Originally Aired: January 18, 2016
Topic: The Financial Health of Pittsburgh for 2015 with Pittsburgh City Controller, Michael E. Lamb
The Lange Money Hour: Where Smart Money Talks
James Lange, CPA/Attorney
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- Guest Introduction: Michael Lamb
- Pittsburgh’s Financial Health
- Tax Exempt Property
- Oversight of the Financiers of the City
- Open Book Pittsburgh
- Connect Pittsburgh
- Business or Politics?
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.
1. Guest Introduction: Michael Lamb
Dan Weinberg: And welcome to The Lange Money Hour. I’m Dan Weinberg, along with CPA and attorney Jim Lange. Tonight, we welcome Pittsburgh City Controller Michael Lamb back to the program. Mr. Lamb has been Controller since January of 2008, focusing on making city finances more transparent. He is an attorney, having graduated from Duquesne University’s School of Law. He’s active in the community, serving on the boards of the Kane Foundation and the downtown Pittsburgh YMCA, among others. Tonight, Controller Lamb will be talking with Jim about various aspects of the city finances, including what’s improved and what hasn’t since he last joined us on The Lange Money Hour last year, the latest on Mayor Peduto’s dispute with the ICA, the oversight board that monitors Pittsburgh’s finances, and how tax exempt properties can hamstring the city, in terms of real estate tax revenues. Now, let’s get that conversation started by saying good evening to Jim Lange and Controller Michael Lamb.
Jim Lange: Welcome, Michael.
Michael Lamb: Thank you. Thanks for having me.
Jim Lange: It’s always a pleasure having you. It’s so pleasurable to hear from such a knowledgeable public servant, who, in my opinion, is doing such a good job, and wherever you are in the political spectrum, to have good accounting and good people actually as Controller, if you will, is just so reassuring.
Michael Lamb: Thanks.
Jim Lange: And I really mean that. I always feel much better about the city’s finances, not that I start feeling so wonderful, but after talking with you instead of before. Anyway, it is no secret that Pittsburgh has some financial issues, significant financial issues. You’ve been on the show twice before and we’ve talked about some of those things in the past. How would you diagnose Pittsburgh’s financial health today?
Michael Lamb: Well, that’s an interesting question because Pittsburgh, while we think, I would say, on a year to year basis, we’re actually doing pretty well, but, as you know, we have some very serious long-term and legacy type issues in which we’re not doing so well. So, while I think, over time, we are really improving, I think, at least since I’ve been in office from 2008 until now, we have done a number of very good things. We have cut our long-term debt almost in half, and that debt continues to decrease every year. We have made real strides with the pension fund. Still a long way to go, but we’re moving in the right direction there. We continue to operate on an annual basis in a way that generates surplus dollars for the city, and part of that is because we have held down costs, but probably a bigger part of that is that we’ve seen a significant increase in revenues. Part of that is because we did have a tax increase last year, which I didn’t agree with, and frankly didn’t think we needed, and I think the numbers that have come in this year bear that out, that we probably didn’t need to raise property taxes last year, but we continue to see increases in our biggest sources of revenue, including the property tax and the wage tax for city residents. So, overall, I’d say year to year, we have a pretty healthy situation, but recognizing that we have some serious hurdles ahead that we need to continue to address, and hopefully, this year to year performance will enable us to do that.
Jim Lange: Well, how do you see the, let’s say, long-term financial picture?
Michael Lamb: Well, the long-term financial picture is interesting because we talk a lot…you know, I know that the times I’ve come on to this show in the past, we talked about the big issue out there, which is this huge pension liability that we have and the need to address it in a way that recognizes the promises that we’ve made to our current and past employees, but also recognizes that there are constraints. We don’t have unlimited resources. And so, one of the areas where I agree with Mayor Peduto is that we’ve made real efforts to be more realistic about what to expect from investment returns in the pension fund, and then also about what are the issues with respect to the lifespan of people in the pension fund, and what’s the real liability, not just some pretend actuarial calculation of the liability, but let’s get more realistic about these factors that go into that number, and then addressing it with directing more resources to it. So, we’ve made real strides over the last five years with pensions. Again, still a very long way to go, but I feel like, for the first time, we actually have a plan that will get us to a fully funded pension in the long-term.
Jim Lange: By the way, John Bogle has been on the show twice, and that’s one of his huge issues that he talks about, because there’s a lot of pension plans (California, city of Chicago) where they are using an unrealistic rate of return in terms of what they expect the market to yield and their investments to yield. So, if you pay out, if you’re a pension, like Pittsburgh or the school district, where you actually have annual payments, you can’t have all your money in stock because if the market goes down, you’re really going to be hurting. So, the way Jack Bogle thinks about it is he’s saying, “Well, maybe you can expect a seven percent return on stocks. Maybe these days, maybe a two percent return on fixed income at best, and if you’re, let’s say, fifty/fifty, that’s maybe four-and-a-half percent, and then maybe a half a percent for costs.” And so, he thinks maybe using something more like four percent is realistic, and you hit the nail on the head before, that there was an unrealistic assumption. What are some of the assumptions made now with regards to interest and, let’s say, longevity also?
Michael Lamb: So, when I started with the pension fund back in 2008, they were using an assumed rate of return of 8.75%.
Jim Lange: Which is just crazy.
Michael Lamb: Yeah.
Jim Lange: And is the reason they did that because that meant they didn’t have to contribute as much currently?
Michael Lamb: Exactly.
Jim Lange: So, it looked a little bit better for the current administration and not so well for the future administrations?
Michael Lamb: Yeah, it had more to do with the annual budget than it did with realistic returns of the pension fund, and so state law allowed them to have a return as high as that. And so, when I got in, I really pushed to lower it, and the first year that we were in, we lowered it to eight, which is still too high.
Jim Lange: Um-hmm.
Michael Lamb: Now, last year, I was able to push through a reduction to seven-and-a-half. I would’ve liked to have gone to seven. I actually think it should probably be lower than that.
Jim Lange: Yeah, I’d like to go to about four, by the way! On the other hand, then you’d have half the budget going to the pension.
Michael Lamb: Well, that’s the thing. If you were at a four percent rate of return, the city’s contribution to the pension fund would probably be about $150 million.
Jim Lange: And what is it currently?
Michael Lamb: And in a $500 million budget, you’re not going to put 150 of it into the pension fund. So, right now, I mean, this year, I think the city has made some wise decisions. So, this year, the city puts in, out of the budget, about $60 million in the pension, and the employees put in another 12. And so, we’re getting to the point where we are basically putting into the fund at least what’s being paid out of the fund on an annual basis. So, if we’re paying benefits out in the $80 to $85 million range, we want to get to the point where we’re at least putting that much into the pension on an annual basis, and then allowing the portfolio to grow. The pension fund portfolio right now is around $400 million. It has increased every year for the last few years. On top of that, the pension fund owns a future interest in parking revenues, and the valuation of that parking asset is around $250 million. So, that’s what the city has. Now, obviously, that asset is not liquid and the investment portfolio is not particularly liquid, but if we can get in a situation where we’re paying in the same amount that we’re paying out, then we can allow those portfolios to just grow over time, and you have to assume that over the course of a thirty-year amortization, that your equities will grow. But whether they grow at the rate of seven-and-a-half percent or not is probably questionable. But at least we’re moving in the right direction.
Jim Lange: Okay, well, that actually is important, and it’s nice to know that there is somebody who’s watching. I suspect, as you said, you’d be comfortable with an even lower number, as would I. I mean, frankly, it would scare the bejeevers out of me if I had a client who said, “Well, I’m going to retire, but I need to count on a seven percent return for the next thirty years or I won’t have enough money to meet my basic needs,” and I would probably tell that client to keep working, but that’s another story.
Anyway, so you had mentioned one of the big issues was tax exempt property, that is, real estate that is not currently paying real estate taxes, and the last time we spoke, you said that forty percent of the property in the city is tax exempt, such as our nonprofit organizations like the universities and UPMC, which is certainly a tax exempt nonprofit, right?
Michael Lamb: Right.
Jim Lange: And that was frustrating. Mayor Peduto said he wanted some of these organizations to play a bigger role financially. What is the status of what’s going on with some of the exempt properties now?
Michael Lamb: It’s a really good and important question, and I wish I had better news to report, but the fact is there hasn’t been much change. It’s one of the biggest disappointments, I think, of the first couple of years of this administration, that they have yet to extract any kind of agreement with our large nonprofits, with respect to whether it be a payment in lieu of taxes, or some kind of substitute taxation model that they would contribute to the city. Up until this administration, we at least had some participation from our large nonprofits in a payment in lieu of taxes arrangement where we were getting maybe three or four million dollars a year from our large nonprofits. The last few years, we haven’t even gotten that, and so it’s a problem and it’s something that I know the mayor has said is a priority, but there doesn’t seem to be the kind of urgency around that that I’d like to see. I know they continue to tell us on our biweekly conference calls that they are talking, but as of yet, nothing has happened, and I think people need to understand that while the city, we use the number of forty percent tax exempt, that does not mean that forty percent of the land is owned by the hospitals and universities. A large chunk of that land is actually owned by the city, and so when you think about Schenley Park and Frick Park and Highland Park and these large tracts of land that the city owns, and then the properties that the city owns just in its basic functions in operating the government, then add to that the properties that the state or the county or the federal government own, probably half of that forty percent is actually owned by governments. So, that other twenty percent is what we’re talking about, and granted, it is owned by organizations that are very healthy financially in the city. It’s owned by one of the large nonprofits, is our largest employer, and in addition to not paying…
Jim Lange: You’re talking about UPMC, of course.
Michael Lamb: Yeah, a property of UPMC, and in addition to not paying property taxes, they also do not pay the payroll preparation tax, which is our basic business tax, for which they are also exempt, and the fact is, we are providing significant services to those organizations every day. I mean, we’re delivering patients through our EMS service to UPMC every day, and AGH and the other hospitals in town. We are providing the road network for people to traverse this city, whether they’re going to the University of Pittsburgh or CMU or to a doctor’s appointment. So, there needs to be a way that they are contributing meaningfully to the finances of this city, and whether that is through (as we have in the past) a direct subsidy to our operating budget, or whether it’s through some calculation of a capital fund to help us with our infrastructure costs. There has to be some way that they can play a more meaningful role in our finances.
Jim Lange: Well, if I recall, there was an issue before where companies were trying to avoid transfer taxes by having 99-year leases, and you just cut that out…
Michael Lamb: We did.
Jim Lange: …legislatively.
Michael Lamb: Right.
Jim Lange: Couldn’t you do something like that? So, for example, in the preparation of nonprofit returns, there’s sometimes profit centers within a nonprofit. So, for example, the gift shop at a hospital is actually a tax paying entity. Could you perhaps take a look at…and I guess UPMC’s an easy target. Of course, I might get denied coverage after this radio show, but wouldn’t it be fair and reasonable to say there are certain profit centers in UPMC, and there’s some allocation and they have to pay tax on that?
Michael Lamb: There are, and you’re right. I mean, UPMC becomes the bad guy in this in a lot of discussion, and it’s probably not fair because when you think about some of the things that UPMC has done, I mean, when UPMC moved its headquarters from tax-exempt properties in Oakland to a leased space downtown, where their property taxes do get paid at the old U.S. Steel Building…
Jim Lange: Until they buy it, and then they don’t get paid.
Michael Lamb: But for right now, what they did is, they fundamentally changed the real estate market downtown. The real estate market downtown is one of the healthiest in the country, and part of that is because of the huge amount of space that UPMC took in our biggest building, which had ripple effects throughout downtown. So, you’re right that UPMC gets painted as the bad guy in this, but not everything they do is bad, and in that respect, that really did help the city. But they still are our largest employer, they are our largest property owner, and they don’t pay property taxes and they don’t pay payroll preparation taxes, and that’s a problem. It’s a real drain on our city and we need to find a way to have them contribute more meaningfully.
Jim Lange: Okay. All right, well, so, in the Post-Gazette, and, of course, the Post-Gazette is obviously trying to needle politicians, just like Cooper Anderson’s saying, “Oh, you switched positions. Why did you feel one way one day and another way another day?” And you had switched your position with regards to Mayor Peduto in the oversight of the financiers, if you will, of the city. First, could you tell me what your original position was, what the changed position is, and why you had made a change, if that’s a fair question?
Michael Lamb: Yeah, I don’t know that I ever switched positions. I think just what happened recently is that I articulated a position. I hadn’t really taken a position prior to a few weeks back, and the position that I took back in September was that I agree with the mayor.
Jim Lange: Why don’t we start at the beginning and talk about what the issue is?
Michael Lamb: The issue is that the Intergovernmental Cooperation Authority (which is an oversight board that has been set up to basically oversee city finances through budget and other financial matters) has the ability, under state law, to withhold gaming funds that are due to the city of Pittsburgh. So, the gaming funds that come from our hosting a casino here in the city of Pittsburgh generates about $10 million a year for the city of Pittsburgh. But that money is not distributed to the city until the ICA has said that the city has complied with various financial requirements, one of them being passing a balanced budget, and in other items that they have said are important to the city’s financial health. And so, the ICA is withholding that money from 2014, meaning last year’s money was being withheld by the ICA because they felt that the city had not complied with many of the conditions that they had put in place when they passed the budget in 2015. The position I took in September was that, while I agree with the ICA that maybe we have not fully complied with their conditions, we have substantially complied with many of them, and that should be enough for them to begin to release that money, at least some of it, to the city of Pittsburgh. I think if you read the editorial in the Post-Gazette a couple days ago, it took a very similar position to the one that I have, which is okay, we haven’t fully complied with this…for instance, in this case, the payroll implementation project that we’re going through right now, but it doesn’t make sense for us to start a payroll project right now when we’d have to do mid-year transfers and other bureaucratic kind of nightmares when we could start it on January 1st and be clean and not have to go through that mid-year transfer financial mess. And so, what they suggested in that editorial was you should release half the money now and release half of it after the first of the year, which I think is a very reasonable way to handle this. So, I think that my position, while it is in agreement with the mayor that they should release the funds, where I disagree with the mayor was them filing a lawsuit over it, because I think that has just held up the process.
Jim Lange: Okay. Well, that does clarify it. So, did you say that the amount would be roughly $10 million? So, you’re saying, “Hey, just give us five now, and then maybe after the implementation, give us the other five later, and let’s get the attorneys out of this deal.”
Michael Lamb: Exactly, and it works out to be a little different than five because the ICA has already committed a large chunk of the money that the city can avail itself to, basically as a reimbursement-type situation. So, the city just needs to produce the invoices that certain work was done. Some of the money was directed to facilities and fixing some facilities. We have done a lot of facilities work this year, so we could submit those invoices and get that money. The money that was left over is around $5.8 million, so they’ve agreed to release $2.9 million of it now and $2.9 million of it right after the first of the year, which is the action they took at their meeting yesterday, actually.
Jim Lange: It’s always such a pleasure to have Michael on the show. He does such a good job in his role as Controller and articulating it so well in this and many other forums. I think one of the new things, or, at least, one of the more popular concepts, is the concept of transparency. It’s certainly in my business. So, for example, I always tell people they will know to the nickel how much money I am making on any particular transaction. So, for example, if we are managing money, it’s very clear what we’re making. There’s no hidden fees. There’s no backdoor cuts. It’s transparent, and I think people really like that, and I think the government is starting to become the same way. I know you have been, let’s say, outspoken in your support of Open Book Pittsburgh, and the website www.openbookpittsburgh.com. Can you tell us a little bit about that, your history with it, and where it is now and where you hope it will go in the future?
Michael Lamb: Yeah, when I first ran for this office, one of our major objectives was to really shine a light on city finances, and to really open the windows of city government so people could actually see what’s going on and see it in a more meaningful way. So, Open Book Pittsburgh was actually an idea that came out of a conversation I was having with Tom DiNapoli, who is the comptroller of the state of New York, and he and I were talking and he was talking about developing this idea for the state of New York, and so it’s something that I kind of adopted as something we would try to do, as well. Basically, it’s a database of all of the city’s contractual relationships that is searchable by vendor, by department, by purpose, so that you can actually see the city’s contracts, and so that you can go in and you can actually see who’s using a contract, who’s getting city business. You can actually go on and click and actually pull the contract up and read it. And so, it just gives you an understanding of all the city’s contractual relationships, and then what we try to do is, we then add to that all of the city’s elected officials, their financial contributions so that you can see, okay, so all of these people are giving money to elected officials, and all these people are getting contracts, and it shouldn’t be too much of a surprise that sometimes they’re the same people. And so, we don’t make judgement about it, but we just want that information out there. We want people to see and be able to disclose all of that information, to see where your tax dollars are going.
Now, the next phase of this project will be (and we’re working on this right now) not only will you be able to see the contract, but now you’ll actually be able to see on a periodic basis how much money’s actually spent on that contract. So, how much money was spent on this contract in 2015? And you’ll be able to see that number and see how much money is spent. So, we’re basically taking that database now and tying it back to the city’s financial management system, which we’ve developed over the last few years, so that it’ll become a more meaningful tool moving forward. But I think the main point of it is that it gets to what we’ve tried to do all along, which is just what you said. Let’s be more transparent. Let’s get all the information out there for a number of reasons.
First off, we’re talking about public dollars, and people should be able to see where their public dollars are being spent. But the other advantage of it is when you provide this kind of information to more people, more people get engaged in the issue, and some of the best ideas that we get come from citizens who contact and say, “Hey, have you ever thought of looking at this?,” or, “Hey, I saw this and it might be a problem.” So, getting people more engaged in the issue of city finance is important. So, in addition to doing Open Book Pittsburgh, now we’ve taken that big, nasty book that’s our annual financial report that’s full of accounting speak and probably more technical language, and we’ve boiled that down into something we call the “popular annual financial report,” which is sort of a layman’s version of the city’s finances on an annual basis, and we produce that now every year. It’s available on our website. It’s also available in hardcopy. We don’t print that many of them, but enough to get around to libraries and community leaders and others so they can kind of get an understanding of where we are on an annual basis. Again, it’s the goal of getting people more engaged and informed on city finance.
The most recent addition to this kind of information is OpenGov, which is a website that we’ve created in collaboration with city council and the mayor’s office. We worked on this budgetary module, which basically takes the city’s budget and creates a visual representation of the budget. So, different kinds of graphs can be used, and you can go in and play with this and do whatever you want to do with it, but what I find most helpful with it for us is it allows us, on a monthly basis, to go in and update, in real time. So every month, it shows you how much money we spent, where we are in the budget this year, compare it to the current budget, but then also compare it to where we were, say, in October of last year. Are we spending more? Are we spending less? Are we bringing in more revenue? Bringing in less revenue, in each of the various code accounts. And so, it really allows us to keep track of any trends that may be problematic, but not just for us, for anyone. Anyone can go on and really look at this data and be informed about our budget and about our spending, and so far, we’ve gotten very good reaction from it.
Jim Lange: I actually love that idea of the transparency. Why don’t we review the websites that are open to the public? The first is…is it OpenPittsburgh.com?
Michael Lamb: OpenPittsburgh.com. That’s the contract website. You can just access it at that address, or you can link to it from the Controller’s website at PittsburghPA.gov.
Jim Lange: Again, that’s www.PittsburghPA.gov.
Michael Lamb: And then you go to ‘Controller,’ and then you’ll see the budget for Controller, and then the Controller, you can click on and you can open up our annual financial report, you can open the popular annual financial report, you can go to Open Book Pittsburgh. Then, the other site is OpenGov, and the website for that is www.FiscalFocusPittsburgh. So, Fiscal Focus Pittsburgh is our version of OpenGov. So, it’s www.FiscalFocusPittsburgh.com.
Jim Lange: Okay.
Michael Lamb: And all of those are accessible right off of the Controller’s page on the city website, and they’re fun. The Fiscal Focus site has been really interesting to go in and kind of play with…you can really dig down deep into the city’s budget.
Jim Lange: All right, well, I think that’s terrific. One of the things that the budget might not show though, we talked a little bit about the pension earlier. But one of my big things is infrastructure because I really like infrastructure. I like good roads and good pipe systems and clean rivers and things that are really important to the quality of life, the sewer systems we talked about before. Can you give us a little report on the infrastructure?
Michael Lamb: Yeah, we’ve talked about the two big legacy issues that we have in the city, and then we talked about the pension debt, but, in many ways, our bigger deficit is this infrastructure deficit that we have. If you drive around the city right now, you see it. I mean, you see our staircases crumbling. You see the need for paving on streets. Tonight, we’re closing the Greenfield Bridge.
Jim Lange: Oh, the party was last night. Is that right?
Michael Lamb: Yeah, right, yeah.
Jim Lange: Oh, we missed the party!
Michael Lamb: Yeah, right! So, the Greenfield Bridge is going to be closed and torn down, and actually the Parkway is going to have to be closed to bring that bridge down and build a new bridge, and that’s a city project. That’s a city capital project that we’ll be involved in for the next year, restoring that bridge, an important connection.
Jim Lange: Is it just a year? I thought it was longer.
Michael Lamb: It will be longer than a year. But the Parkway won’t be closed for a year.
Jim Lange: No. You’re pretending it will just be closed for a week, right?
Michael Lamb: Yeah, a lot of people are pretending that! I have a feeling it’s going to be a little longer than a week…
Jim Lange: I do too.
Michael Lamb: …given the work that they’re going to need to do to clear that area out. But the infrastructure progress that we’re making, we are in a better situation than we were a few years ago because we are putting more money into our capital budget, and we are beginning the process of sort of responsibly borrowing for capital projects again. But we’re still not spending the kind of money we need to just maintain ourselves. If you think about the city of Pittsburgh where we’ve got 800 miles of roads to maintain, and asphalt lasts about eight years, that means you need to do almost a hundred miles of roads a year, and we’re doing fifty…well, we’re doing a little more than fifty this year, so we have a long way to go.
Jim Lange: One of the things that concerns me regarding the infrastructure is, let’s say, inefficiency, such as if a bridge can be maintained, but there aren’t funds available to maintain it, and then it falls in disrepair and has to be replaced completely, that’s not a smart use of government money. Is this the kind of thing that is going on that you are trying to prevent right now, and how much of this is city, county, state and federal?
Michael Lamb: Yeah, that’s part of the problem. We are a city of bridges, and a number of them have been determined to be structurally deficient. And so, while I think it would be great to be able to say okay, from here on out, we’re going to maintain these bridges better and they’ll last longer, so to speak, the problem is we have so many bridges that are deficient that we have to direct those resources there. We had a bridge in the North Side a few years ago, if you remember the Davis Avenue Bridge, which got so bad we just had to tear it down, and it has never been replaced. And so, those neighborhoods there in Brighton Heights, around there, who always had very easy access over to Riverview Park because of the Davis Avenue Bridge, they no longer have that, and we don’t want to get to the point where it just gets so bad that we just have to drop bridges around the city of Pittsburgh because we need them so desperately to be able to connect our communities and to get around. So, I think what’s happening right now with the capital budget process, which is a much more inclusive and robust process than we’ve had in the past, is a real step in the right direction, where citizens are much more involved in the process and understanding of the process. I think, on issues like that, they are helping guide the public officials to say, “Hey, these are the things that our community needs,” and certainly, bridges are a big part of that.
Jim Lange: And do you see more money than you’d like perhaps going to new roads rather than fixing and maintaining existing roads and bridges?
Michael Lamb: Well, if you think about it, in the city of Pittsburgh, we’re not doing that many more new roads. I mean, we are focusing on the infrastructure that we have and maintaining that infrastructure. But even that, because we’ve gone through this period where we were almost a bankrupt community, and for seven or eight years, we really weren’t investing in our infrastructure at all, or, at least, very minimally, we’ve got a lot of catch up maintenance to do. So, we’re kind of behind in just doing that kind of basic maintenance of what we have. And so, you’re not seeing a lot of just brand new roads to here or there. It’s a matter of maintaining what we have, and I think that’s where we need to be right now.
Jim Lange: All right, and as long as we’re talking about miserable infrastructure problems, can you give us an update on the sewage system?
Michael Lamb: Yeah, that’s the biggest one. I mean, that really is the biggest problem we have, and the problem is that people don’t see it. You walk on your steps and your sidewalks and your streets every day, but the sewer system you really don’t think of. It’s out of sight, out of mind. But it is the biggest infrastructure challenge that we have. Over the next twenty years, we’re going to be spending billions and billions of dollars in upgrading the system so that we can keep our rivers and waterways clean. And so, this project that’s about to get underway will hopefully add some green infrastructure that will enable us to maybe minimize the cost of it, but it’s still going to be a very expensive proposition for the city of Pittsburgh and the surrounding communities that are all part of the ALCOSAN system, and it’s a project that’s about to take off, but it’s going to be painful, both in terms of the construction involved, but also the cost.
Jim Lange: Michael, one of the things that has impressed me about this interview is that it seems that you are trying to be a good watchdog of the city’s taxpayer’s money, and trying to do things efficiently, like we talked about fixing things before they break. One of the issues that I would imagine, or, at least, I hope is on people’s minds, is, let’s say, some duplication of services between, say, the city, the county, the state, multiple police forces, multiple fire stations, things that really, looked at in the big picture, aren’t necessarily the most productive, and I understand that there is something called ConnectPittsburgh.com that might be attempting to address these situations. Can you tell us a little bit about Connect Pittsburgh?
Michael Lamb: Yeah, well, it’s interesting because it does address that very issue that you raise. I remember the former sheriff of Allegheny County, Pete DeFazio, he called me one day because he was getting ready to give a speech, and he wanted to talk about improvement of services for local governments. And so, we were talking a little bit about that, and I said, “So, who are you speaking to?” And he said, “I’m speaking to the Chief of Police Association of Allegheny County.” And I said to him, “Well, one of the problems is that you’re talking to an organization that is reflective of the problem. The fact that we have so many chiefs of police in Allegheny County that they could form an association is a bit of the problem of this overlap of government.” And he basically said, “Well, I can’t really say that to that audience!” And he’s right, you know, and I get that.
So, what we’ve tried to do, when I first took office, we recognized this need for the city to work better with its neighbors, and understanding that our neighbors work better with each other than we do. So, the idea of creating a congress of neighboring communities for all the communities in the urban core of this region, meaning the city of Pittsburgh…it started out as the city of Pittsburgh and all those communities that touch the city of Pittsburgh, of which there are thirty-six communities, and beginning to reach out to them, understanding that the urban core is not just Pittsburgh, and understanding also that a community like Mt. Lebanon has similar problems to the city of Pittsburgh, more so than it probably does with its further out neighbor of Upper St. Clair. They have the same issues with respect to transit and these water and sewer issues that we’re talking about. And so, in many ways, they are closer aligned to the city on these kinds of policy issues than they are with maybe their next outer ring suburb. And so, we started this idea of let’s create an organization that recognizes the independence of all these communities, but tries to make these borders less relevant when it comes to providing basic services. And so, we formed this organization. It’s now in its sixth year. They meet in Congress once a year, actually pass resolutions that affect policies within the urban core, and they’ve really had a great impact both financially and in terms of just policy.
For instance, for the first time, because of this organization, the city of Pittsburgh partnered with many of these municipalities in doing energy purchases. By pulling all of these organizations together, we were able to bid on our energy purchase at a much lower rate than we were paying before. And so, the city saved money, Wilkinsburg saved money. That first energy purchase that we did that involved Wilkinsburg saved $20,000 for Wilkinsburg on an annual basis. Now, that doesn’t sound like a lot of money, but for a community like Wilkinsburg that’s really struggling, that was a big deal. And so, the fact that we were able to lend our resources and bring them to the table, and they’re able to come in and realize a financial benefit, and also allow us to get a financial benefit out of it, is the kind of projects that we try to focus on at Connect.
One of the things that I was probably most involved in, after helping to create the organization, was something that came up at a Connect meeting, and it was the problems with respect to EMS services. The suburban communities, a lot of them, their EMS service is a subscription service, or there are a bunch of different mutual aid-type relationships out there, and the city, of course, it comes right out of your taxes and we pay for our paramedic service here in the city of Pittsburgh. But there are a lot of real difficult forces at play there.
One is that our medical reimbursements have gone down, so there wasn’t as much money available for paramedics. At the same time, the training necessary to become a paramedic is basically the same training you need to become a nurse, and nurses walk out of the door and they’re making in the forty to forty-five thousand range, where paramedics were much lower. And so, there was this significant salary pressure on all of these systems out there, and costs were going up, reimbursements were going down. Who’s going to pay? You couldn’t rely on your subscription services, so the governments were actually having to subsidize these services out there. We worked with the Allegheny County EMS council, to all the municipalities, and we were able to create a service, a value added service, so to speak, that we could seek funding from our large nonprofits. So, Highmark and UPMC, the two people who don’t agree on anything, agreed on this. They agreed to fund the pilot project that basically allows for preventative care in some communities of people who were really availing themselves to the ambulance service on a regular basis. And so, by going in and doing preventative care with these individuals, whether it was an asthmatic situation or a congestive heart failure situation, they were able to take those individuals out of the ambulance service, and therefore out of the emergency room, save money for everyone, and now it’s a new service that is provided, not just in the city of Pittsburgh, but in all of those communities around the city of Pittsburgh, and it’s been a great success, and something now, that we think, now that the pilot is coming to an end, that both UPMC and Highmark will continue because they’ve seen the financial benefit of it. So, those kinds of things come out of those kinds of discussions where we can work collaboratively and save money.
Jim Lange: You know, I’m sitting here thinking…I’m asking you these questions about the city finances, and you spent a lifetime doing it and you’re answering them so articulately, and I guess it’s no secret that I supported you as Mayor and if you had gone on to an even higher position, I would think, “Okay, this guy’s smart. He knows what he’s doing. He’s been in the thick of it. He gets the issues.” And I don’t mean to disparage any particular party, but now, we have a Presidential race where we have, in effect, political novices who’ve never really run anything. Maybe a business, but that’s a completely different deal. Do you have any fears, or do you think that it’s not all that important for people to…let’s even just say your area of expertise, which is, let’s call it, more in the financial area, do you think it is realistic for candidates who have not had this kind of experience to think they will be able to run a country or a portion of the country should they win?
Michael Lamb: Well, the great thing about a democracy is that anyone can run. The question is, how successful can they be if elected? And I do think that we’ve seen some examples where it has worked, and some examples where it hasn’t. I know we had a friend of ours that we know very well here in Pittsburgh, Jim Roddy, run for county executive a few years ago and he had never been involved in political office. He ran for county executive and came into office with the idea that he was going to run government like a business, and I said to him, “You know, running government like a business is great, as long as you remember who the shareholders are.” And sometimes, I think, the difficulty that people in business (CEOs) have in political life is that they don’t quite understand that when they say, “We’re going to do this,” it’s not the same as when you’re in business. “So, we’re going to go down this path, we’re going to make these decisions and we’re going to move this policy forward.” Because of our democracy, we have hurdles that are put in the way. There are checks and balances that are put in the way. There are interest groups that are in the way. And so, while you might have this idea that we’re going to get in and we’re going to do A, B and C, sometimes you’re not able to get those things accomplished because there are hurdles, and some of them intentional hurdles that are put in the way of these kinds of policy implementations, and sometimes, people in the business community have a difficult time understanding that.
I would also say that what I’ve seen is when we’ve had individuals in the business community, they are very competent and capable people, but they don’t quite get that government, by its own nature, requires a kind of transparency and disclosure, and all these kinds of things that I, as a public official, take for granted that you have to do: sunshine laws and right-to-know requests and all these kinds of things that, a lot of times, that’s something that is unfamiliar to someone who has run their own company and called their own shots, and I think, to some degree, Governor Wolf is having a problem with that right now. He’s a guy who ran his own company, and now he’s running the state government, and he’s getting blocked by Republican legislature, and I think it’s been a real struggle for him.
Jim Lange: Well, of course, I’m probably not all that worried about, let’s say, the struggle for him, but I’m wondering is this a good thing for the public and the taxpayers?
Michael Lamb: Well, I would say, the one thing that’s good about it is that these unconventional candidates have made this election year more interesting. People are paying more attention to the debates. People are watching. Whether you’re talking about Donald Trump, or even locally here, we have a United States Senate candidate, a very unconventional candidate, John Fetterman.
Jim Lange: Is that the Mayor of Braddock?
Michael Lamb: He’s the Mayor of Braddock. He’s bringing a level of interest to that race that wasn’t there before he got in. And so, I think that the fact that these kind of unconventional candidates come in to the campaign, so people begin to pay more attention is great. The question, really, is, what you’re concerned about, is if they’re successful in the election, can they be successful in governing? And that’s really the struggle.
Jim Lange: Okay, it looks like we are getting the signal. I will thank you again for a wonderful interview. Again, you’ve given, I think, a public service, and make me and hopefully many listeners have a great feeling about what is going on in the city of Pittsburgh, in terms of the competence of the people who are overseeing the finances.
Michael Lamb: All right, thanks. Thanks for having me.