PAtownhall.com
Pennsylvania's Marketplace of Ideas
Pennsylvania's Marketplace of Ideas
PAtownhall.com
Pennsylvania's Marketplace of Ideas
Pennsylvania's Marketplace of Ideas
by Policy Brief
To the great surprise of everyone, including County Council members, on the afternoon of December 31, 2007, Allegheny County received a $22.4 million wire transfer from the state's Gaming Economic Development and Tourism fund. Out of the transferred funds, $19.9 million has been grabbed by the County to fill a 2007 budget hole instead of going to the Airport Authority to help make bond payments—as most people believed the Legislature intended.
The gaming law, Act 71 of 2004, detailed the mechanisms by which gaming dollars would be spread throughout the state while Act 53 of 2007 itemized the projects and in what amounts they would get money for the 2007-2008 fiscal year. Philadelphia and Allegheny County were the winners in this round of gaming dollars with set-asides for the Pennsylvania Convention Center in Philadelphia ($880 million), the Lawrence Convention Center in Pittsburgh ($40 million) and related hotel ($44 million), the Penguins' arena ($225 million) and the retirement of debt for economic development loan programs set up by Pittsburgh ($60 million) and Allegheny County ($30 million).
One of the additional big-ticket items for Allegheny County is debt related to Pittsburgh International Airport ($150 million). The legislative language, in both Act 71 and Act 53, states that the money is for "debt service and development and economic development projects for an international airport located in a county of the second class". The public record on the issue shows that the County's legislative delegation and the County Executive seemed to be acting under the assumption that the $150 million would be used to repay the construction related bonds assumed by the Airport Authority from the County when the Authority was created and entered into a lease agreement with the County.
A July 2004 newspaper article reported "Ultimately, as much as $150 million, either in a one-time sum or paid out $15 million a year for 10 years, is to come from the slots-fueled development fund. The money will be used to reduce the $600 million debt that still remains at Pittsburgh International." Then a July 17, 2007 press release by the Executive stated that the recently passed legislation would help "to reduce our debt for Pittsburgh International Airport…" That would have been a great opportunity to mention that the County intended to seek the $42 million he now claims the County is owed.
Act 53 requires a minimum yearly amount for the Airport Authority to be $12.4 million and it is reasonable to assume that payments would be $15 million each year the fund has adequate money on hand. It is very odd indeed that the first payment would be $19.9 million, just enough presumably to fill the now much ballyhooed 2007 budget hole that had received virtually no attention by Council in the 2008 budget discussions. Now we are told that there has been a $30 million structural deficit for a number of years and that one time revenues have been used to fill the gap each year. Yet there is no mention of "structural deficits" in the Controller's Comprehensive Annual Financial Report for 2005 or 2006. Besides, the term structural deficit in the County context is being misused. In fact, the deficits have been nothing more than a shortfall of revenue relative to planned spending. If those shortfalls occur year after year, there is obviously a serious revenue and expenditure forecasting problem. Either that or the County has operated under the expectation that one time revenues could always be found to plug any budget gap.
In any event, the announcement that $19.9 million would be used to partially reimburse the County for the $42.5 million it contributed toward the construction of the airport's midfield terminal was surprising to say the least. True, the County had put $42.5 million amount into airport construction, but 2005 and 2006 audited financial statements of the Airport Authority —which was created in 1999, long after the construction of the airport—do not list a $42.5 million debt owed to the County. There is an entry showing the Authority is paying down a relatively insignificant $300,000 in general obligation bond debt issued by the County and has current payments due to the County of $1.4 million. Language in the Airport Authority's audited financial statements clearly indicates the Authority intended to use the gaming fund money to assist with bond debt payments. There is no reference to owing or paying $42.5 million to the County. In short, unless the Airport Authority's management and board has withheld key information from the Authority's auditing firm, there is apparently no legally enforceable $42.5 million debt owed to the County.
Meanwhile, the County's 2006 audited financial statement does show at least two references to the construction investment. One, the notes to financial statements report that "the County's public investment in PIT (Pittsburgh International) exceeds $40 million" and two, the schedule of the County's long-term debt shows an outstanding amount of $41.2 million in "airport general obligation bonds." However, the County's assets do not include a receivable from the airport in the amount of $42.5 million nor is there any discussion of such a receivable in any of the Comprehensive Annual Financial Reports going back as far as 2003.
So how is it that the County was able to get first call on its debt even though all parties seemed to be in agreement that the Airport Authority would get the money for debt relief? It turns out that thanks to a last minute amendment to the Gaming Fund legislation (Act 53) last July, the distribution of funds for the Airport Authority "shall be made to a county of the second class for use as specified in this act". One wonders why it was necessary for that language to be inserted unless the possibility of intercepting the money had been thought through as early as last July.
Then too, it is very unlikely that if the Airport Authority had received the gaming funds directly it would have readily relinquished the entire $19.9 million at a time when it desperately needs money so that it can roll back the enormous fee increases that just went into effect. And even supposing there is a legitimate airport debt to the County, why wouldn't the County agree to take $4 million a year over the next ten years and let the airport keep the rest for bond debt repayments beginning with the first installment?
Considering the potential harm the recent airline fee hikes will do to the airport makes this money grab by the County extremely unsettling. At a time when the airport needs to do what it can to be competitive and is closing off sections of concourses due to the further drop in USAirways flights, the first installment of the gaming funds could have been a great help.
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Jake Haulk, Ph.D., President Eric Montarti, Policy Analyst
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