Originally Aired: June 1, 2011
Topic: Discussing Pittsburgh’s Finances with Controller Michael Lamb
The Lange Money Hour: Where Smart Money Talks
James Lange, CPA/Attorney
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- Introduction of Michael Lamb, City of Pittsburgh Controller
- City Was in the Red for 2010, a Rarity for Pittsburgh
- Long-Term Debt, Pension Obligations Are Main Hurdles
- Great Recession Didn’t Affect Pittsburgh Too Badly
- Intergovernmental Cooperation in Allegheny County
- Consolidated 911, Emergency Services Increase Public Safety
- Open Book Pittsburgh Shines Light on City Hall
- Public Transit Has Gotten Worse
- Tax Forms Are Crazy but Crucial to Pittsburgh Budget
Welcome to The Lange Money Hour: Where Smart Money Talks with expert advice from Jim Lange, Pittsburgh-based CPA, attorney, and retirement and estate planning expert. Jim is also the author of Retire Secure! Pay Taxes Later. To find out more about his book, his practice, Lange Financial Group, and how to secure Jim as a speaker for your next event, visit his website at paytaxeslater.com. Now get ready to talk smart money.
Nicole DeMartino: Hello, and welcome to The Lange Money Hour. We are talking smart money with CPA, attorney and estate planning expert Jim Lange. He’s also the author of two editions of Retire Secure! and his newest book, The Roth Revolution. Today, we’re talking all about our beautiful city of Pittsburgh with controller Michael Lamb. Michael, are you with us?
Michael Lamb: I am. How are you?
Nicole DeMartino: Good! How are you tonight?
Michael Lamb: I’m fine, thanks.
Nicole DeMartino: Wonderful. Just as a reminder to our listeners, tonight’s show is live, so if you have a question for Mr. Lamb or Mr. Lange, the number is 412-333-9385. Hi Jim.
Jim Lange: Hi there. And before I kick off the questions, I have three quick little mini stories about Michael. First of all, years ago, when he was in the Prothonotary’s Office, I took a continuing education course for attorneys that he was teaching, and it was one of those things that, frankly, we had to be there, and probably I wasn’t interested in the content at all because I was doing estate planning and I was just there because I needed the credits. He did such a good job though. I was really impressed. Later on, when he was running for mayor, and originally, I was not supporting him, I ran into him and we started talking, and I thought, “Man, this guy is really smart! He understands what’s going on. He is doing the right things for the city. This guy has my vote.” And the last Michael Lamb story is my daughter, who is now 16 years old, was writing a paper for her class, and the paper was “How Did the City Mess Up the Snow Removal Last Winter?” And part of her assignment was to interview a city official, and I said, “Well, why don’t you go talk to Michael Lamb?” And she said, “Are you kidding? He’s the controller! He would never talk to me.” And I said, “Well, go ahead and try.” Anyway, she did call Michael, Michael granted her a one-hour interview and she got an “A” on the paper. So, Michael, thank you very much.
Michael Lamb: Well, I don’t know if I can take credit for the A, but I appreciate the acknowledgment.
Jim Lange: And one other thing, and I hate to say anything bad about my wife, but when I knew you were on the phone, I said, “Well, did Erica get out the ‘thank you’ letter?” My wife looked at me sheepishly and she said, “Erica wrote it, but I didn’t send it.” So, you might not have gotten it, but she did write it and we’ll get it out to you even if it’s about a year late.
Michael Lamb: Oh boy, don’t worry about it. But it’s good to talk to you.
Jim Lange: Well, good. Thank you for agreeing to be on the show. So, one of the things that people want to know, and by the way, you were on, I guess, a year or two ago and I thought you did a great job, you gave us a pretty thorough and I thought very poignant discussion of how our city is doing financially. So, this is a little bit of a broad-based question, but could you give us a financial report card on the city of Pittsburgh?
Michael Lamb: Well, you know, the last actual financial report that we’ve done would have been the year-end report for last year, and unfortunately, last year was not a good year for the city of Pittsburgh from a financial perspective. For the first time since I’ve been in office, and probably the first time in the last at least seven or eight years, the city of Pittsburgh finished the year in the red. We had a year where we brought in less money than we paid out, and that’s been a rarity for Pittsburgh because we have, in each of the last several years, we’ve generated significant surpluses, and those surpluses have been what’s enabled us to have some kind of capital program to do basic paving and those kinds of things, but last year, we did not generate a surplus and we’re feeling the pinch of that this year as council and the mayor struggle with this issue of getting roads paved and the other capital needs that we have.
And so, we are in a much more difficult situation because of that, and that has a lot to do with a number of factors, including the recent downturn in the economy, and fortunately, in 2011, we’re seeing a rebound from that. We had a much stronger first quarter in 2011 than we had in 2010, and we think that’s going to continue. I mean, we’re cautiously optimistic about having a surplus again this year. But 2010 was not a particularly strong year for Pittsburgh, and part of that has to do with some of the struggles and fights that the city’s been having with respect to getting some things done. As you know, we’re an Act 47 community and we have an oversight board that sort of holds some of our purse strings, and last year, they decided not to release some funding to us that they finally have agree to release this year. So, there was about $10 million in gaming funding that we didn’t get last year that we should’ve, and that would’ve gotten us a lot closer to a more balanced situation than we finished the year. So, it’s just from a purely financial record kind of standpoint, we didn’t have a great 2010, so it was not a good year. That being said, we’re doing some very good things in Pittsburgh right now. We are adding jobs to the economy, and we’re seeing that in the returns that we’re seeing, both in the local services tax, which is paid by everyone who works in the city, also in the earned income tax. Even in our biggest tax, the property tax, a lot more people paid their property taxes on time this year than did last year. So, we are seeing some recovery, and again, as I said, we’re cautiously optimistic about 2011.
Jim Lange: Well, Michael, that sounds to me like the equivalent of an income statement, and I guess one of the things that I think about as a CPA and as an attorney is, well, what about the balance sheet? So, I’m nowhere near a government accounting expert, but how do you take into account, say, the troubled pension fund?
Michael Lamb: Well, that’s a good point, and that’s a great question.
Jim Lange: And these are the kind of things that scare me, because even if we get by year-to-year, what’s the long-term?
Michael Lamb: You’re right. We’re talking about a strict performance in a given year, OK? And our fiscal year is the calendar year, and in that fiscal year, this is what we did or what we didn’t do. But you’re right. In addition to whether you make it year to year, you have these long-term legacy costs out there in Pittsburgh, and they are calculated into your budget because you have budgeted a certain amount that you’re going to pay, for instance, the pensions or to long-term debt, and just so you understand, the city of Pittsburgh budget is just over $400 million. It’s around $440 million roughly. We spend every year, for the last few years, $85 million on long-term debt service. So, just paying off our debt, we’re paying $85 million; almost 20 percent of our budget goes right to that issue. Last year, we paid almost $60 million into the pension system. That’s not counting what the council did at the end of the year to move some money around; just a budgeted amount, we are budgeting between $50 and $60 million each year. So, you add those numbers, you’re talking about a significant portion of your budget every year is already gone because of these long-term legacy costs, and so they’re not available to do the day-to-day operation of the government. And so, you’re exactly right. The numbers that I talked about earlier just were sort of annuals, but you got to remember that the city of Pittsburgh has around $600 million in long-term debt that’s still owing, and then, on top of that, we’ve got a pension obligation, it’s a billion dollar obligation of which we have around $300 million to pay. So, we’ve got about a $700 million problem there.
So those are the two big financial hurdles that the city has right now, and I’ll tell you what, Jim. If those are the only problems we had, I think we’d be OK because we know that, over time, we can pay our way out of those kinds of problems. When I took office, the long-term debt was almost a billion dollars. Now, it’s down close to $600 million. We’ve done a very good job of paying down that debt and not borrowing new money, and if we can continue to do that, we’re going to really deal significantly with that problem. The pension problem is one of those things that, you know, we’ve made a commitment and a promise to our employees that they’re going to have this income in their retirement, and we’re committed to live up to that promise, but we’ve got to find a way to pay it, and I actually think we can. As you know, last year, city council directed some parking tax revenue to the pension plan, and that was a good move and all of that helps. We also of course need to address the cost side of the pension equation, and we can talk a little bit about that. But those long-term costs are a significant hurdle to that. But then, you add to that the other big problems we have. As you know, you live here in the city of Pittsburgh, we’ve got some very significant infrastructure problems all over this city, whether they be roads, bridges, this is a hilly town, we have a lot of city steps that connect our neighborhoods and they’re crumbling all over Pittsburgh, and then you’ve got the underground issues, the sewer and water issues, that are significantly expensive for Pittsburgh. So, like I said, if we only had the pension and long-term debt problems to worry about, we’d be OK, but in addition to that, we’ve got this infrastructure deficit that we’ve got to worry about as well.
Jim Lange: Well, speaking of budgets, could you comment on the mayor’s budget for 2011?
Michael Lamb: The big issue with respect to the mayor’s budget, as much as there’s a lot of fighting back and forth, the fact of the matter is 90 percent of the budget was agreed to by the mayor and council. There weren’t a lot of disagreements because if you understand that you have to pay policemen and you have to pay firemen and you have to pay public works and public refuse employees, I mean it pretty much dictates what your budget’s going to be. Where the mayor and council got into a bit of a dispute over this whole issue of funding pensions, and as you know, last year, the mayor tried to privatize a lot of downtown garages and the neighborhood parking meters. Council didn’t agree to go along with that, and so council decided to try to deal with the short-term pension issue in its own way, which was to direct future revenues to the pension fund. So, they basically said, “OK, for the next 30 years, we’re going to take a portion of the parking tax and we’re going dedicate that to the pension fund.” They basically conveyed it to the pension fund, so the pension fund actually now owns that future revenue, and it’s about $750 million over the next 30 years that will go directly to the pension fund from parking revenues and it’ll happen every year. That really was a big dispute that the council and the mayor had, and what the mayor’s argument now is, now that we’re in 2011 and council did a couple of things to make sure that we had a balance budget this year, but next year, because council directed $13 million of parking revenue to the pension fund, they basically have created a $13 million hole in the budget. So, there’s going to be a lot of discussion and debate about how we are going to fill that $13 million. Council’s suggestion to the mayor was that well, you ought to raise parking rates to some degree like we’re going to through this lease program that you had, raise those rates on our own and let’s take that revenue and direct it back to the city budget. But there’s been a lot of discussion about whether or not that’s really a viable alternative. I actually do think that the numbers could work if they raise it to the right rate, but that’s still an issue that the council and the mayor are going to have to hash out over the next six months before the end of 2011.
Jim Lange: All right. Well, interestingly, before, you were a little bit more optimistic, and now you’re pointing out a lot of the long-term problems. I didn’t even think about $700 million pension costs in addition to the $600 million long-term debt and the bridges and the infrastructure and the sewers and everything else.
Michael Lamb: Yeah, I think part of the problem is that … and probably the last time I talked to you — I’m trying to remember when that was — but in the early days of the national recession, and really the global recession, Pittsburgh was not feeling the pinch of the global recession and even at the depth of the recession, Pittsburgh kind of weathered through it pretty well. Our economy, because it is based so much more now on finance and education and medicine and health care, it’s not that big manufacturing economy. So, when the manufacturing economy really went south, places like Detroit really got hit. Even Cleveland had a more significant problem than we had. Our economy weathered that storm pretty well, but even with that, as I said, in 2010, it was not a particularly good year for Pittsburgh from a revenue standpoint, and that has to do with a lot of things, not just what’s going on in Pittsburgh. Pittsburgh is, to some degree, dependent on the Commonwealth of Pennsylvania, and we know what happened with their budget. They significantly slashed spending in their budget and that has somewhat of an effect on us. As the economy goes down and the sales tax revenue goes down, that means that our portion of the RAD tax goes down, so we lose that part of revenue, and then, as I said, if people lose jobs, our budget is so dependent on the people who live and work in the city of Pittsburgh.
When jobs are lost, the city feels a real hit. I would tell you that right now today, I am much more optimistic than I was, say, six months ago because we have seen a significant turnaround. It’s an interesting thing. As bad as the situation got for the financial industry in this country, and you know how that was in 2009 and 2010, the city of Pittsburgh did very well. We have several very stable and large finance-based organizations and employers here in the city, including PNC Bank, including Bank of New York Mellon, Federated Investors, and those organizations, through that tough economy, were adding jobs. And so, Pittsburgh is realizing the benefit of that. PNC just had a real big announcement last week about their expanding in downtown, and they now employ close to 10,000 people in the city of Pittsburgh. While some of those jobs have been lost to places like New York and even in Cleveland and Columbus, the city of Pittsburgh has added a significant number of jobs in the financial industry over the last year-and-a-half.
I was talking to somebody from BNY Mellon today who told me that they have as many employees at Mellon right now as they did before the merger. They lost the big jobs because the headquarters moved up to New York, but a lot of the service-related jobs have come to Pittsburgh because the leadership at BNY Mellon recognized that Pittsburgh is a much more economic and friendly place to do business. So, a lot of their back office-type work is coming back to Pittsburgh, and those are good jobs, and to have them right down in the middle of the city is a great thing. They also have about 300 jobs out in Armstrong County at a facility out there. So, they’ve really added a lot of jobs to this economy, and like I said, what PNC has done and what some of these other financial industry players have done has been just a big plus for us. So, I would still tell you that I’m optimistic even though last year, I’m going to tell you that we did have a tough year.
Jim Lange: Well, I like the idea of jobs in the city and people paying earned income tax, but a lot of people work in the city and they don’t pay an earned income tax. They pay basically an occupation tax.
Michael Lamb: Right.
Jim Lange: And I know for example, let’s say you live outside of Philadelphia or you live outside of New York City and you work there, you have to pay an earned income tax. What do you think about having Pittsburgh tax some of the people, and I’m talking about more than $50 a year in occupation tax and I know I’m going to get a lot of people in the suburbs mad, but what do you think about having some of the people who make their livelihood in Pittsburgh pay some taxes, and more than $50, to Pittsburgh?
Michael Lamb: Well, obviously, I’m from Pittsburgh and I’m a city taxpayer, and as a controller, I oversee a lot of the city’s financial operations. I think it would be great if we could have more people in the suburbs contribute more to our budget, but the fact of the matter is that all that power, and I think I said this to you last time I was on the show, that the city of Pittsburgh exists because the state of Pennsylvania says it can. The power in this situation is with the state and with the state legislature, and we’ve got a situation here in Allegheny County where we’ve got a designation of legislators who listen to their constituents and move in the direction their constituents want them, and the vast majority of them represent districts outside the city of Pittsburgh because of our population loss. We’re not going to get to the point where we can convince a majority of our own legislators here in Allegheny County that we need to do something like that, let alone the rest of the legislators across the state. So, I think it’s unrealistic to expect that we are going to get any kind of a commuter tax as an earned income tax.
I think what’s more likely, and something that’s been discussed, is some kind of an increase in the local services tax, the $52 tax, and whether that would go up. When that was originally proposed as part of the Act 47 plan, the idea was that the tax wasn’t going to be a dollar a week, it was going to be $12 a month. It was going to be a $144 tax. If we had that $144 right now, we wouldn’t have a number of the problems that we have, and that would generate close to $20 million in revenue and would’ve enabled the city to do much more with respect to its own infrastructure and getting its own financial house in order. Some of that money obviously would’ve been directed to the pension fund as well. So, it’s a very difficult terrain up in Harrisburg when you’re dealing with these kinds of issues because you’re asking legislators to basically vote for a tax increase for their own constituents. But we’ve been fortunate to get what we’ve got and hopefully we’re going to be successful in convincing them that the $52 is a little low for the services that people avail themselves to every day, and it’s one of the things that people don’t understand. We are a city that has shrunk in population from a high of about 750,000 people down to now close to 300,000 people, and yeah, we still have basically the same amount of jobs in the city of Pittsburgh that we had at the height of the steel industry, and so we need to be able to provide police, fire and EMS protection to those commuters who come into town every day, and I can tell you that that costs a lot more than $52 a person.
Nicole DeMartino: That’s a good point. Jim, before you get to your next question, we’re going to take a quick break. We’re here with controller of the city of Pittsburgh, Michael Lamb, and Jim Lange. We’ll be right back with more of The Lange Money Hour, Where Smart Money Talks.
Nicole DeMartino: Well, welcome back to The Lange Money Hour. We are here this evening with Jim Lange, CPA-attorney, and Michael Lamb, controller of the city of Pittsburgh.
Jim Lange: Michael, you had mentioned that there are some competing interests even within Allegheny County, and I know one of the things that you have been very interested in throughout your career is, let’s call it, intergovernmental cooperation within the county and right now, I forget the number, but there’s a ridiculous number of municipalities, many of whom have duplicated services. Could you tell us what is going on with your efforts in, let’s say, consolidating some of these services, and I understand that you are very active in an entity called CONNECT, and maybe if you could tell us a little about that please?
Michael Lamb: Yeah, well, as you know, we have been trying to deal with this issue of our fractional system of government, and we have 131 municipalities here in Allegheny County, and many of them have police departments and they’ve got various levels of service, whether its fire or EMS, and so it’s been a problem even to the point where if somebody wants to come into the county and do some things, the fact that you have to deal with a bunch of different building codes and zoning ordinances and everything, it gets very cumbersome to try to do business here. One of the things that we try to do here in Pittsburgh, when I first got elected, I met with some of the officials, some people out at GSPIA, the Graduate School of Public and International Affairs at Pitt, and we talked about the idea of trying to get those communities that border the city of Pittsburgh to get together and start talking about opportunities for savings, working together on shared service agreements and other opportunities, and out of those discussions, the organization became CONNECT, which is the Congress of Neighboring Communities, and it’s Pittsburgh and those 35 communities that border the city of Pittsburgh.
We call them the “also urban communities” because they’re suburban communities, but they really are a part of our urban core, and when you look at a place like, for instance, Mount Lebanon, Mount Lebanon has a lot more in common with the city of Pittsburgh than it has in common with Upper St. Clair. Ross Township has a lot more in common with Pittsburgh that it has in common with Marshall and those northern-tier communities. This organization, these 35 communities, represents about 80 percent of all jobs in Allegheny County. They represent 90 percent of all transit stops in Allegheny County and they’re all members of the ALCOSAN Watershed, so we have so many issues in common and so many issues that we really need to address jointly because it just doesn’t make sense for us. When you’re talking about sewage systems and stormwater runoff and those issues, they really don’t pay any attention to borders. And so, we also recognize that a lot of these communities are reluctant to give up their identity and their economy and who they are, and so what we’ve tried to do at CONNECT is recognize these communities exist, but let’s try to make those borders less relevant when it comes to the provision of public services, and we’ve had great success. First off, just the fact that we are now together and talking for the first time is a great step forward. But we’ve seen some benefits and financial success and we’ve done a joint purchase of energy for the first time. And so, a number of those communities realize significant savings by joining with the city of Pittsburgh in purchasing bulk energy. We’ve generated $20,000 in savings for Wilkinsburg. Now, $20,000 doesn’t sound like a lot, but in a budget like Wilkinsburg’s, it’s significant savings. So, we’re doing those kinds of things. We’re working with our neighbors and communities on things like LED lighting. Last year, we took over Millvale’s water system, and two years ago, we moved in and started garbage collection in Wilkinsburg, and earlier this year, we began providing fire protection services to Wilkinsburg, and all of these things have been at least expense-neutral to the city of Pittsburgh, but in most cases, they’ve actually generated small savings for Pittsburgh and significant savings to the joining partner.
And so, we’ve done a lot of those kinds of things and we’re also working with Allegheny County on a number of fronts. Two years ago, we entered into an agreement to collect delinquent taxes jointly with Allegheny County, and that’s gone well. We’re seeing new revenue come in through that arrangement. We’re working right now with the county on a new financial management system, and ERP system, for the city where we will basically join an instance of the county’s existing system, and one of the big issues that we’ve had in Pittsburgh is that our financial management system is outdated, it’s not supported by any vendor, and we have significant problems there. If we have a crash, we lose data. It hasn’t happened to us yet. We’ve had crashes, but nothing so catastrophic that we lost any data, but we’re concerned. And so, we’ve found this solution. We were told that this was going to cost us close to $15 million, and we’ve found a solution that’s probably going to cost us something like $7 or $8 million, so with our county and with our neighboring communities, help generate savings for all the parties involved.
Jim Lange: And didn’t you have some success with 911 calls also?
Michael Lamb: We did. The city and county merged 911 about seven years ago, and since then, most of the municipalities in Allegheny County have joined. There are still a couple that are still doing their own 911 dispatch work, but I know that we just picked up another community within the last six months that has joined the county 911 system. So, for the most part, Allegheny County has a uniform 911 system, and that has not only generated savings, but that has really led to just a much stronger service. So, it’s a better provider. Now, I’ve been very active on the issue of EMS, and we produced a report from my office last year called Critical Condition, looking at the funding crisis that we have at EMS, not just in the city of Pittsburgh, but in all of our neighboring communities. Just in that circle of those communities that touch Pittsburgh, there were 17 EMS providers. We just merged one earlier this year. The West Mifflin system merged with Baldwin this year.
And so we have seen some of that kind of consolidation and we’re working to encourage more of that, but also, the main focus of this report that we did was that we wanted to do things, first to identify a funding source for the EMS to continue, but also raise the level of service because people who come to Pittsburgh work in Pittsburgh. They don’t all live in Pittsburgh, and even people who are in Pittsburgh travel outside of Pittsburgh, and, you know, you don’t want to have a substandard service provider coming to the scene of your accident or whatever the need may be. So, we’re really working with our neighboring communities to up the level of service in a way that is funded by this new funding source, which we’ve identified and hopefully are going to get the participation of our local hospitals and universities to help fund this value-added effort to EMS, and we’ve had very good discussions. We certainly haven’t finalized any agreement yet, but we’ve had very good discussions with UMPC and Highmark and the University of Pittsburgh and West Penn Allegheny about this kind of an idea, and so far, it looks like something that may happen. So that’s a great plus for us.
Jim Lange: OK, and by the way, just for our listeners in case somebody doesn’t know that acronym, EMS is emergency medical services because I know you used it about 10 times, and by the way, I do the same thing. I go into different things that we assume but not everybody does.
Michael Lamb: One of the things that’s important for people to understand about that, the paramedic service, the EMS service, really started out as a volunteer kind of a thing in most of the communities outside of Pittsburgh, just like the volunteer fire departments are. As time has gone on, the skill level required to be a paramedic, and even an EMT, have gotten so much higher. Right now, the education and training you need to be a paramedic is basically the same training you need to be a nurse, and nurses make significantly more money than paramedics. So, we want to make sure that we’re attracting good, qualified paramedics into this field and that we have these people out, not just in Pittsburgh, but in all of our surrounding communities. And so, this funding is really aimed at helping that situation. Those salaries are going to have to go up in the next few years, and with the way the new health care bill works, less reimbursement available, so there’s a real financial need there and we’re trying to address it in a creative way.
Jim Lange: Well, speaking of, let’s call it, transparency and keeping an open book, I understand that you have been fairly active in something called Open Book Pittsburgh, which is a website that, as I understand it, your office launched to give residents information regarding city contracts. Could you tell us a little about that, please?
Michael Lamb: Yeah, sure. When I ran for this office four years ago, we talked a lot about this issue of transparency and shining some light on what goes on in city hall and letting people really see what goes on because at that point, there was a lot of talk about this pay-to-play, you know, people give political contributions and that’s how they get contracts and all that kind of thing. So, we wanted to shine as much light on that situation as we could. So, we created this website called www.openbookpittsburgh.com, and it’s basically a database of every contractual relationship that the city has, and it’s searchable by vendor, it’s searchable by department, it’s searchable by purpose, you can go on and see every contract. And then the other part of the website is the financial contributions to all the political office holders in Pittsburgh. So, all the city council members, the mayor and I, we take all of that information and we enter that into our database, all of their financial reports from their campaigns. So, you can see who’s giving money to various candidates and here’s who’s getting contracts. We don’t really draw any conclusions on it; we just want the public to see what it is, and they can draw the conclusions themselves.
Nicole DeMartino: OK, we’re going to take another quick break. You’re listening to The Lange Money Hour, with Jim Lange and Michael Lamb.
Nicole DeMartino: Alrighty, welcome back to The Lange Money Hour. We are here with Jim Lange and Michael Lamb, controller for the city of Pittsburgh.
Jim Lange: Michael, I actually have two questions from one of our listeners, a guy named Bob Gallagher, who I’ve known for years, and he has expressed a little frustration. He’s saying, “What is going on with the Civic Arena?” And the town hall meeting that he went to said that if the Civic Arena is taken down and the development is put up, that’s going to mean thousands of jobs and roughly $25 million of revenue on an annual basis to the city. Can you tell us what is going on with that?
Michael Lamb: Well, I’ll tell you, it’s an interesting situation, and I feel his frustration because I agree with it. There is a group of individuals out there who feel very strongly about the significance of the Civic Arena, the historic nature of it, the architectural value of it. I can tell you, I’m not one of the people in that camp. I come from this issue from another point of view. I grew up in a neighborhood in the South Hills in Beechview, where my church when I was a kid was just built in 1960, and the reason it was built was because it was built to replace a church that was torn down to make way for the Civic Arena. So, a lot of the people from that community moved up to my neighborhood and became members of our parish. And so, I grew up with a lot of people whose families basically were kicked out of the lower Hill District to make room for the Civic Arena. So, when I look at that site and someone asks me about the historic nature of that site, I think of the old neighborhood that was there, not the Civic Arena itself, and I think that this idea that this building has some useful life beyond what it was does not sit well with me. It doesn’t hold water for me. So, I have no problem in trying to take some portion of that site and having some kind of designation of that arena. Someone suggested leaving the big arch up and maybe even one of the pieces of the outer shell of the arena up as some sort of a public space, which I don’t have a real problem with that.
Jim Lange: A little bit like the wall at Forbes Field.
Michael Lamb: Yeah, exactly. The wall at Forbes Field, you have one of the gates to Three Rivers Stadium is still intact, one of the pillars of the gates that went up. If they wanted to leave that superstructure that basically held up the roof of the arena, and maybe even one of the pieces of pie, so to speak, that came down, the convex kind of a triangle that comes down and create either a public space or even a performance space or something like that there, that’s one thing, but to hold up the development of that site, and that’s really all we’re doing right now because the arrangement with that site is that, the responsible party for developing that site is the Pittsburgh Penguins, and the Pittsburgh Penguins are not under any obligation to do anything on that site until the arena’s down, and once the arena’s down, the clock starts to tick. They’ve got 10 years where they’ve got to develop 1 acre of land every year for 10 years. Those 10 years don’t start until that arena’s down, and that’s the way the agreement stands. And so, we are right now just delaying, as your friend Mr. Gallagher said, we’re delaying the job creation, we’re delaying the economic development of that site.
And just let me say one more thing about that site. You’re familiar with downtown Pittsburgh and the lower Hill District. The Hill District itself should be the most vibrant neighborhood in the state of Pennsylvania. It sits between downtown Pittsburgh and Oakland, which are the second and third largest economic generators in the commonwealth, and here you have this neighborhood that has struggled for so long, and part of the reason it has struggled is because there have been barriers around that neighborhood, and one of those barriers was the Civic Arena. You think about downtown Pittsburgh and walking up to the Hill District, walking up to, say, St. Benedict’s Church, well, it’s like a wasteland between downtown, you know, having to crossover the Crosstown Expressway and then walk up beyond the Civic Arena, where if you had some development there and some sense of a neighborhood and whether it be commercial, residential, whatever, and hopefully this is going to be a good mixed use community there, you would be more inclined to venture up into the Hill District and be involved in the Hill District. I mean, the Hill District is a phenomenal neighborhood. It’s just a phenomenal place, and you have the Crawford-Roberts development that Mayor Masloff and Mayor Murphy completed, and that has spurred some great things going on up in the neighborhood, but because of that arena site, there’s too big a barrier between downtown and that neighborhood. So, anything that we can do to reestablish the street grid there and make it a more inviting entrée is something that we really need to do.
Jim Lange: Not to mention the $25 million.
Michael Lamb: Well, that’s right. I mean, certainly, however that site gets developed, it’s going to add value to us just from a property tax perspective and add jobs. So, we really need that. You look at the announcement last week. PNC Bank is going to build a 40-story tower. It’s going to keep 2,500 construction workers to work for three years. That’s huge for Pittsburgh, and you think about a site as big as the Civic Arena’s, the job creation is staggering. So, we really need to make it happen.
Jim Lange: Well, let me ask you another question. This also comes from Bob. This might be a little tougher for you, but Bob wants to know, and frankly, I do, too. Are you going to run for mayor? See, I was giving you a lot of softballs up to now!
Michael Lamb: Yeah, yeah. You know, I’m up for re-election this year. I run in the fall for a second term as controller, and I’m going to get through that, and once I get through that, we’ll decide what the future’s going to hold. But two years is a long way away. It’s something that obviously … I ran for mayor before. I ran back in 2005, and so it’s something that’s always been of interest to me, but it’s really something I won’t even begin to make a decision about until at least after this election’s over.
Jim Lange: I didn’t think that I’d get a yes or no answer for that, and that’s certainly fair enough. Could you give us a little bit of a progress report on the big dig? And I’m specifically talking about the tunnel running from downtown to the North Shore.
Michael Lamb: Yeah, well, I’ll tell you, it is really disheartening to me as what’s happened to transit in Pittsburgh over the last couple of years, and I know a lot of people are upset over this tunnel. The fact of the matter is, we need to extend that T, and whether we’re going to extend that T with a bridge to the North Side or a tunnel under the river, or however it was going to be, it was going to be a lot of money, and the fact of the matter is, this tunnel had significant federal funding in place for it, and so, I know as much as people get upset with that whole situation, extending the T is a good thing. It’s a good thing for Pittsburgh, and in getting to the North Side, people think, “Well, it’s just serving the stadium and the casino,” and it certainly is serving those, but there’s growing development over on the North Shore, and the fact is, that is the first step to both a northern extension to the T and a western extension to the T.
People forget that the airport sits north of the city. It’s west of the city, but it sits north of the Point, and so that’s exactly the way that we’re going to get to the airport with the T. Now, the fact that the airport is not today the airport that it was 10 years ago is a problem, and so maybe that’s not the extension that we should be pursuing right now, but we need to extend that T. Every great city has great transit, and right now, Pittsburgh doesn’t have great transit, and when you see what’s going on with bus routes getting cancelled … I just found out over the weekend that the U bus from South Hills doesn’t exist anymore. That bus was filled every single day. That bus started out in the South Hills, came down West Liberty Avenue, headed out to the Boulevard of the Allies, dropped kids off at Pitt, CMU and Carlow and all the schools out there, not to mention all the hospital workers and everyone else who used that service, and now that service doesn’t exist, and that’s shocking to me that we’re losing those kinds of connections.
The key to transit is to be able to connect the people from where they live to where their jobs are, and while Port Authority has done a pretty good job of that over the last 30 years, they’re starting to erode away and we’ve got to find a way to connect people. Now, I think there is a preference for some people for fixed-rail transit because it’s safer. You always know where fixed rail’s going, and so people are more inclined to ride it because they’re not going to have the kind of problems where you get on a bus and you’re not exactly sure where that bus is going to go. So, the tunnel under the river is proceeding on schedule and, the last I heard, was slightly under budget, or at least under the amended budget that they put through. So, it’s going to be up and running, I don’t know if it’s later this year or early next that it’s going to be … I think it’s early next year that it’s going to be operational. I notice the station over by Heinz Field is constructed by this point. So I have a feeling that if we are able to continue to add to that light rail system, by either a northern extension that could possibly go right out to the northern parkway there, the HOV lane, or some extension like that, that people will see that tunnel is maybe not the big boondoggle that it’s portrayed to be today.
Nicole DeMartino: I can’t wait until that tunnel’s ready. It’ll be great to go over to the North Shore so much easier. We do need to take a quick commercial break. We’ll be right back with more of The Lange Money Hour.
Nicole DeMartino: Alrighty, welcome back to The Lange Money Hour, and before we get to the last segment of our show, I just want to remind you, we did come on the air tonight at 6 pm, but every other Wednesday night, we are on at 7 p.m. As a matter of fact, I’ll just say this now in case at the end of the show we don’t have time, but next time on the show, on June 15th, two Wednesday nights from now, we’re going to be having Roger Ibbotson on the show. We’re very excited about that, and if you miss that, like I said, we’re on every Sunday at 9 am, 9 am Sunday mornings on KQV, and if you miss that, come on to www.paytaxeslater.com and you can hear all the shows, all of our archives right there.
Jim Lange: You don’t want to miss Roger Ibbotson.
Nicole DeMartino: No, not at all.
Jim Lange: He’s literally one of the top financial guys in the country.
Nicole DeMartino: So exciting.
Jim Lange: Yale professor, a phenomenal financial force. Michael, I have a question from Steve Kohman. Steve is a CPA and a certified estate planning expert from our office, and in addition to preparing income tax returns, he is also involved with doing Roth IRA projections and gift projections, and he doesn’t like the term “running the numbers,” but he is the guy who makes financial projections and helps us with long-term recommendations. But one of the things that he is not a huge fan of is some of the forms that he has to fill out for some of the city residents when he is preparing tax returns. So, he will cite the ET-1s and the LS-1s and the ISPSs, and frankly, it takes us time and it increases the cost of income tax preparation. If people try to do this on their own, it’s going to take their time, or it’s even more confusing if you don’t know those. He would consider these nuisance taxes. Do you have any opinion on the cost of compliance with all these forms, and he just says, “Hey, can’t you find revenue by increasing the income tax a little bit and make it simpler for everybody, or do we still need all these little forms?” And I don’t want to say tiny taxes because sometimes they can, maybe over time, generate a lot of a lot of money, but can you comment about what he would consider why is Pittsburgh so form crazy?
Michael Lamb: Well, we have a number of sources of tax revenue in the city of Pittsburgh because it’s the revenue that the legislature has granted to us. And so, there is an effort to try to be as fair as possible. The biggest tax source that we have is property tax. It generates almost $130 million in what is a $440 million budget. So, it is by and large the biggest tax that is paid, and for the people who are paying a mortgage, it’s taken right out of their mortgage and the mortgage company pays it, so really there are no forms involved, at least for the individual resident. But in Pittsburgh, as you know, we have an older population here and a lot of people had their mortgages paid a long time ago, and they are required to pay their property taxes. Then you’ve got your earned income tax, which is the next biggest tax that we have, which is a wage tax. It’s 3 percent if you live in the city — 1½ percent to the city and 1½ percent to the school district — and so there’s that tax and that requires filing of a PG-40, just like a 1040 or the state income tax form, so there’s that form. And then, the next really big tax that we get is the parking tax, which there’s really no forms for individuals to pay, and then the business tax, the payroll preparation tax, while you as a small business pay it, your clients probably don’t, unless they have a sole proprietorship or something like that. And so once you get past that, the local services tax, most people don’t have to file a form on that, that LS form, but a lot of times, there’s an issue whether if you’re a part-year resident, if you paid a tax somewhere else, you don’t have to pay it, or if you didn’t meet the income threshold, you get a refund back, and those kinds of things.
So that does generate forms. There’s no question about it. But each of those individual tax categories is critically important to Pittsburgh and how we operate. And so, I wouldn’t call them nuisance taxes. I think everyone thinks every tax is a nuisance to some degree, but these are taxes that the legislature have enacted for Pittsburgh, and they’re the taxes we’re allowed to collect, and as you know, they’ve made significant limits on what we can collect. We used to have a 50 percent parking tax and the legislature came in and said, “No, it has to be brought down to 37 percent.” So, we lost that revenue. We used to have what I think was a much more difficult tax for small business, the business privilege tax, which was a tax on gross profits, and the mercantile tax, the same thing. We don’t have those taxes anymore. We have the payroll prep tax instead. So as much as I think that there’s an argument he’s making that there are a number of forms, and the city’s not the best at dealing with how to collect those taxes, it’s actually a much better situation today than it was three or four years ago when we still had those more onerous kinds of taxes on business. But the one thing that we’re trying to do, we’ve looked at trying to put together a package for small business owners.
Jim Lange: About one minute, by the way!
Michael Lamb: OK, and that small business package would include things like filing dates and making filing easier, doing filing online, as well as something that you and I have talked about in the past, the ability to file for an extension on the income tax.
Jim Lange: We don’t have time for that one.
Michael Lamb: Yeah, but those are the kinds of things that we’re working on.
Nicole DeMartino: But actually, we are going to have to sign off now. Michael, thank you so much for joining us.
Michael Lamb: Thank you.
Nicole DeMartino: Thank you very much. We will be back in two Wednesdays at 7 p.m. with Roger Ibbotson, the father of asset allocation. We’re so excited for that show. You’ve been listening to The Lange Money Hour. Have a great evening. Good night.