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Allegheny Institute

Allegheny Institute:

Merger Talk Ignores PA Constitution and Laws

by Policy Brief

At a legislative hearing May 28, 2008, the County's Chief Executive and Pittsburgh's Mayor extolled the wonderful things that will happen when the two governments are merged into one. All the usual rhetoric was on display including this gem from the Mayor, "A city-county merger remains Southwestern Pennsylvania's best hope or economic growth and survival in the years to come." This from the head of a City that cannot even merge its own planning functions and seems unable to take seriously the need to consolidate services with the County, a process that has been recommended by countless studies over the years.

As we have pointed out on several previous occasions, the merger of the two governmental entities is an incredibly complex undertaking and must be thought through very carefully. Many questions must be answered. What happens to City employees and City unions? Will there be any substantive cost savings? How will the other 129 municipalities be represented in this new government? What happens to the City's authorities? And so on ad nauseam.

But there is a major sticking point to hurdle before those concerns can begin to be addressed. The linchpin of the merger plan as presented calls for the creation of an "urban services district" in the geographic area formerly known as the City of Pittsburgh. This District would have its own services and tax structure in order to shield County residents outside the former City from having to bail out the City's debt, pension obligations and other legacy costs.

Unfortunately for the proponents of the "urban services district" idea, they face an almost insurmountable impediment. Pennsylvania's current statutes and Constitution will simply not permit such a district to be formed in a merged government. It is ironic that the members of the Allegheny Conference who are pushing this urban services district notion have not read the Pennsylvania Economy League of Southwestern Pennsylvania (PEL) study released in February 2007 (A Comparative Analysis of City/County Consolidations) that addresses this very issue. It is ironic on two counts.

First, the study—which, as of this writing, is posted on the PEL website—points out unambiguously that under current Pennsylvania law, urban services districts cannot levy a set of taxes different from the taxes levied by the County. Nor can the merged jurisdiction segregate debt, pension, workers compensation obligations or other legacy costs geographically. All such liabilities must be uniformly borne by the new consolidated government. That clearly includes the taxpayers of the other 129 municipalities.

In sum, absent an amendment to the Constitution's Uniformity requirements regarding taxation, the urban services district cannot be created as envisioned in the merger plan being touted by merger proponents. Just because other places such as Louisville and Nashville have adopted them is no guide as to what can be done in Pennsylvania. No proponent has yet suggested that a constitutional amendment will be required. And little wonder. Amending the Constitution is a three or four year process at least and is very hard to do.

The second irony is that members and employees of the Allegheny Conference are among the strongest supporters of the city-county merger and the urban services idea despite the fact that the Pennsylvania Economy League of Southwestern Pennsylvania is an affiliate of the Allegheny Conference. Surely, folks at the Conference must have been made aware of the PEL's February 2007 findings with regard to how Pennsylvania's laws would govern any merger plan.

Compounding the irony, a spokesman for the Conference and presumably the PEL wrote in a letter to the Tribune-Review (May 20, 2008) that contrary to the Trib's opinion it is legal and not uncommon to levy different tax rates within a municipality. He specifically mentioned Keystone Opportunity Zones wherein no local taxes are paid and the different earned income tax rates Act 47 municipalities often levy on residents and non-residents. On their face, the points look sensible and well made. But of course they are not. First, the Constitution permits "special tax provisions" such as abatements or forgiveness "for a limited period of time to encourage improvement of deteriorating properties or areas." There is no stretching the intent of this provision to allow a different array of taxes or different tax rates within a municipality for general governmental purposes.

Similarly, levying a different earned income tax rate on residents and non-residents under Act 47 would not violate the Constitution because the subjects of taxation are not similarly situated as the "same class of subjects." By the same token, levying different earned income or property tax rates within a single municipal jurisdiction (which the merged city-county would be) would clearly violate the uniformity requirement.

Moreover, the spokesman went on to argue in the Trib letter that the new consolidated government could create an urban services district and segregate legacy costs so that taxpayers outside the former City would not have to pay for the City's problems. As was noted earlier, the PEL's own study refutes that possibility.

If the Chief Executive and the Mayor are planning to continue pushing the "urban services district" idea as a way to allay fears of the County's taxpayers outside the City, they need to get some solid, well argued legal opinions verifying the permissibility of such a step. Certainly, before detailed merger plans are finalized, this is a problem that must be addressed and dealt with.

In the meantime, they might also want to address some pressing real problems affecting local economic growth. How about asking the legislature to reform Act 111 to create a semblance of a balance of power in contract bargaining with public safety unions? Or, how about pushing for a prohibition of teacher and transit worker strikes? Or, maybe the leaders could ask to have the Port Authority's monopoly control of mass transit revoked. No constitutional amendments are needed, just the political will to get some important and meaningful changes enacted. Otherwise, the whole merger push is effectively nothing more than a cynical, diversionary tactic. And, even if the merger were to happen, the real underlying obstacles to growth presented by high taxes and excessive power concentrated in public sector unions will still be there.
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Jake Haulk, Ph.D., President Eric Montarti, Policy Analyst
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