Friday, February 29, 2008

Allegheny County fiscal threat assessment

Yesterday I highlighted a the general problem that most Southwestern Pennsylvania municipalities are operating on budgetary thin ice. Today and probably tomorrow, I will look at some of the bigger units of government and see if they could face revenue side problems if the economy significant slows down. All of my statements will be back of the envelope statements and should not be construed as an endorsement of doom or a gold star for fiscal rectitude.

I'll start with Allegheny County's 2007 budget as a decent baseline for where the money comes from and where it goes. The budget office has a good website, and I'm pulling everything from the Budget Summary. Here are last year's revenue sources:

  • Property Taxes (45%)
  • Passed through sales taxes (2%)
  • Fees for services etc (7%)
  • State Transfers (25%)
  • Federal Transfers (16%)
  • Other (interest earnings, foundation grants etc) 4%
The county has since raised two new taxes, the 10% poured alcohol tax and a $2.00/day car rental tax. These taxes will generate roughly 4.5% to 5% of FY-08 revenue and be passed onto the Port Authority (the local public transit agency).

Allegheny County is not particularly vulnerable to a temporary slowdown for its locally derived revenue. Few taxes are being levied on high substitution, voluntary goods such as alcohol. In this case people if they are feeling the pinch do not need to drink at a bar, as they could drink much more cheaply at home, or they can downshift their consumption at a bar. For instance instead of order two four dollar Troegs and generating $0.80 in tax revenue for the county, the same person could have ordered two two dollar Yuenglings, generating $0.40 in tax revenue for the county. The poured drink tax and the car rental tax are probably the most variable taxes that are dependent on the economic environment and mood.

The county does not significantly rely on sales taxes for revenue. It receives some money through the general 1% sales tax administered by the Regional Asset District, but this is a small source of funding. The sales tax is vulnerable to drops in consumer spending, but there is a rough baseline of staples that people must buy. A drop or decrease in growth for this revenue stream is very plausible, but it should not be severe.

The dominant tax under county control is the property tax. This tax should produce nearly constant revenue streams for at least FY-08. This will be the case for a couple of reasons. First Pittsburgh as a market has not been deflating as fast as the bubble markets because we really did not see the bubble. Secondly, and more importantly, no one at any level of politics who faces frequent election wants to touch the assessment debacle with a forty foot pole. Currently the county is assessing property taxes based on 2002 assessed values and dealing with appeals on a case by case basis. There is no likelihood of changing the assessment to see which homes increased and decreased in value in the past six years. This is stable for a year or two, although if significant number of people are underwater, growing political pressure will create strong incentives for county leadership to do something.

Overall, the revenue that the county controls should be fairly resilient for a single bad year with some slight decreases in trend lines and growth rates from the sales taxes. The county is still very dependent on state and federal appropriations but that is another post for another day.

1 comment:

Blogger said...

With RentalCars you can find affordable car hires at over 49,000 international locations.