that is geared toward African-American history, culture and art, that at the same time would work with the entire cultural district as another gem within the cultural district.
Jim Lange: Well, it is wonderful to see what’s happened with the cultural district as a life-long Pittsburgh resident. So, speaking of some of the non-profit groups around, I think one of the issues that the city has had is that there is a powerful non-profit component to the city (University of Pittsburgh, UPMC)…I was going to say and then legitimate non-profits, but maybe that’s not fair! And I know that you have, let’s say, are attempting to create a win-win relationship with the major non-profits. Can you tell our audience what you are doing with the non-profits, and whether you think it is effective? Because obviously, when you have a tax base like the University of Pittsburgh and UPMC not paying real estate taxes in a city that desperately needs funds, that is a pretty tough position to be in.
Bill Peduto: It is. I mean, and if you account for that just on the property side, you know, that’s over 40% of our property in the city. But that also includes government buildings and baseball fields, like little league fields. Over 40% of the land in the city of Pittsburgh is non-taxable. That makes it difficult for those that are taxable to sort of carry it on, but the economy has completely shifted within the city as well. You know, it is an Ed/Med economy that has grown significantly within the city, and every doctor that has an office in Oakland or Squirrel Hill or Brookline, it then becomes part of a UPMC network or a Highmark network, then also becomes a non-profit and we lose that, in addition. And then, we lose out on payroll tax. You know, in 2004, when we did Act 47, we created the new rules on the payroll tax in order to be able to make it fair to take out all the exemptions that had made it look like Swiss cheese, to take out the ridiculous business privilege tax, which was based on gross tax receipts. So, if you owned a transmission shop and you put in a new transmission for somebody for $5,000, but you had to pay $3,000 for the transmission itself, you’re still taxed on $5,000.
Jim Lange: I remember that tax well.
Bill Peduto: Yeah, and all those taxes are eliminated to have a strict payroll tax, and it was across the board for everyone. When it was proposed, it included the non-profits, and it was struck out by an amendment on the night before the vote in Harrisburg. If we were to just receive that from the non-profits, we’d be receiving an additional $25,000,000 a year from the non-profits themselves, and that would solve our pension problem and our debt problem. That $25,000,000 a year over the past ten years would have made those problems probably a lot less, and probably would have given us the opportunity to get out of Act 47 now. But it didn’t happen.
So, we have to look and really get an idea of who are the non-profits. Sixty percent of all the payroll of every non-profit in the city, everyone from the universities, the hospitals, the Little Sisters of the Poor, everyone, 60% of all the payroll of non-profits comes from UPMC alone. And then, when you add in CMU, Pitt and Highmark Allegheny West Penn, it’s around 84% of the entire non-profit payroll just from four institutions. Those are the big four. Those are the ones that I have to deal with directly in talking about creating a long-term agreement, and they certainly do have rules of what they want to see in an agreement, but I can tell you this: They’re open to the idea of working with us instead of going through lawsuits, instead of going through legal battles in Harrisburg, and trying to politicize it in a way to get lobbying support behind it. That’s the way we’ve been trying to do it for fifteen years. Instead of creating blue ribbon panels of civic leaders to try and negotiate the inside game, we’re just dealing one-on-one, and that’s Kevin Acklin, my Chief of Staff, and I with UPMC, Carnegie Mellon, Pitt and Allegheny West Penn, in trying to come up with the game plan and having others come in, as well. I just think that it’s a much more fair way of doing it, and we have to do it, not on a two-year basis or a three-year basis, but on a ten-year basis, and tie it into this Act 47 plan.
Jim Lange: I have one quick question before we break: you mentioned there would be a $25,000,000 change. Now, is that occupation tax, wage tax, real estate tax, what constitutes that $25,000,000? I was a little bit unclear about that.
Bill Peduto: If non-profits would have stayed a part of the payroll tax when it was created in 2004…they were originally written into the state law that it was for profits and non-profits. If that had not been amended the night before the vote, then the city would be realizing right now $25,000,000 in additional payroll tax from the non-profits.
David Bear: And do other cities and states have these same issues? You know, it seems that hospitals, for example, are doing this kind of stuff across the country. Or is it just Pittsburgh? Or is it Pittsburgh and Philadelphia?
Bill Peduto: No, it’s east coast where you have fractionalized government, where there are so many different little governments and the major non-profits are in one area. So, you’ll see it in the college towns of New England. You’ll see it in cities like Boston. You’ll see it in cities like Philadelphia. Philadelphia’s a city/county, so it doesn’t have the same impact.
David Bear: Umm-hmm.
Bill Peduto: You know, what you also find is it doesn’t exist where there’s regional revenue sharing. So, in a lot of other cities other than Boston, Buffalo, Pittsburgh, maybe a handful of others, where you work, you pay part of your wage tax…
David Bear: Right.
Bill Peduto: …and where you sleep, you pay part of your wage tax. If that were the case, and everybody who is working at the hospitals and universities are paying part to the city, we wouldn’t need that. If we had a regional government, we wouldn’t need that. But because we don’t have either, we’re put into the same situation as places like Stanford, Connecticut and Massachusetts towns and colleges.
David Bear: Right, right.
Bill Peduto: So, in those areas, you see where PILOTs have been created (payments in lieu of taxes) to make up for that.
David Bear: Well, this is probably a good place for us to take a quick two-minute break, and when we come back, we’ll continue the conversation with Mayor Bill Peduto.
David Bear: And welcome back to The Lange Money Hour with Mayor Bill Peduto and Jim Lange. Listeners, since we’re live, you can give us a call with a question at (412) 333-9385. Jim?
Jim Lange: We do encourage your questions. So, Bill, I sometimes think of a mayor’s job as more of a business manager because, for example, the whole discussion that we’ve had, it could be argued that it’s political, but frankly, it sounded like more of a business manager. And one of the things that I know that you have made a big point as a business manager is trying to use technology to make government more efficient, more responsive and more transparent. On the other hand, you have an entrenched system that might not be easy to change because, I know that myself, as a business person, it’s not so easy to get new technology implemented. How is that going, and are you optimistic that some of these changes will improve the function of the city and reduce cost?
Bill Peduto: Well, I assume part of it is that you have to have a team around you that not only understands what is available, how it can be utilized, but actually has the capacity to be able to do it. So, before we took office, we put together a plan to do a buyout of employees that had a certain amount of years and the certain age and gave them an incentive to be able to get their pension started a little bit early. I had a conversation with the new CEO of Heinz, who instituted the exact same program. I said, “How was it received?” He said, “You know, it was received very strongly, and it’s a good financial measure in order to be able to get us to where we needed to be.” I said, “Well, I got an editorial in one of the papers saying that it was a bad idea.” So, you look at it in two different ways, same different programs, and this is a program that many corporations take that, in government, it’s like, “Well, just fire them all!” Well, you could fire them all. You actually couldn’t. I shouldn’t say you could. But you also understand that people dedicated their lives to serving the city and they deserve to have a soft landing. So, we had sixty-some positions cut. We did fire, or let go, or put our own people in, or eliminated positions for over thirty more. So, we’ve been able to eliminate about a hundred, over a hundred positions, in the first six months. We’ve filled about half of those, created about a dozen more, but overall, we’ll be under budget. And what we brought in are people who are extremely talented, people who, many of whom never worked a day in government before. We created a new Department of Innovation and Performance that really looks at three key indicators: One being the budget, and moving to a performance-based budget. The second being the technology and innovations needed to get the city services to an effective, efficient and applicable standard. And the third being sustainability. So, everything that we do is built to last, and we’ve been doing pretty well.
We brought in a new budget director, Sam Ashbaugh, who we stole from Deloitte. We brought in a new finance director, Paul Leger, who had headed the Pennsylvania Economy League, and an assistant under him from Highmark, Tony Vandelina. So, we have a new finance team that sort of gets where we need to be. And the person we hired to head the Innovation and Performance, Debra Lam, had worked for a global company doing consulting work to cities around the world: Hong Kong, London and New York. But she was a Pittsburgh girl and she wanted to come home, and we were able to attract her in with an offer of she’d get paid one-sixth of what she was earning. But that’s the type of talent we’ve been able to get. And that call to come back home was how we got a Public Safety Director who had worked his way up in the FBI to where he headed counterterrorism for the United States, and prior to that, was in charge of New York City’s counterterrorism after September 11th. This is a guy who could be a Public Safety Director in New York, LA, Chicago, but he wanted to come back to Western PA. And I think that’s how you do it. The innovation’s there. It’s global.
The people that are doing the different types of really transformative ways of delivering city government services (Accenture, IBM, Cisco), you know, are global companies that have created now well past billion dollar industries. What we have is an institution, like Carnegie Mellon and the University of Pittsburgh, that can actually leapfrog some of this innovation, and we have a city that is the perfect size to be an urban lab. In order to be able to experiment, and then create the companies here, and help to promote them just so they can start to provide these services globally. And really, that’s one of the focuses we want to do. We don’t want to just modernize city services. We want to create a model where people look to Pittsburgh and say, “That’s the model of a 21st century city.” And I grew up in the suburbs, and I’m the first mayor who was not born in the city’s borders in over 120 years. I want to have better services for city residents than suburbanites have. And I know that we can do that because we have a scale that allows us to be able to afford different things that other smaller municipalities don’t have.
Jim Lange: Well, that is a very helpful answer. One of the things that is an irritant to a lot of the city residents (and I know that you’re somewhat outspoken on this, and I’ll include myself in this group), is we’re really kind of disgusted with Yellow Cab. We’re disgusted that, if we call for a cab, instead of talking to somebody local, that we’re speaking to some rude Miami-based dispatch system. On the other hand, I have used Uber, my family has used Uber. The one time I did use Uber, the driver didn’t know where he was going. He literally, when he dropped me off, the car was rolling down the hill. I had to tell him, “Please put it in park before I get out of the car!” As much as I don’t like Yellow Cab, I sure don’t like having unvetted, untested, people that may or may not have insurance, you know, with groups like Lyft and Uber. So, I guess what I’m asking, is there a way that we can have Lyft and Uber but somehow regulate the quality of the driver and to make sure that they are carrying sufficient insurance? And if we can’t have those controls, do you think they’re better than nothing?
Bill Peduto: So, great question. I honestly believe Uber, Lyft, Airbnb, all these different types of sharing platforms that technology has brought to expand industry are here to stay, and they’re only going to get to be more and more. This whole concept of being able to decide whether you want to rent your unused bedroom out, or the apartment that you own in midtown, any of those types of things that are in Airbnb, you know, that’s here. That’s global. Uber and Lyft are global. Pepsi is creating opportunities for people who make candles in Ross Township to be able to market their products around the world. I mean, it’s a brave new world, and this technology is really at the forefront of it.
That being said, it’s gotta be an even playing field, as you say. If there are regulations in place that are on Yellow Cab that require a certain amount of training for their driver, a certain amount of insurance, a certain amount of inspection on the vehicle, then those same rules should apply to Uber and Lyft. What I had trouble with the PUC was, what I had asked for was in between the time that they create that, that there be a temporary ability to require it, and then to make it into full force. They were unwilling to do that. They just went to shut them down. Now, they still have the opportunity to create those rules. They’ve decided not to do it. So, we have gone to the state legislature, and in the state legislature, there’re two schools of thought: Number one, just create the laws that say that. You know, the PUC is guided by state law. They can’t oppose it. So, if it says that Yellow Cab has to do X, Y and Z, then any ride share program has to do X, Y and Z too. But there’s another school of thought, and it’s “Why the hell are taxicabs even regulated by the PUC? Why not just have it determined, like in Philadelphia, by the local government and have them in charge?” Or, just remove them completely out of the PUC and let it be an industry like so many others. County executive Rich Fitzgerald read me an article, back from, I think it was the late sixties or the early seventies, and it was a battle in city council, and the battle was over whether we should have unmanned gas filling-up stations…
David Bear: Umm-hmm.
Bill Peduto: …and how dangerous it would be to let citizens fill their own car tanks up, because of the possibility of explosions, and we think about it today, and it seems ridiculous. There were the same arguments about whether people and whether government should allow elevators to be manned by individuals and to take the people who managed the elevators out of the elevators. I mean, you know, technology constantly changes. The world constantly moves forward. Government has to do the same thing. And there’re two paths: Either make it fair and equal to everyone to be able to compete, or strip all the rules away and make it open that way either. I’m up for either of them.
Jim Lange: Well, personally, I like the idea of getting into…I love the idea that I can just text, ask for a car, the car can be there in five minutes instead of dealing with the rude people in Miami with Yellow Cab. On the other hand, I like the idea that a driver might know where he’s going, have decent insurance on his car, and he’s not going to stop and say I can get out without putting the car in park.
Bill Peduto: Right. Yeah, me too.
Jim Lange: So, let’s get down to some irritating things, and frankly, as a local business owner, there is some unpaid street parking near my business, but, you know, right in front of my business, there is paid parking, and they actually expanded the paid parking area beyond where it was before. Luckily, there’s still a fair amount of on-street parking in the residential area. But parking rights, both in town and the neighborhoods where I am, for example, in Squirrel Hill, are increasing. I think a lot of people are irritated with the new system where you have to put in a credit card and your license. And I have some very bright clients that still can’t get it, and we sometimes even have to help them with it. And it seems that that is hurting the small business owner who fears that they are going to lose business, and this is particularly true in the retail area, where you can just go to, you know, the Waterworks or to Monroeville or Ross Park Mall or somewhere where you can just go and park and not pay. Are there better ways of collecting revenue without hurting business merchants, or do we really have to have these parking assessments that are very high, and then also ticket people if they aren’t?
Bill Peduto: Well, you know, there’s a whole school on this, and the parking industry itself again is global, and the companies that run parking in Hartford, Connecticut are the same ones that are operating it in Chicago, Illinois and over in Europe, and they lobby governments in order to try and get contracts and do all that type of thing. And people don’t really understand the heavy hand that it plays in a lot of decision making.
What we’re trying to do is strip that back, and what I want to be able to do is start to work with local business organizations, whether that’s the East Liberty Chamber of Commerce, or the Shadyside Chamber of Commerce, or the Squirrel Hill Merchant’s Association. We know about how much revenue…actually, we know exactly how much revenue we get out of each of these business districts. It would be great to be able to work in certain neighborhoods to create a pilot program that would then guarantee that that amount would be paid, and you would have to have a structure, whether it is a bid, or some sort of a revenue that the association is willing to be able to make sure there’s a secure funding there. And then, you take parking, and you can make back what you want, and you can make more for your association than what you’re paying, or you can have free weekends, or going into the holidays, free parking during the days. But you’d be in charge of determining it because you have the greatest impact to your business in being able to do it.
The other thing that we’ve already started is around Carnegie Mellon University. When those rates went up, the area around CMU became a ghost town, and the area of Schenley Park became Schenley parking lot. And people walked further in order to be able to avoid paying that rate. So, what we did is, we created flex payment, and we worked with the Tepper School, in order to find out when demand was the highest, the rate would go up, but when the demand was lower, the rate would go down. And we were able to see not only an increase of parking and a higher percentage of parking in the area around CMU, but also an increase in revenue, as well.
David Bear: Mayor, we actually have a phone call from a listener with, I think, about this question. Bob, from Bethel Park.
Bob: Yes, thanks, Jim. Mayor, I’m just the opposite of you. I lived in the city all my life, and now I live out in Bethel Park. But I own a business downtown, and the Parking Authority has raised the rates, or are about to raise the rates, in August. And I must tell you, Mayor, it is increasingly difficult for a businessperson to make a go of it in the downtown area because of these rates. Now, I know the rates haven’t gone up in the last eighteen years, or whatever the rate was (it was ’84 is when I was told), but honestly, it’s gotten to a point where, I mean, if you just look out your window, sir, you can see those retailers closing doors, and I am concerned, not just from, you know, a customer standpoint, but for my employee’s standpoint. I’m losing good prospective employees because I can’t compete with the suburbs who have free parking. I’ve had people leave my employ to go work for my competitors because they get a raise the moment they take off to the suburbs and get free parking. Now, I know you can’t control every bit of that, but sir, I’m concerned about these authorities. I don’t know where they get their power from or who makes these decisions, but I really do feel that, you know, there’s just been a real aloofness when it comes to the private sector and to the business owners in the downtown area. I’ll hang up and hear your answer, sir. Thank you.
Bill Peduto: It’s something that I understand very, very well. I had the opportunity for twelve years as a member of council and seven years as Chief of Staff to represent very vibrant business districts: Shadyside, Ellsworth Avenue, South Highland Avenue, Walnut Street, Squirrel Hill, Forbes Avenue, I didn’t represent Murray, Oakland, South Craig Street and the entire Oakland downtown area, Bloomfield and Liberty Avenue, East Liberty and was involved in the twenty-year transformation of East Liberty. And there’s an old saying that we used to have in our office: Parking is more important than world peace. At least, that’s what we heard from a lot of business owners!
There’s a balance. There is a number that is used within experts at parking, that the number should be 80%, that you should see an occupancy of 80%. If you’re seeing 100%, you’re charging too little. If you see less than 80%, you’re charging too much. And what we try to do is keep it around that. But right now, we are at over 100% occupancy downtown. We have a need for additional parking because we have a lot more development moving in. I realize that some retailers may be moving out, but I’m talking with developers about building new skyscrapers downtown, and we have an opportunity to see a vibrant downtown, which will draw more business in.
Parking is an issue. I don’t dismiss that one bit. I think if we go to dynamic pricing with on-street parking, and we start to make sure that the rates within our public garages are within reason but still less than the private operators, we can have a competitive downtown. Now, the city of Pittsburgh is not an island, and we looked very closely at what other cities charge and we’re still on the bottom end. And I’m not just talking about LA and New York, big cities. I’m talking about Cleveland, Buffalo, and cities more comparable to us, and we’re still on the low end when it comes to our public garages.
That being said, though, you know, I mean, the caller’s right. If your employee’s paying $250 a month to park and they can get the same salary at a competitor, they just made a $3,000 bonus. And, you know, it’s pretty easy to do the math. We just have to try to remain competitive and to give some options there. The other thing we’re going to be doing is, we’re going to be working with the Parking Authority to do technology upgrades. We weren’t part of the decision making that brought those new meters in, but we’re going to work with that vendor to make sure that you can use cell phone technology. So, if you’re at dinner downtown and you’re going to stay for an extra hour, you can just pull out your cell phone and put an extra hour into the meter without having to get ticketed.
Jim Lange: Well, I have a question that’s going to really irritate Bob. So, here’s Bob complaining about his parking, but since he doesn’t live in the city, he makes his livelihood in the city, none of his employees live in the city, they enjoy city services, they enjoy police protection, they enjoy fire protection, they enjoy the city clearing roads, etc. But they don’t pay a wage tax! What about taxing even a half a percent, or some kind of wage tax, for people who don’t live in the city, but they make their living in the city? What do you think about that, and then, you know, having some of that revenue available for both city residents and, presumably, to make it a more vibrant city even for the non-residents?
Bill Peduto: There was a study done several years ago that looked at cities and commuter taxes, and it goes back to what we talked about before. Regionalism, or regional revenue sharing, you go west of the Mississippi, you don’t have little suburbs of 4,000 people, or 2,000 people. You know, you have one area, and it’s the city and county, and you may have five municipalities within it. You may have three or four school districts. You don’t have forty school districts. For 1.2 million people, there are 130 separate governments for 1.2, you have one government for six million. And so, you don’t have to worry about commuter taxes because everybody’s part of that same government.
Now, this is western Pennsylvania and we’re different, and we think differently about that. But then, when you talk to people about a commuter tax, because we don’t have regional government, they think that it’s a foreign idea. But throughout the country, there’s only a handful of cities that don’t have it, Pittsburgh being one of them. You work in Cleveland and you live outside, you pay one percent. I think, in Columbus, it’s one-and-a-half percent. In Philadelphia, it’s like two or three percent. This exists in New York, in Washington, throughout the country. Where you don’t see it is in Boston, but Boston’s value of property is so high, you can’t afford to live in Boston, and that property tax pays for their bills. San Francisco, guess what? Same thing. San Francisco’s so high that you don’t have to worry about getting a commuter tax because you can barely afford to live in San Francisco. And Buffalo and Pittsburgh are in financial straits. So, that’s about it. I mean, it’s something that everyone else does, but the state legislature would have to pass it, and that’s never going to happen in our lifetime.
David Bear: Right, right. We’ve gotta take one final break. Let’s do it now, and then we’ll come back and continue the conversation.
David Bear: And welcome back to the last five minutes of this edition of The Lange Money Hour with Pittsburgh Mayor Bill Peduto and Jim Lange.
Jim Lange: Welcome back, Mayor. So, if I understand your answer correctly, Pittsburgh itself has no power to, in effect, tax non-residents. It’s a matter of state legislation, and you just don’t think it’s going to happen, and we’re just going to have to deal with Bob getting his ability to work in the city without having to pay the city taxes.
Bill Peduto: Until the day that there’re more people living in the city than in the county, even at that point, I don’t know if it would still happen. But let me give you this, and this pretty much explains it: the state creates local governments, and they create the ability for local governments to tax. So, they’ve given us the ability to create basically four taxes that we can raise. We could raise our property taxes, but in the city of Pittsburgh, right now, our property taxes, combined with our school, is on the higher end of Allegheny County. We could raise our wage taxes, but our wage taxes, they’re the fourth highest in the state of Pennsylvania. We could raise our real estate transfer tax, but our real estate transfer tax is already the highest in the state of Pennsylvania. Or we could raise our parking tax, but our parking tax is already the highest in the United States. We’ve maxed out our credit cards that the state gives us the ability to raise money from, and we either need a different option to be able to do it, or a more creative way of trying to approach it.
Jim Lange: Well, let’s talk about a more creative way. I know that there have been discussions since I can remember about, in effect, combining services with the city and the county, and I think in certain areas, like 911, that has been accomplished. But you talk about all the little municipalities of 4,000 people, and I’ll also tell you, as a tax preparer, because we’re a tax preparation firm, a law firm, and a registered investment advisory firm, but from a tax preparer’s perspective, you have all these little taxes, all these little municipalities, and the administration of those taxes is a nightmare. What are the prospects of additional, if not a merger, of additional city-county cooperation to potentially save some money?
Bill Peduto: I think it’s, not only in the future, I think that this region’s future is sort of dependent upon it. Shared services instead of the merging of governments, I think is a way that we can still have our independent municipalities, but at the same time, begin to save taxpayers a lot of money. I jokingly say that having all of these different governments is very ineffective and costs us a lot of money in taxes, but it really makes for really pretty parades because of all the police cars. But the sad part is, it really is a waste of money.
You talked about tax preparations. Just think about buying something as simple as Microsoft Office and having to pay 130 times for the licensing agreement for each municipality instead of all of us working off of one ERP system and being able to use that central data in order to be able to do the operations. Think about the law services, that we each go and we hire 130 different solicitors, many of whom are the same people representing all that, instead of collectively pooling our resources together and hiring a municipal law service group that would be at a fraction of the cost of what we pay. Think about the same thing when we talk about basic things such as purchasing, and when we’re purchasing vehicles like those police cars, or we’re purchasing energy and the combined savings we can have by having the greater purchased power. You know, they do that down in Charlotte in Mecklenburg County, and they combine their purchasing together, and they realized a $7 million per year savings buying the same things.
We have to get smarter about this. I grew up in Scott Township and the border of Carnegie was my backyard, and my street ended out down at Greentree, and I, as a kid, would watch, as the Carnegie snowplow would come down my street with its plow up to get to Janthea Street, and then put its plow back down, do that street, and then go back. What if we had a route-smart system, used GPS, and had a shared service agreement so that we found the most effective way for those plows to run, and then realized the cost savings and maybe had lower property taxes in Allegheny County. That’s a reality. Technology’s going to help us to get there. The only thing holding us back is the willingness to do it.
Jim Lange: Well, that sounds very inviting. Unfortunately, we are just about out of time, but we have time for one more question, and I wanted to ask you about the site that is the former Civic Arena, because I know that you have some outspoken views on that, and you certainly did when you were a councilman, that you opposed tearing the Civic Arena down. Obviously, it is. What is going on with that site, and what could you tell our listeners that they can expect in the future?
Bill Peduto: Well, the reason that I wanted to save it is there’s only one Civic Arena. It was, you know, something that was created through a lot of civic pride and a lot of unique innovation that was so Pittsburgh, from the engineers that developed the largest retractable dome in the world, to the entire idea of a facility that large without having to use one single column. Everything about it really spoke to…even the modernistic design, I mean, spoke to the era that it was built. And, you know, there’s a lot of ways, and look around the world, especially in Europe, where adaptive reuse of classical things has been done for centuries, and we couldn’t even make it fifty years and that kind of broke my heart.
But, the fact is, that is the past. We’re in the present. We have 28 acres and those 28 acres will be developed into a mixed use that will involve housing, office, some green spaces, as well as retail. And the idea of it is not simply to develop the 28 acres, but to use that as a ladder of opportunity to begin to redevelop the middle hill, and then watching Oakland and the university’s help with the upper hill, and reestablish a neighborhood through programs that will incentivize home ownership to the people on the hill to be able to be a part of the future success that we’ll be seeing on both ends. There is a lot of activity going on right now. There’s a lot of interest in starting with the housing component. We’ll see what happens through community discussions. But even if we aren’t able to start with housing, we’ll be able to start commercial and retail.
David Bear: Well, unfortunately, we have run out of time, and I wanted to quickly say thank you to Mayor Peduto for joining us, and we got a long list of questions and we’d like to have him come back some time to continue them. At any rate, you can hear an encore broadcast of this show at 9:05 this Sunday morning on KQV and access the audio at the Lange website, www.paytaxeslater.com. Finally, mark your calendar for Wednesday, August 6th at 7:05 when we’ll welcome another financial industry giant, Dr. Roger Ibbotson, back for the next edition of The Lange Money Hour.
James Lange, CPA
Jim is a nationally-recognized tax, retirement and estate planning CPA with a thriving registered investment advisory practice in Pittsburgh, Pennsylvania. He is the President and Founder of The Roth IRA Institute™ and the bestselling author of Retire Secure! Pay Taxes Later (first and second editions) and The Roth Revolution: Pay Taxes Once and Never Again. He offers well-researched, time-tested recommendations focusing on the unique needs of individuals with appreciable assets in their IRAs and 401(k) plans. His plans include tax-savvy advice, and intricate beneficiary designations for IRAs and other retirement plans. Jim’s advice and recommendations have received national attention from syndicated columnist Jane Bryant Quinn, his recommendations frequently appear in The Wall Street Journal, and his articles have been published in Financial Planning, Kiplinger’s Retirement Reports and The Tax Adviser (AICPA). Both of Jim’s books have been acclaimed by over 60 industry experts including Charles Schwab, Roger Ibbotson, Natalie Choate, Ed Slott, and Bob Keebler.