Mayor Gainey’s budget shows lean years ahead, with cuts to paving and shrinking reserves

MAYOR ED GAINEY enters the City Council Chambers to applause as he arrives to give his 2023 budget address on Monday, Nov. 13, 2023, at the City-County Building in Downtown Pittsburgh. (Photo by Stephanie Strasburg/PublicSource)

Pittsburgh faces some razor-thin budgets in 2025 and beyond, and fiscal (and literal) potholes may loom.

by Charlie Wolfson, PublicSource

Mayor Ed Gainey presented his 2024 budget proposals to City Council Monday morning, and despite an optimistic speech before a packed council chamber, some on Grant Street worry that the city could be heading for financial hardship in the years ahead.

“Today I’m proud to put forward a budget with no tax increases,” Gainey said during his speech. “Our future is brighter than ever.”

But looming union contract negotiations and the end of federal pandemic relief money have some city officials worried that Pittsburgh could face a budget deficit—possibly as soon as 2025—and they are urging the mayor to take a more cautious approach to budgeting.

The budget Gainey presented to council, a fiscal plan for 2024 with projections for four years after that, predicts an operating margin of just $3.5 million in 2025. That’s down from an estimated margin—the difference between revenue and expenses—of $40 million in 2023 and a projection of $29 million in 2024. The administration projects a larger margin in 2027.

A $3.5 million cushion for 2025, though, is just 0.5 percent of the city’s projected operating expenses for 2025, and would be the city’s smallest operating surplus since 2020, when people stayed home due to the coronavirus outbreak and revenue from parking and amusement taxes was crushed.

The city now projects a reserve fund balance of just $71 million by the end of 2028, down from $152 million today and just 10.1 percent of the projected expenditures for that year. The city is required by ordinance to keep a reserve fund of 10 percent of its planned expenditures.

“It’s clear that we’re just barely scraping by,” said Peter McDevitt, the budget director for City Council. “We’re going to have to be very careful and cognizant about the money that we’re spending.”

In a press conference Monday, Nov. 13, Deputy Mayor Jake Pawlak said the city’s projected slim margins in the coming years were expected, and not a long-term concern.

“We know we’re confronting what is a temporary fiscal challenge,” Pawlak said, with American Rescue Plan Act [ARPA] funding lapsing and significant debt payments scheduled for the next three years. “We know that we do not have a structural challenge. … We know that the operating result for a few years will be narrow, but we also can see the light at the end of the tunnel.”

But that thin margin in 2025 is built on projections for employee salaries, capital projects and revenue estimates that some believe are unrealistic.

‘Frugality’ in paving planned

Gainey’s team is also counting on a steep drop-off in debt payments after 2026, with debt service slated to drop from $79 million in 2026 to $48 million in 2027.

Gainey and Pawlak acknowledged the need for “frugality” in the next few years, and said the city’s capital budget could be limited as a result. One glaring example: The city plans to spend $5 million and $6 million on street paving in 2025 and 2026, respectively, down from usual levels higher than $17 million.

“We need to present a responsible plan,” Pawlak said, “and that responsible plan calls for frugality in 2025 and 2026. We think we can meet resident needs, but we have to be responsible about it.”

After conceding the need for some capital cutbacks during his speech, Gainey said, “Though the path may not be straight and the going may be difficult at times, I believe with every fiber of my being that we will reach new heights.”

City Controller Michael Lamb, who is leaving government after 16 years this January, criticized the reduction in paving funds, saying the move puts the city “in a situation where you’re moving backwards again.”

“I don’t know what their plan is for that, other than to allow things to deteriorate,” Lamb said.

ARPA sunsetting, interest questioned

Lamb said he is “very concerned” about the city’s ability to maintain a balanced budget in the years ahead.

Among his worries is the end of federal funding from the American Rescue Plan Act of 2021, which was passed in large part to buoy municipal and state finances after the economic shock of the pandemic.

More than $40 million of the city’s operating expenses have been covered by ARPA each year since 2021, and into 2024. But the funds expire at the end of 2024, leaving a much thinner budget in 2025.

Controller-elect Rachael Heisler, who will succeed Lamb in January, said she has doubts about the city’s projections for interest earnings in the long term. The city earned a higher-than-expected $17 million this year after the Federal Reserve increased rates, but she questioned how the city can expect to maintain those returns when its fund balance is expected to decrease by half in the next five years and interest rates could change.

Pawlak said in an interview that most of the city’s interest earnings come not from its fund balance but from cash that flows through the city’s accounts during a year—for example, most residents pay property taxes at the beginning of the year, and that money earns interest until it is spent later in the year. As for interest rates, which were at historic lows before the pandemic but have since risen, Pawlak said the city’s procedure is to plan for steady rates and adjust to any changes.

Another possible revenue problem: The city’s deed transfer tax has hit hard times recently, after remaining relatively stable during the pandemic years. From the start of 2023 through Sept. 30, the city collected 30 percent less than it did during the same period in 2022. The take of $37 million was just over half of what the city was counting on receiving in 2023, with just three months left in the year.

Raises and  ‘restraint’

The budget includes no raises for firefighters or paramedics, despite the fact that the city will negotiate new contracts with the first responders’ unions this year, which may result in significant raises. McDevitt said those raises are accounted for in a vague “allowances” budget line that contains $7 million.

Lamb and Heisler both suggested more “restraint” in the city’s upcoming budgets, warning against curtailing basic city services and letting the reserve fund get too low in case another economic downturn hits.

“I think the economy is so volatile … I think the city would be smart to be in a position to be a little more nimble in the next few years,” Heisler said.

“I would prioritize making sure that our fund balance remains on solid footing.”

Lamb said some city departments have seen an “explosion” in spending in recent years, singling out the mayor’s office, city council and the Office of Community Health and Safety.

“There is going to need to be a discussion about what remains a city expenditure,” Lamb said.

The budget will now be examined and amended by City Council, which must ultimately adopt an amended version by the end of the year. Council President Theresa Kail-Smith said late Monday that she is worried about the fund balance declining to near 10 percent, and noted that some cuts could be in order.

“We have to make some tough decisions,” Kail-Smith said. “We’re here to do the things we’re supposed to be doing, and that is paving roads, trimming trees, keeping people safe. Everything else is something extra for us, as far as I’m concerned.”

(Charlie Wolfson is PublicSource’s local government reporter and a Report for America corps member.)



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