Pittsburgh controller warns of threat to city's fiscal health, urges changes to budget

Pittsburgh Controller Rachael Heisler Wednesday urged city officials not to count on nearly $10 million in revenue included in this year’s budget, sounding a strong warning about an increasingly grim fiscal picture.

In a letter to Mayor Ed Gainey and City Council members, Heisler described the city’s tenuous financial situation following a parade of reassessments of Downtown skyscrapers and other major buildings that could steeply lower the amount of property tax revenue the city will receive.

Heisler also cited a court decision that has blocked the city from collecting a tax on out-of-town professional athletes and entertainers playing and performing in Pittsburgh.

The controller urged officials to reopen and amend the 2024 budget’s revenue expectations “to address this downward pressure threatening the fiscal health of our city.”

Pittsburgh has a $686 million operating budget and a nearly $159 million capital budget.

Heisler recommended that officials not count on revenue currently included in the budget from the Facility Usage Fee — a 3% tax the city imposed on professional athletes and entertainers performing at publicly-funded facilities — after a state appellate court blocked the city from collecting the cash.

The city’s 2024 operating budget includes $4.36 million in revenues from that fee, but Heisler said she believes “$0 is a more reasonable expectation.”

She also pointed to the city’s real estate tax revenue as a cause for concern.

“Several large buildings Downtown have recently seen multi-million drops in property values after successful reassessment,” Heisler wrote in the letter, which was obtained by TribLive. “The city could see as much as a 20% reduction in the value of this building stock in 2024, which could cost the city $5.32 million in property tax revenue.”

The revenue loss, she said, “will have significant impact on the city’s ability to provide essential services and programs to residents.”

Heisler on Thursday told TribLive the city is on track to see a shrinking rainy day fund from 2025 through 2027, and said that now is the time to begin exploring ways to make that less painful for city residents.

“It’s very obvious that changes in city spending will be required in the months or years ahead,” she said. “Starting that conversation with residents, doing what we can to save now, is the responsible and prudent thing to do.”

She suggested city leaders should reduce spending and reinvigorate conversations with the city’s nonprofits about a payments-in-lieu-of-taxes program to get revenue from major entities like UPMC, AHN and universities.

City Councilman Bob Charland, D-South Side, told TribLive he intends to introduce legislation to reopen the 2024 budget based on Heisler’s concerns.

He was not immediately able to provide details on whether the legislation would include spending cuts or when it would be introduced.

“I really take the stance that a budget is a shared statement of values. I think it’s not just important, but our duty to make sure that one of our values is being honest with the public,” Charland said.

“The public needs to know what our financial state is, and right now, we have a budget that we know has at least one major lie in it. Maybe at the time we thought that was appropriate, but we know now that we will receive zero dollars in the Facility Usage Fee. We need to address that and be honest with the public about that.”

While Charland said that he wants to avoid being an “alarmist,” he believes that the public must be made aware that the city’s financial situation over the coming years is “really scary.”

“Next year is very alarming,” he said. “We need to make sure the public understands that. We need to make sure the administration understands that.”

Olga George, a spokesperson for Mayor Ed Gainey, said the administration “will assess if city services and programming need to adjust” as revenue expectations shift.

“There is no need to make drastic changes at this time,” she said in a statement.

The city can still cover its costs, thanks largely to federal American Rescue Plan Act dollars, which the city can use to buoy its operating budget through the end of this year, said Peter McDevitt, city council’s budget director.

“We’ll be OK for 2024,” he said, explaining that the lost revenue will “eat into the fund balance.”

McDevitt has voiced concerns about the city’s financial position, and during budget discussions late last year suggested a tax hike could be forthcoming if the city can’t rein in its spending or find other ways to bring in more cash.

“There’s more money going out than there is coming in,” McDevitt said. “To put it in its simplest terms, you either have to spend less or find a way to bring in more money.”

Though officials have acknowledged money is tight — and will get even tighter over the next few years — city leaders have still been spending more than anticipated.

A 2020 budget projection estimated the city would spend $667 million in its operating budget in 2024; it’s actually on track to spend $686 million. In 2019, the city projected it would spend $640 million in 2023; it actually spent more than $704 in operating costs last year.

McDevitt called for a countywide property reassessment to help the city — and all of the county’s school districts and municipalities — get a clearer picture of its property tax revenue expectations. Piecemeal reassessments, like those that have been occurring in the Golden Triangle, are wreaking havoc with the city’s ability to accurately predict how much money it will be taking in from property taxes.

Councilman R. Daniel Lavelle, D-Hill District, late last year estimated that a reassessment could bring in about $6 million in extra revenue for the city annually.

Though Heisler is raising the alarm on the city’s financial position, she said the problem isn’t so major it can’t be remedied.

“We are not a month from financial catastrophe,” she said. “We have time to right the ship.”