the Pittsburgh Problem (Philadelphia, Lebanon, Munhall: chapel, lawyers, house)

[Katiana]

Originally Posted by BrianTH

For what it is worth, I have noticed. Unfortunately, there just seems very little possibility of getting this sort of reform through the political process around here. I actually wonder if the ultimate result will be some sort of forced consolidation driven at a higher level (namely state or federal).

You may be right, but I didn't think it would pass around here, either. There are some very conservative suburban counties, and like in Pgh, the suburbanites outnumber the city dweller by a large amount. They gave it the "hard sell" and threw in some goodies like "Free Days" at the zoo, Art Museum, etc.

[pman]

Originally Posted by BrianTH

Maybe so, but something like that is the only real way to deal with the democratic problem caused by a large number of people making use of the City as a resource without actually living there. So if all such measures are impossible, then this is a problem without a solution.

there's never only one way to skin a cat. what resources do suburbanites use that Pittsburgh pays for?

Originally Posted by BrianTH

A few things need to be distinguished. First, health benefits and pensions present very different issues. It is true that health benefits have been subject to unsustainable rates of increase, and that is a problem our whole society is going to have to deal with. Pensions, on the other hand, haven't really been subject to the same dynamics.

yes, indeed they have, if the pension guarantees services.

Originally Posted by BrianTH

Accordingly, it is entirely possible to fully fund (within a reasonable margin of error) a defined benefit pension plan. And I think we have been way too hasty to conclude that defined contribution plans (like 401Ks) are a better idea than defined benefit plans in all cases.]

I'm sure that you are, otherwise you wouldn't say things like "it's entirely possible." It's entirely possible that government could be run efficiently and effectively without an ounce of corruption. Of course, in reality, neither has a snowball's chance in hell of happening. I think you underestimate the negative impact pensions have on both companies and governments and secondly, you underestimate the likelihood governments will pad pensions to pacify unions knowing full well there's no way the city can afford to pay them. Worse, a worker's livelihood is then tied to the entity they work for and it's continued existence. The labor market works a lot better when the company doesn't hold all the cards, 401k's freed the labor market the same way free agency did for the NFL. Portable health care plans would only increase labor flexibility. In the old days, people stuck it out in jobs they hated because they were close to vesting their pensions, etc and it was just too costly to switch companies. It's a lose-lose proposition as it's more expensive and risky for the company AND you get more dissatisfied workers just waiting to retire. Workers feel stuck in dead end jobs because it's too risky to leave.

Originally Posted by BrianTH

In any event, the problem in this case was not the fact that the pensions in question were defined benefit plans. Rather, the problem was that they were originally not funded pensions, and instead were pay-as-you-go plans. Pay-as-you-go plans are in fact highly subject to failure if expectations about future revenue growth prove incorrect, and unfortunately that is what happened in this case.

I think that's a bit naive, honestly. Of course th eproblem is the pensions. If they had been 401k's there would be no problem at all for the city would there? Pensions inherently rely on ong term forecasts for both revenue and expense sides. the further in the future you forecast, the more likely it is you will be incorrect. Worse, then you fall short and the market tanks you are most likley in a recession and have a tight budget AND are now required to make extra payments, exacerbating the problem.



Of course we can never know what bargain would have been struck if Pittsburgh had been prohibited from using pay-as-you-go pension plans. For example, maybe it is true the citizens would have refused to pay more in taxes and revenues, but in that case it also may have been true that they would have received fewer services in return. The basic fact is that all sides of those negotiations signed off on kicking the can down the road to the future citizens of Pittsburgh, and then many of them left before the bills came due.



I think if you include cities smaller than Pittsburgh, there are many with pension plans which are either fully funded or close to it. In any event, obviously far more is going on with cities like Detroit than just pension issues.



It is certainly going on in Philly as well. But I recall reading that something like 75% of the underfunding of Pennsylvania municipal pensions was in Philly and Pittsburgh, and that many of Pennsylvania's second-tier cities were around 80% or higher (I believe Scranton, however, was also down there with Philly and Pittsburgh).[/quote]

[robrobrob]

I have mentioned this multigovernment taxing district on this forum before, but no one seems to take any notice of it. Such a district wouldn't solve the problem of the parking garage attendant's pensions, and I agree with Brian about privatization in that case. However, a district like this would help with the problem of city residents paying to keep up all the many city-owned facilities in Pittsburgh, some of which get heavy use by suburbanites as well.

I think we already have this in place. It is called the RAD tax.

[Geeo]

The RAD tax is specifically for the stadiums, county parks, county library system, and smaller nonprofit arts groups.

[BrianTH]

Originally Posted by pman

there's never only one way to skin a cat. what resources do suburbanites use that Pittsburgh pays for?

Well, for one thing, I believe a majority of the people with jobs located in the City actually live outside the City, and in turn the incomes from those jobs support many more jobs located outside the City. Of course every suburbanite that comes to the City to attend a sporting event, go to a museum, or so on is also making use of the City as a resource. So for that matter do people merely watching local sporting events in the City on TV to the extent that without the live spectators, the teams wouldn't be around to watch. Similarly if visitors from out of town go to the City for business or pleasure, but along the way spend money outside of the City, the people taking that money are benefiting. And on and on: there just wouldn't be a regional economy like the one we have without the City, and almost everyone in the region benefits directly or indirectly.

By the way, I actually think a lot of people receiving Pittsburgh pensions now live outside the City. So that is yet another highly relevant example.

yes, indeed they have, if the pension guarantees services.

I'm not sure what you mean by "if the pension guarantees services". A defined-benefit pension guarantees certain payments, not services. Over the last few decades, pension actuaries have largely done a good job predicting what level of funding will be necessary to meet a defined benefit plan's obligations (subject to the pension fund not doing something stupid with their investments).

I think you underestimate the negative impact pensions have on both companies and governments

Again, I'm not sure I know what you mean. If a firm or government fully-funds its defined-benefit pension plan, what additional "negative impact" are you predicting? I would note that I do think there has been a problem in this area, namely with employees having a hard time understanding the relative merits of different pension plans. Accordingly, I think many firms and governments have found it easier to placate employees with defined contribution plans even when less funding for a defined benefit plan (or at least a mix) may be in the employees' best interests. On the other hand, this dynamic may have been changed by recent events.

and secondly, you underestimate the likelihood governments will pad pensions to pacify unions knowing full well there's no way the city can afford to pay them. Worse, a worker's livelihood is then tied to the entity they work for and it's continued existence.

Again, you are necessarily talking here about pay-as-you-go pension plans, as opposed to fully-funded defined benefit plans. I agree entirely that most pay-as-you-go pension plans are a poor idea.

In the old days, people stuck it out in jobs they hated because they were close to vesting their pensions, etc and it was just too costly to switch companies.

I agree that all pension plans, whether defined contribution or defined benefit, should vest quickly and be easily portable.

Of course th eproblem is the pensions. If they had been 401k's there would be no problem at all for the city would there? Pensions inherently rely on ong term forecasts for both revenue and expense sides. the further in the future you forecast, the more likely it is you will be incorrect. Worse, then you fall short and the market tanks you are most likley in a recession and have a tight budget AND are now required to make extra payments, exacerbating the problem.

You need to expand to the bigger picture. Defined contribution plans don't eliminate these risks, they just shift them to the individual employees. By doing so, the total risk is increased because some of these risks are diversifiable among the employee pool. Accordingly, employees should be requiring more funding for their defined contribution plans, or alternatively should be requiring less funding for their defined benefit plans. So, employers should actually be able to save money with defined benefit plans, and the fact that they often don't indicates a failure in the system, not the underlying economics.

[JoeLeaphorn]

Originally Posted by BrianTH

Well, for one thing, I believe a majority of the people with jobs located in the City actually live outside the City, and in turn the incomes from those jobs support many more jobs located outside the City. Of course every suburbanite that comes to the City to attend a sporting event, go to a museum, or so on is also making use of the City as a resource.So for that matter do people merely watching local sporting events in the City on TV to the extent that without the live spectators, the teams wouldn't be around to watch. Similarly if visitors from out of town go to the City for business or pleasure, but along the way spend money outside of the City, the people taking that money are benefiting. And on and on: there just wouldn't be a regional economy like the one we have without the City, and almost everyone in the region benefits directly or indirectly.

Sure, when I go to a game, I pay for my ticket and parking or public transportation. Taxes on the former go to the city. When I order a hot dog and pay for it, the vendors pays taxes to the city some of which I have subsidized. When I come in from out of town, I pay a hotel tax and, in turn, the hotel employs people and pays taxes on them.

Forget this "you use the city you should pay for it". I do. I shouldn't, however, have to pay for a Mayor and Council that I had no hand in electing. I shouldn't have to pay for garbage collection for which I already pay to my own municipality. I also pay income tax and property tax to the municipality.

I live where I live precisely because it has the right combination of price and value (after having lived in the city for 20 years). If Pittsburgh increases the taxes on non-residents who work in the city, I'll simply close my office there and move out.

[BrianTH]

Originally Posted by JoeLeaphorn

Sure, when I go to a game, I pay for my ticket and parking or public transportation. Taxes on the former go to the city. When I order a hot dog and pay for it, the vendors pays taxes to the city some of which I have subsidized. When I come in from out of town, I pay a hotel tax and, in turn, the hotel employs people and pays taxes on them.

Right, these are examples of what I called "user fees". The thing is, COPANUT is also right that in some sense you are also being taxed in these ways without necessarily being represented by the taxing authority, but there is no real way around that short of some sort of political integration which brings these users and the City into the same political system.

I live where I live precisely because it has the right combination of price and value (after having lived in the city for 20 years). If Pittsburgh increases the taxes on non-residents who work in the city, I'll simply close my office there and move out.

Obviously that is your choice, but in principle there is no difference between a tax on non-residents working in the City and something like the hotel tax you mentioned: people are being charged a fee for their use of the City. Again, though, at any point you are free to decide that fee is too high and to relocate, but that is an economic issue, not a political theory issue.

[JoeLeaphorn]

Originally Posted by BrianTH

Obviously that is your choice, but in principle there is no difference between a tax on non-residents working in the City and something like the hotel tax you mentioned: people are being charged a fee for their use of the City. Again, though, at any point you are free to decide that fee is too high and to relocate, but that is an economic issue, not a political theory issue.

No, there is a difference. The suburban resident is invested in the politics and economics of the city; the visitor is not. You speak only of one way, that in which the suburbs benefit from the city. But the city also makes choices, some of which are bad for the region and residents beyond Pittsburgh's borders.

It is for that reason that any tax on suburbanites should include a role for those citizens in the city governance. Since that won't happen, municipal consolidation is the answer and not just the city and county, but all the smaller municipalities, as well.

[BrianTH]

Originally Posted by JoeLeaphorn

Since that won't happen, municipal consolidation is the answer and not just the city and county, but all the smaller municipalities, as well.

I absolutely agree.

[Geeo]

I think municipal consolidation will come about when the finances of some of these smaller towns leave no choice. Some are already at the breaking point and have started merging police departments. There are also several regional councils of governenment in the county that plan for multiple municipalities and share purchasing. There really is no reason for some small struggling burg with 1,000 people and an adjoining hamlet with 600 people to exist independently anymore. A good example is Homestead, West Homestead and Munhall, which came together to help make possible the Waterfront, which spans all three municipalities. That should probably be one town. It will be a slow process, but it's going to eventually happen out of necessity.