Update (5/13/2020): The city of Pittsburgh revised its budget deficit upwards and now is expecting a 25% decline in revenues, stemming from the coronavirus’ effects on the economy. That equates to a loss of $31.9 million.
City departments are expected to do some belt tightening and cut 10% in non-personnel costs from spending.
“The City is holding its own through frugal spending but the gaps between our revenues and expenditures are likely to widen further,” Mayor Bill Peduto said in a statement. “With the help of City Council and the leaders of all City departments we will have to keep a hard watch on spending until the financial impacts of the COVID-19 pandemic become clearer.”
Payroll, parking, earned income and property taxes could drop $97 million this year.
Update (5/4/2020): Mayor Bill Peduto announced a hiring freeze May 4 that will leave 64 open positions unfilled to save an estimated $3 million in salaries while the city addresses the financial strain of COVID-19.
Update (4/20/2020): Mayor Bill Peduto released a letter to President Donald Trump dated April 18, requesting $250 billion in emergency funding for cities, like Pittsburgh, facing shortfalls in the wake of the pandemic. Peduto estimated a more than 20% shortfall in Pittsburgh’s projected revenues. That represents a loss of about $127 million from the $608 million budget approved last year.
To make payroll during the COVID-19 pandemic and subsequent economic crisis, the City of Pittsburgh could spend down the roughly $85 million the government had in reserves as early as July.
In Thursday’s online address to the city to thank Pittsburghers for their sacrifices, Mayor Bill Peduto described “dark days ahead for the city’s budget.”
And he warned that “a shortfall of tens of millions of dollars this year” will likely mean large spending cuts ahead.
But, Peduto said, “No city is more resilient or better poised to recover than Pittsburgh. … We’ve been knocked to our knees before and always find a way to stand back up — it’s in our DNA.”
Roughly nine in 10 U.S. cities — including Pittsburgh — expect a revenue shortfall due to the novel coronavirus, according to a National League of Cities survey released this week. Half of the surveyed cities anticipate scaling back public services.
City leaders have not yet quantified the extent to which expenses are outstripping revenue.
But the city’s four biggest revenue generators — real estate, earned income, payroll preparation and parking — have all taken hits in the wake of stay-at-home orders. More than 1.3 million Pennsylvanians have filed unemployment claims since March 15.
Councilman R. Daniel Lavelle, chair of the Finance and Law Committee, told PublicSource that he expected the city’s reserves to cover payroll for another three months.
Pittsburgh Controller Michael E. Lamb said there was no question collections are down, adding city leaders should have a better idea how deep of a financial hole they have to dig out of by the end of the month.
Lamb expects the hardest hit revenue sources to be the parking tax — the city’s third largest revenue generator — and the amusement tax, levied on Pittsburgh entertainment, which includes, among other things, concerts, athletic events, movies, amusement parks, vaudeville and the circus.
For example, as of April 8, the city had collected a little more than $448,000 in parking tax revenue compared to the $13.3 million raised by the end of April last year. The amusement tax collected this year as of April 8 shows a negative balance of -$2,306.15, according to the controller’s report, compared to having collected $4.4 million in the first four months of 2019.
And while homeowners can spread out their property tax payment over three installments through the end of July, Lamb said, “most is in.”
Over roughly the first 13 weeks of this year, the city collected $112.9 million in property taxes compared to $124.7 million over 16 weeks last year.
“The good news is, over the last number of years, the city has learned to work with limited resources,” Lamb said, referring to the city’s work removing itself from Act 47 financially distressed status. “We have put aside for a rainy day, and here’s the rainy day.”
Best practices call for municipal governments to minimally save two months of operating expenses in unrestricted reserve funds. At the beginning of the year, Pittsburgh had about 7.3 weeks on hand, but these reserves will be also used, in part, to pay pension costs.
Lamb and regional economist Chris Briem argue the city is in as good a financial position as it can be, given the unfolding economic crisis. This, they said, is due in part to the fact that the city’s largest employers haven’t yet resorted to layoffs, which would further depress the collection of payroll taxes.
With the uncertainty over when the country will return to work and school, the depth of the revenue shortages is unclear.
“It’s difficult to determine the actual budget impact of the crisis since we’re not even finished with the crisis,” Pittsburgh City Council President Theresa Kail-Smith said.
Kail-Smith added, “We’re just waiting to see what the actual numbers are. There’ll be some long conversations and tough decisions to be made.”
“I believe we will absolutely have to scale back our budget,” he said.
Peduto said internal discussions are already taking place among department heads about what changes can be made and where to cut.
As yet, city officials have no plans for furloughs or staffing cuts.
“Our goal is that, when we get back, we will need everybody in order to catch up,” Peduto said.
Instead, Peduto said, the city would look to attrition and shifting staff duties to reduce costs. City leaders also are expected to take advantage of historically low interest rates to borrow money and refinance bonds.
The $2 trillion stimulus bill Congress approved did provide financial relief to enable states and municipalities to respond to the public health emergency, but not to help shore up operating deficits. Pennsylvania received $5 billion. While it’s unclear how that money will be doled out, Pennsylvania officials have wide discretion over the allocations.
“There is money, it’s just nowhere near enough for the crisis that states and localities are facing,” said Elizabeth McNichol, a senior fellow with the Center on Budget and Policy Priorities in Washington D.C., noting it’s unusual the federal government isn’t taking a larger role.
Peduto would also like to see Congress provide relief to struggling cities.
“There’s one truth to whatever happens over the course of the next several months that if we end up with bankrupt states and bankrupt cities, we will never see economic recovery,” Peduto said.
Nicole C. Brambila is the local government reporter for PublicSource. She can be reached at 412-515-0072 or email@example.com.
PublicSource reporter Rich Lord contributed to this report.
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