State rallying to city's rescue

HARRISBURG -- Pittsburgh bailout legislation -- with higher taxes on workers and small businesses -- was approved by the General Assembly early today.

Three bills for fiscal relief are on their way to Gov. Ed Rendell's desk.

Completing the package for Pittsburgh was the top priority for lawmakers and Rendell with the legislative session ending today. Pittsburgh officials say the city could run out of cash in December.

Rendell told lawmakers in a letter he supports the plan.

The key Pittsburgh bill, H.B. 197, which provides an occupation tax hike and new payroll tax, won Senate approval by a 27-20 margin at 11:40 PM. yesterday. The House approved the bill by a 110 to 84 vote at 1:42 AM today.

Still pending early today were raises for legislators, judges and top state officials. Legislators could get annaul raises of $12,847, or 19.4 percent, to $79,050. Lawmakers now are paid $66,204 a year. The details of the prospective raises were kept from the public even in the session's 11th hour.

The key part of the Pittsburgh rescue package provides for an occupation tax of up $52 a year in Pittsburgh and other municipalities statewide. That bill also contains an 0.55 percent payroll tax, phases out the business privilege tax, reduces the parking tax over four years and eliminates the mercantile tax. While the business privilege is phased out over five years, banks, financial services, utilities and manufacturers remain exempt.

"By no means is this a panacea," said Republican Sen. John Pippy, of Moon Township, who helped craft the plan. "No one will leave here waiving a flag and cheering."

Democratic Sen. Jack Wagner, of Beechview, said the plan favors big business. "With the continuation of the business privilege tax, the exemption stays in place for 25 of the top 26 businesses in Pittsburgh." Smaller businesses, meanwhile, will be hit with the payroll tax and the business privilege tax until it disappears, Wagner said.

Businesses will pay the business privilege tax at one-third of its current rate over the next two years and one-sixth of the current rate for up to three more years

Wagner said "the taxes aren't balanced properly, and there's not enough revenue" to rescue Pittsburgh. He predicted the city will return to the Legislature seeking approval for more revenue.

Combined with $269 million in spending cuts over the next five years, the bailout package provides Pittsburgh with enough revenue to "close its budget gap," Rendell said in his letter.

Although the bailout bills allow increased and new taxes, the city will have to keep cutting spending, experts said. The package includes a much smaller occupational privilege tax increase than the $145 the Act 47 recovery team wanted or the $144 proposed by the oversight board.

"Overall, what this is telling the city is that you're really going to have to bear down on cutting the costs to get it more in line with what other cities are spending," said Jake Haulk, president of the Allegheny Institute for Public Policy, a Castle Shannon think tank. "They're still not there by any stretch of the imagination."

Oversight board member Jim Smith said he worries the tax package does not include enough wiggle room for the city in future years. Pittsburgh has little control over three of its biggest expenditures - the unfunded pension liability, health care costs and debt service - and Mayor Tom Murphy has said the city cannot cut more in other areas. At the same time, the city needs to rebuild its reserves and maintain its infrastructure.

"I am hopeful that as the Legislature has crafted this alternate plan that they have taken into consideration that whole equation," Smith said.

Oversight board members have said they hope the city can still save money in future years by reorganizing the fire bureau and renegotiating public safety contracts.

Oversight board Chairman Bill Lieberman declined to comment late last night. Act 47 recovery team leaders could not be reached for comment.

Rendell's administration appointed the recovery team after declaring Pittsburgh a distressed municipality in December. State lawmakers created the separate oversight board in February.

The Senate early yesterday approved by a 44-2 margin a bill that shifts part of the Pittsburgh School District's income tax to the city starting in 2007. Later yesterday, the House by a 193-3 vote approved the bill. Wagner was the only area senator who voted against it. The lone Pittsburgh area House member voting no was Democratic Rep. Jake Wheatley, of Pittsburgh's Hill District.

The bill heading to Rendell's desk would see the city's share of the earned income tax increase from 1 percent to 1.25 percent by 2009. The school district's earned income tax rate, now 2 percent, would decrease to 1.75 percent over five years.

Republican Sen. Jane Orie, of McCandless, chief architect of the bailout plan, told colleagues the school district will have an $85.6 million surplus on Dec. 31.

The Senate unanimously approved a separate bill that reduces the amusement tax on performing arts groups to 2.5 percent from 5 percent and prohibits the city from turning revenue from the Regional Asset District sales tax revenue to an authority, such as the Urban Redevelopment Authority. It won House approval 189-5.

Republican House members from Allegheny County were jittery about the package yesterday. They wanted assurances written into the bailout legislation to prevent the city from seeking to raise its income tax to capture revenue from suburbanites who work in the city.

"We've come too far to have the threat of that (so-called commuter tax) hanging over our heads," said Rep. Mark Mustio, of Moon Township.

Some lawmakers are concerned that if the bailout doesn't provide enough revenue, Pittsburgh officials will go to court -- as permitted by the Act 47 law for distressed municipalities -- to raise its income tax.

The letter from Rendell to area lawmakers assured them that Pittsburgh officials won't do that.

That needs to be in the law, said Republican Rep. Tom Stevenson, of Mt. Lebanon.

The griping by House members prompted the Senate to make the 11th-hour change.

Here are the main points of bills approved Saturday by the Senate that would give Pittsburgh new and increased taxing authority: