PITTSBURGH State should declare city distressed, report concludes

The designation would give the city new tools to raise money, the report says.
PITTSBURGH (AP) -- Despite deep cuts and layoffs, the city's finances have continued to worsen, and the city should become the largest to be declared "economically distressed" by the state, a report released Tuesday says.
"Based on [an] analysis of the city of Pittsburgh's financial condition ... it is our recommendation that the city be declared distressed" under the state's Municipalities Financial Recovery Act, also known as Act 47, said Philadelphia-based Public Financial Management, which the state hired to look at the city's dire financial straits.
Dennis Yablonsky, head of the state department of community and economic development, will have 30 days to determine if the city should be considered financially distressed.
Impact of designation
The designation would give Pittsburgh new tools to raise revenue, such as a commuter tax on those who live outside city borders, but would likely also mean drastic spending cuts.
A state overseer would also be able to clamp down on future labor contracts with city workers.
David Miller, former budget director under Mayor Tom Murphy and now the associate dean of the Graduate School of Public and International Affairs at the University of Pittsburgh, said criteria for distressed status are wide-ranging.
"It's a threshold process, and several are obvious, such as a default on bond payments and missed payrolls," he said. "Others are really pretty objective, like a precipitous decline in the quality of public services. The DCED may be relying on some pretty anecdotal stuff on that count."
In the 41-page report, Public Financial Management noted among other things the city's credit rating being lowered to junk-bond status. The company also found that the city's spending exceeded revenues for at least three years, had a 5 percent deficit for two successive years and at least a 1 percent deficit for three years. Murphy said without new revenue sources, which can only be approved by the state, the city cannot remain on solid financial footing.
"It is clear and undeniable that the city that we all love is in severe financial distress," Murphy said at a public hearing on the city's request held at a large Pittsburgh union hall.
Mayor's criticism
At the hearing, attended by hundreds of city residents, Murphy admonished lawmakers who had criticized the city for not reigning in costs, saying Pittsburgh laid off one in five city workers from 1993 to 2002 and 640 in the past few months.
Murphy's proposed $398.6 million budget for 2004 was $42 million short. He has sought authority to raise revenues through new commuter and payroll taxes, but with no response from Harrisburg, he asked that Pittsburgh be declared a distressed community.
The city has been selling off assets and reshuffling debt for years. It has carried a structural deficit for a decade and likely more, city officials said. Murphy said the city can no longer rely on one-time fixes.
A number of state legislators argue that Act 47 should not be applied to Pittsburgh. Sens. Sean Logan, D-Allegheny, and Jane Orie, R-Allegheny, say Pittsburgh has bungled its finances and should sell off more assets before being allowed to increase taxes.
Since the state law was enacted in 1987, more than a dozen communities have been granted Act 47 protection.