Issue Summary (Updated January 2009)
North Shore Connector

The Issue:

The Port Authority of Allegheny County continues to move through the construction stage, and almost every bid has come in above projections. So will the project’s final price tag resemble anything close to the estimated cost of $435 million?

What We Know:

The project known as the North Shore Connector was originally approved for funding by the Federal Transit Administration in 2003 at a cost of $362 million. The Connector project was denied approval in 2001 when the cost was $390 million. That proposal had an additional third stop on the North Shore. After the not recommended notice arrived, the Port Authority reworked the proposal by deleting the third stop and reducing costs to $362 million, the FTA gave the project a medium rating to go ahead.

After 2003, the costs of the project escalated and bids for the work came in well above budgeted figures requiring new estimates of construction costs which were obviously not going to be acceptable. The Port Authority then proceeded to drop the important Convention Center link, a heretofore integral part of the justification for the project and yet the new cost forecast still rose to $435 million. That, in turn, means that the North Shore portion of the project alone had increased in cost by over $100 million or almost 40 percent.

Nonetheless, even using the ridership forecast from the proposal approved by the FTA in 2003, the cost per new rider on the system is unconscionably high. Predictions call for 4,400 new users per day by 2030, some 20 years after the completion of the project. Assuming a conservative 7 percent annual cost of capital along with the expected $8.5 million per year in operations and maintenance expenditures, the cost per new roundtrip on the system over the first 20 years is calculated to be $48.

Bear in mind too that the Port Authority’s ridership figures included the use of the Convention Center link to the Steel Plaza Station. So the cost estimate of $48 per round trip is very conservative. Moreover, in calculating the economic and transportation benefits of the project, much was made of the number of employees within a half mile radius of the new stations, with an average of 37,612 workers per station. However, as a result of removing the convention center station, that average figure would be reduced to no more than half the 37, 612 figure used to justify the project originally.

Thus, it is clear that the FTA completely abandoned its obligation to focus on the already tenuous cost-benefit ratio and allowed a massive increase in the ratio of costs to benefits to occur and still agree to the increased level of funding. This is a clear failure on the part of a bureaucracy to do its job as steward of taxpayer money.

Finally, the inevitable cost overruns for this type of project have not been factored in, making the FTA’s stance even more shocking.

Since shovel met dirt, the project has imposed many other additional costs on the region. These include shutdowns of major roadways to accommodate construction; costs to businesses in and around the area of construction in Downtown; and costs and inconvenience to the riders who used the Gateway station where the tunnel will enter Downtown.

Recommendations:

This episode needs to be kept constantly in the public’s eye to remind them and politicians what happens when unbridled greed and arrogance replace sound analysis and reason.

Issue Summary (Updated January 2010)
Pittsburgh's Financial Overseers

The Issue:

The City of Pittsburgh has been in Act 47 distressed status and under the watch of an oversight board for five years.

What We Know:

Act 47 is an open-ended designation—a municipality is in it until the Secretary of DCED determines that it has erased the conditions that led it into Act 47 in the first place. The City petitioned the state in 2007 to be removed from Act 47 status. In rendering his decision in July of 2008, the Secretary noted “rescission at this time would be premature and could subject the City to a return to distress status in the near future...many of the conditions that originally led to the distress determination have not been fully alleviated”.

In addition, Act 11 of 2004 created the oversight board to assist the City of Pittsburgh with its financial difficulties. As intended in the statute, the oversight board would “operate concurrent and equally” with the Act 47 Recovery Team. The five directors of the oversight board were appointed by the leaders of the House (2), Senate (2), and the Governor (1). The appointees were required to have “substantial experience in finance or management” and were to be either residents of Pittsburgh or have their primary place of employment in the City. The statute gave the oversight board an existence of at least seven years, which means it will go out of business in 2011 unless it is renewed by state action.

Pittsburgh is cureently operating with an amended recovery plan.  The purpose of the amendment was to address pending legacy costs of debt, pensions, post retirement benefits, workers’ compensation along with a long-term capital plan, while maintaining positive operating budgets well into the future.  The plan recommended that the City put more money into pensions, including the possibility of new fees and charges, including some on college students.  This morphed into the tuition tax, and the oversight board nixed the 2010 budget based on the fact that their was no legal foundation for the tax. 

Recommendations:

If the oversight board does end its legal existence in 2011 the door is open for the City to pursue a tax on non-residents.  A municipality in Act 47 is free to petition the courts for an increase in the wage tax to fall on non-residents (it would also have to increase on City residents by the same percentage).  However, the law that created the oversight board prohibited such an action while the board was in place.  Should the board expire and the City and its defenders stick to their notion that the City needs more revenues to get out of its predicament, look for this avenue to be explored.

Issue Summary (Updated January 2010)

The Impact of Gaming Money in Allegheny County

The Issue:  

Legalized slots machines in Pennsylvania will result in the redistribution of close to $700 million for various economic development and general government purposes in Allegheny County in the coming years. 

What We Know:  

Under two state statutes-one creating legalized slots (Act 71 of 2004)-and the other setting the distribution of gaming money from the Tourism and Economic Development Fund (Act 53 of 2007), we can pinpoint the amounts, recipients, and purposes of gaming money.  Here is a rundown of what exists in legislation at the present time:

Act 53

                                                       Act 71

*Recipient not yet identified, but expected to be SEA due to its ownership of the convention center and the future hockey arena

Initial returns for the lone casino in Allegheny County, the Rivers Casino, have been disappointing.  As indicated in the table above, Act 71 guarantees Allegheny County two percent of gross terminal revenues to be used for general government purposes.  Rivers' owners had forecasted first year gross revenues at $427 million while the Gaming Board estimated them at $362 million.  If these estimates were accurate, the County would receive at least $7.3 million in host fees.  However, through the first five months of operations (August through December 2009) gross terminal revenues at the Rivers Casino have been well below either projection.  The casino has been averaging $3.8 million in weekly gross terminal revenues and is on pace to earn only $196 million-45 percent of management's initial projections.  At this rate the County will only receive $4 million as a result of Act 71. 

But the County is not the only claimant on money generated at Pittsburgh's casino.  The casino, as a condition of its license application, is responsible for paying a $7.5 million per year for the new hockey arena.  The Rivers Casino was not able to make the first payment in whole by the October 2009 deadline, instead opting to make a partial payment with the rest due in the spring of 2010.  Further casting doubt on the success of the casino, its bond rating had been downgraded twice since its opening and at the end of 2009 stood at CCC.  This reflects pessimism among credit agencies that the casino will be able to meet its own debt obligations, let alone its community related obligations. 

In early January 2010, the state approved table games legislation authorizing games such as poker and blackjack to be added to the video slot machines at casinos around the state.  According to the legislation each host municipality and county will each receive one percent of the revenues generated by these games.  As expected, the management at Rivers Casino welcomes this change.  Whether or not the added games will reverse the fortune of the underperforming casino remains to be seen. 

Recommendations:

The gaming money can be viewed as a "fix it program" for some of the mistakes of the past: an airport that is now too big, a convention center that was too big and failed to generate the spinoff development its proponents promised, development funds that diverted tax revenue, etc. 

Many officials have viewed the money as "manna from heaven", but that has not stopped fierce competition over the money.  For instance, the first two installments of gaming money for airport debt were instead used by the County.  All along, officials seem convinced that the $150 million would be used to pay down the close to $600 million in debt held by the Airport Authority, but the County, thanks to an amendment to the bill, swooped in and got the first call on the money.  Despite claims that the County itself had a $42 million debt stemming from what they put into construction of the airport, the debt did not show up on the Authority's books as a debt owed and one as they intended to repay.  Now the County will receive the entire $150 million under the law, but promises to forward $108 million to the Authority for debt service purposes.