Gainey, top budget official say Pittsburgh revenue dips mean 'some difficult years ahead'

Pittsburgh Mayor Ed Gainey on Thursday acknowledged the city is bracing for tight financial years ahead, but told residents there’s no reason to worry about major cuts in city services.

“The sky’s not falling, but we do have some difficult years ahead,” Gainey said.

Gainey and Director of the Office of Management and Budget Jake Pawlak on Thursday tried to quell fears that a 5.5% decrease in revenues projected for next year could mean major cuts or tax hikes.

Pawlak said the city is not planning to raise taxes or cut city jobs.

Instead, Pawlak said, city leaders are looking to find ways to optimize “operational efficiencies” to curb costs. He did not elaborate on specific ways the city may cut its operating costs, aside from eliminating job positions that are currently vacant and holding off on starting new capital projects.

Gainey’s administration also released its five-year revenue forecast, data that typically is publicized in tandem with the mayor’s larger budget proposal, which must be published by the end of September.

Pawlak said they released the figures early this year in an effort to be transparent with residents about the city’s finances amid concerns from some officials that revenues are dropping.

Pittsburgh officials initially estimated the city would bring in over $714 million in revenues this year, including money from taxes, fees, permit charges and other funding streams. Updated numbers released this week show the city is actually on track to bring in less than $700 million.

Next year, the city is expecting to see revenues dip to under $661 million.

Covid money dwindling

Starting next year, the city will no longer be able to use federal American Rescue Plan Act dollars meant to buoy municipal budgets through the covid-19 pandemic to offset its operating costs.

Officials also are expecting to see less money from real estate taxes, largely because of lower property reassessments for big buildings Downtown that are worth less now that the pandemic has spurred a major shift to remote work.

City Controller Rachael Heisler in March warned other city leaders that their initial estimate of $151.8 million in revenues from real estate tax were likely too high this year. She said the correct figure was likely about $5.32 million lower — a claim top Gainey officials dismissed as they struck a more optimistic tone about the city’s financial status.

This week, however, Gainey’s administration provided statistics that show an even grimmer picture for real estate tax revenues. They projected that number will come in about $6.7 million lower than anticipated.

Pawlak said the updated calculations were based on data from the first two quarters of this year, as well as tax appeals that have lowered the value of the city’s Downtown tax base.

Revenue projections show continuous drops in that revenue stream over the next five years.

“While we are still analyzing the initial figures, we are grateful that the Gainey administration heeded our concerns,” Heisler said in a statement.

The administration’s figures, she said, “appear to be responsive to the revenue projections made earlier this year.”

“We’re going to face real challenges in the coming years, but as long as we’re providing residents with an honest outlook, the city of Pittsburgh will be able to respond with appropriate fiscal discipline,” Heisler said.

Despite the bleak numbers, Pawlak and Gainey said there’s no reason for residents to worry. They criticized city officials who they said spread fear among residents over the city’s financial position, but did not name anyone directly.

Deed transfer tax money

Pawlak also pointed to the deed transfer tax as an area where revenues are predicted to continue slipping.

Initial estimates for this year suggested the city could bring in about $59 million from deed transfer taxes, but updated numbers released this week estimated that number will likely be closer to $47 million. Next year, officials predicted that number could dip to around $42 million.

The city included in its revenue projections money from the facility usage fee, a tax on out-of-town professional athletes and entertainers. The city is waiting on the Pennsylvania Supreme Court to decide whether the tax is unconstitutional. The court could decide the city can’t continue collecting the tax — or even force the city to refund money it has already collected.

The city is projecting only about $6 million in revenues from that tax, an amount City Council Budget Director Peter McDevitt said won’t make a major difference on the city’s overall financial well-being.

Pawlak said city officials are confident the court will allow Pittsburgh to continue collecting the tax.

McDevitt said the revenue drops will likely result in budget cuts next year, but what those cuts could look like is unclear.

“You have to be thoughtful and mindful and make some hard decisions,” McDevitt told TribLive Thursday. “Not everyone’s going to get everything they want.”

McDevitt said the numbers the Gainey administration released this week appear to be accurate forecasts.

“They’re not sugarcoating anything,” he said.

Oversight concerns?

Though McDevitt acknowledged money will be tight for the city over the next couple of years, he said the future looks brighter in 2027, when many of the city’s old debts will be paid off, leaving more cash available for other expenses.

McDevitt said there are no indications Pittsburgh is careening toward a fiscal meltdown that could land the city back under state oversight.

“I have no concerns at this point that we’re going to go back into Act 47,” he said. “We’ve been talking about this for over a year, so hopefully the administration has prepared accordingly so there’s not going to be big cuts to service or anything like that.”

Pawlak said the city already has been working to save cash and cut costs to ensure it can weather the upcoming financial challenges.

The city is on track to come in about $25 million under budget this year with its operating expenses, Pawlak said. He did not specify how the city has saved that money, but said city leaders are finding ways to spend less money to achieve the same goals.

Though Pawlak touted the administration’s efforts to save money, the city’s spending is still outpacing earlier estimates.

A 2020 budget projection estimated the city would spend $667 million in its 2024 operating budget. The city actually is on track to spend about $695.5 million, according to the city’s most recent quarterly report.

In 2019, the city projected it would spend $640 million in 2023. The city actually spent more than $704 million in operating costs last year.

In the second quarter of this year, the city spent $9.9 million more than it brought in.

The city’s second-quarter report showed the city is on track to end the year with a $3.8 million net balance, though, indicating city leaders still believe they’ll bring in more money than they spend in total this year.

Related:

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

• Pittsburgh Controller Heisler warns in annual report of trouble on horizon for city finances

• Pittsburgh might need to consider raising taxes after pandemic relief money dries up, officials say