ICA Problem: Has the time come to neuter the city's fiscal watchdog? | Pittsburgh City Paper

ICA Problem: Has the time come to neuter the city's fiscal watchdog?

"There wasn't and still isn't a significant amount of value."

When it comes to the city's finances, Henry Sciortino is all about transparency.

In his role as executive director of the Intergovernmental Cooperation Authority — one of two state-appointed financial overseers for the City of Pittsburgh — he knows the city's finances inside and out. For the past eight years, he's worked behind the scenes of city government to both woo and muscle city officials into making the decisions advocated by his board. And he has studied almost every aspect of city operations. How many trucks does the Department of Public Works have out on the street? How many employees out on workers' compensation can return to work in a different capacity? 

"How do you manage the city if you don't know its details?" Sciortino asks. "Due diligence is a big part of my life." 

But when the questions turn toward Sciortino's own agency, answers are not always forthcoming.

"I don't have to talk to reporters," Sciortino told City Paper in early September, after a board meeting. "I don't have to talk to you."

Indeed, while the state legislature gave the ICA extraordinary power to monitor and shape the city's financial status, there's little public accountability for its own budget. ICA officials generally decline to discuss their own financial practices, or how they've used the state funds they've been awarded to benefit the city. And questions about the agency's role have become more pressing with the October announcement that another financial-oversight body — the state's Act 47 team — announced that the city is ready to be released from its status as "financially distressed." That would end Act 47's jurisdiction over the city ... and some say it's time for the ICA to go as well.

"The ICA should have been disbanded years ago," says state Sen. Jim Ferlo (D-Highland Park), who voted to create the panel in 2004. "It hasn't done anything productive." 

The ICA and the Act 47 panel were both created nearly a decade ago, when the city was forced to lay off more than 500 employees and shutter swimming pools and recreation centers to stave off a potential bankruptcy filing. Act 47 has been used by municipalities across the state as an alternative to bankruptcy, but state legislators and former Gov. Ed Rendell created the ICA as a second set of eyes on city finances.  The ICA was also created to preclude suburban commuters from being taxed — a tax that Act 47 ordinarily would allow a distressed municipality to levy. 

The ICA's five-member board is made of up of political appointees: Two members are chosen by the Democrats in the state House and Senate, two by Republican legislators, and one by the governor. The ICA can override budget proposals and force its will by withholding state funding to the city — including a minimum of $10 million in yearly tax revenue from casino proceeds.

It was intended to be a "fiscal watchdog regarding actions by the city," according to its primary sponsor, Rep. Mike Turzai, quoted  in 2005 in the Pittsburgh Post-Gazette. 

But City Council Budget Director Bill Urbanic says the agency "was more the punitive body for the city than anything." 

Turzai did not return a request for comment. 

City officials say that since 2004, there's no doubt that the city has regained its financial credibility. 

"[The Act 47 team] did an extensive amount of work going through the finances and [creating] an action plan that would help us get fiscally sound again," says Urbanic. And the city's fiscal condition has improved: After facing a $34 million deficit in 2004, the city's proposed 2013 budget includes a surplus of $1 million, with $34.6 million in the bank. Its bond ratings have been upgraded from junk status in 2004 to a current A1 rating. Officials expect the city to be debt-free by 2026.

But the ICA's role in that process is still debated. When creating the panel, state lawmakers allowed the city to levy a new payroll tax on city businesses, and to raise a $10-per-year fee on workers to $52 annually. But in exchange, the city eliminated another business tax, forfeited parking-tax hikes, and gave up any hope of a tax on commuters — like one Philadelphia already levies — as long as the ICA is in place.

Although the tax reforms were good for Pittsburgh businesses, says city Controller Michael Lamb, they did little to help the cash problem the city faced.

"To the city's bottom line, it wasn't really a good thing." In terms of revenue, "we're actually pretty much where we were before, maybe even behind where we were before."

Some think that if the city is released from Act 47 — which will be the call for the secretary of the state Department of Community and Economic Development to make after a public hearing is held Thu., Nov. 8 — the ICA handcuffs should be taken off as well.

Joe King, president of the local firefighters' union, has been lobbying state officials to do away with both Act 47 and the ICA: "We got the message; we got our house in financial order the best we can based on the revenues we have," he says. "I think the responsibility [for spending] has to be thrown back on the local government. It's their job. It's their responsibility." 

Not everyone agrees. 

"We can easily fall back on the same mistakes that we made in the past," says Pittsburgh City Councilor Bill Peduto. 

City Controller Michael Lamb also says the ICA's presence is necessary. "Most of the positive steps [the city has made] have been the result of the ICA's ability to withhold funding and force decisions to get made," he says. 

For its own part, the ICA still says there is work to do. "The city still faces many challenges, including pension reform and long-term agreements with nonprofits" that currently don't pay taxes, said ICA chairman Dana Yealy, in a statement following the Act 47 coordinators' announcement that the city was no longer distressed.

"We all look forward to the next milestone of recommending that the ICA also be dissolved. But we are not there yet," Yealy told City Paper. 

Act 47 coordinator Jim Roberts agrees, saying the ICA should continue pressing the city to address its unfunded pension obligations, which as of the end of 2011 were about $626 million. Roberts also says that ICA board members, who are state appointees, are in a position to lobby legislators for changes needed at the state level, particularly regarding pension reform. 

"I would expect the ICA to be a central piece of that effort going forward," he says. 

As for the administration, Mayor Luke Ravenstahl says that oversight isn't good for the city's image and is procedurally cumbersome. "At some point we prefer to be on our own. But we understand it's a process," Ravenstahl says. 

And while the process for getting out of Act 47 "is much clearer and better defined," the circumstances for shedding the ICA are murkier. The ICA's oversight was intended to sunset or expire in September of last year, according to the original legislation that created it, although an act of the legislature is required to abolish it. ICA officials have lobbied for its continuance. 

With the state set to review a proposal to end one oversight panel, Ravenstahl is wary of pressing too hard to scrap the other. The Act 47 team's recommendation that the ICA remain in place is "something we understand," he says.

When the ICA should go, he says, is up to the lawmakers who created it. "The cost of oversight and [the] needs for it are state decisions." 

In the meantime, although the ICA is charged with holding the city accountable for its financial decisions, the agency itself faces little of the same scrutiny. 

Sciortino offers little insight into how his organization has spent the state money that funds it. (Appropriations between 2004-05 and 2012-13 total more than $5 million.) Audits conducted by the accounting firm ParenteBeard through June 30, 2011, also provide little detail on where the ICA's money has gone. 

In interviews, Sciortino and city officials have indicated ICA funds have been used, for example, for training public-safety personnel for the G20, and for offsetting Lamb's first major audit when he took over in the controller's office. 

But the audits provide only broad categories for program revenues and expenses.

 "‘Programmatic' can mean anything," says Sciortino. He declined to provide more detailed financial statements, saying that they didn't exist. 

Board member J. Matthew Simon, who serves as chair of the finance and audit committee, declined to answer questions, referring them to ICA chairman Yealy. But Yealy also declined to answer specific questions about the ICA's finances, instead referring those questions back to Sciortino. 

"The ICA board sets an initial operating budget and makes modifications as circumstances dictate. The board spends its allocation to fulfill the mandates in the Act," Sciortino wrote in response to a question about whether a year-to-year breakdown of the ICA's spending existed. 

ICA Problem: Has the time come to neuter the city's fiscal watchdog?
Act 47 coordinators addressing the ICA in September.

City officials say they, too, have trouble getting answers about the ICA's finances. Of special concern: what happens to the city's allotment of gaming funds while the ICA is holding onto it. If that money were placed in escrow, city leaders say, when it's released the city should be entitled to any interest it earned in the meantime.

"The interest from the money, where is it going?" says Council President Darlene Harris. 

Even Lamb, who is supportive of the ICA, says that's a fair question. 

"It was never clear to me how that money was held, how it was invested," he says. "We haven't really pressed them with that information, so I don't want to say they are withholding it from us. It's just that, we have questions about how it works." 

The city's finance department estimates, conservatively, that interest on the gambling money could have raised an additional $50,000, according to Joanna Doven, the mayor's spokesperson. That's a trifling sum for a city with an operating budget of more than $450 million, but Urbanic says that's not the point.

"It's unconscionable if they [are holding on to it]. It's taxpayer money," he says. 

Sciortino says the city receives "100 percent of gaming revenues," which are held and invested by the state treasury until the ICA releases them.

Interest earnings, he says, "are dependent on market conditions and timing of receipt and disbursement of funds. All spending is directed by the ICA board." 

He declined to answer how the interest earnings have been spent. 

According to Michael Smith, spokesman of the Treasury Department, the ICA's account is earning a daily rate of 0.082 percent. The balance of the accounts and history of interest earned on the account were not immediately available.

Audits of the ICA's books show "investment income" of $4,799 in the year ended June 30, 2010, and $8,049 in the year ended June 30, 2011. But the audits do not specify how much was originally invested, or whether the money was from city's gaming revenues, or part of the ICA's own allocation from the state. 

The ICA's budget is administered by the Department of Community and Economic Development. Its funding was cut about 46 percent this year compared to last year's allocation, giving it a 2012-13 operating budget of $228,000. Most of that will go to Sciortino, whose annual salary is $171,213, about 62 percent more than the mayor's. (He also gets 58 days of personal and vacation time a year.) 

Sciortino says the ICA's cash flow is sometimes a problem because of the timing of the state's budget process. "At times we have not hired consultants because we don't have money to pay them," he says. 

The ICA has spent heavily on hiring professional services and consultants who have studied ways the city can operate more efficiently. In eight years, the ICA has furnished roughly a dozen studies of city services such as fire, police and EMS. But most were conducted in 2004 and 2005 — and skeptics say they have produced little change.

"The studies were good and fine," says Urbanic. "There are some junctions where they helped with the communication between the council and the administration. Beyond that, there wasn't and still isn't a significant amount of value." 

Peduto agrees that opportunities have been missed — but he says that's because Ravenstahl hasn't followed up on the panel's recommendations. "You can spend a lot of money on a new car, but if you never drive it, what was it worth?" he asks. The ICA has "certainly been involved in a lot of the major discussions and decisions that have been affecting us on financial matters." 

Sciortino and Yealy point to the ICA's success in advocating for a new financial-management system that the city recently installed. And when the city was threatened with the state takeover of its pension fund, the agency also lobbied for $45 million to be moved from the city's reserve fund to the pension fund. 

But the best indicator of the ICA's impact, defenders say, is the improvement of the city's bond rating. 

"[The city is] welcome to take credit for that," says Sciortino. But, he adds, the ICA's very presence helped the city sell the bond raters on its story, allowing it to borrow money at lower interest rates. "That's worth millions of dollars a year," he says.

Urbanic does dispute that the ICA had something to do with the improvements in the city's bond rating. Credit belongs to Ravenstahl and city council alike he says, for scaling back expenditures and not issuing additional debt.

"We thank the ICA for also approving those things," says Urbanic. "But the actual work was done by the city." 

Sciortino is vague about when he thinks the city will be ready to be released from oversight, saying it still needs to build "capacity" by investing in hardware and software tools to gather more detailed data about its operations. Yealy notes that the city's debt needs to be further reduced, pension obligations have to be met and nonprofits have to provide more revenue to the city. 

For now, the ICA's future may become a political football. A mayoral election is slated for next year, and two of the ICA's champions — Peduto and Lamb — are likely to run. Meanwhile, opponents of the ICA include the firefighters' Joe King, an influential voice in city politics. 

At its last meeting, the ICA urged that the city form a task force to look at ways nonprofits might contribute more to the city's revenues. City officials have long sought more support from large nonprofits like UPMC, and agree they'd like the ICA to become an advocate for them. But they've been asking for that from the beginning. 

"We've already done committees," Urbanic says. "It's more of a time for action. If the goal [of the nonprofit committee, for example] is to bring this to Harrisburg and ask to make changes, it has value. If it doesn't, there's no value to it."