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December 9, 2002
CMU opposes half percent payroll tax
by Jeannie Choi, Staffwriter

Deceit. Dishonesty. Denial. All of these are at the root of the city of Pittsburgh’s budget problems, says Robert Strauss, professor of economics and public policy.

“It’s not just that the city is in debt, but that the council and the mayor have been creative in manipulating their finances to make another budget by borrowing and re-borrowing,” said Strauss.

PGH 21 — a mayor’s citizen panel dedicated to evaluating the city’s finances and creating new solutions — proposed that the city levy two new taxes on wages and alcohol to weather Pittsburgh’s $60 million budget deficit next year. The new taxes would require a levy of 0.5 percent on employers’ gross payrolls and a 10 percent tax on alcohol.

Strauss attributes the deficit to new buildings and venues in Pittsburgh, including the stadiums and the convention center expansion. The city has also engaged in public/private ventures, like the client service centers for Mellon and PNC banks. Pittsburgh hopes long-term tax revenue from greater economic growth will outweigh the tax breaks offered to corporations that decide to build in the city. And while the city has added venues for public gathering and use, the spending has not helped the city of Pittsburgh, said Strauss.

“We can see the effects of the city’s financial problems on the poor level of our public services, the broken streets, parks, and lack of cleanliness in the area,” Strauss said. “Enrollment in the public school system has gone down from 39,000 students two years ago to 35,147 now. Conflicts between the school board and the city’s budget may have caused a general crisis in the confidence that parents had in the school system.”

The city said these financial problems are historic and a result of a series of legislation made by the city of Pittsburgh over a number of years.

“The city’s tax structure is outdated and does not reflect the city that we are today. PGH 21 has proposed a series of recommendations that would reform our local tax structure and ensure that our tax structure is based on a fair and equitable distribution of the burden,” said Craig Kwiecinski, Mayor Tom Murphy’s spokesperson.

Nearly 30 percent of the city’s property is exempt from real estate taxes. As well, many of its major employers, 17 out of 24 (including CMU), are tax-exempt because they are universities, hospitals or other non-profit organizations.

“In addition to proposing new, fair tax proposals such as the payroll preparation tax and the 10 percent by the drink tax, we are also trying to find a way to ease the tax burden on others such as property owners and small business owners. We are looking to reduce the cost of the city government through spending reductions,” said Kwiecinski.

Murphy’s budget proposes trimming the city’s work force by 20 percent and merging the city’s EMS and fire bureaus.

After the payroll tax proposals were made, CMU stated that it already aids the city in much of its budgetary problems.

“Carnegie Mellon supports the economic health of the city as one of its largest employers with 3,800 jobs, as a purchaser of goods and services, and as a provider of world-class higher education to some 8,600 students annually, all of whom spend money in the city of Pittsburgh,” the University press release stated.

“Our employees also pay wage and state tax and the university pays real estate and amusement taxes. In fact, Carnegie Mellon’s economic impact on Allegheny County is an estimated $746 million each year.”

The University is also keenly aware of the financial difficulties that the city is in and has been an important part of the efforts to help restore some balance to the city’s finances, said Don Smith, vice president for economic development of the Mellon Pitt Carnegie Corporation.

“While we’re very supportive of the attempt to restore some balance to the city’s finances, this particular payroll tax proposal would be fairly onerous and so we are actively seeking to work with the city on an alternative,” said Smith.

Because the tax would be such a burden on the University, CMU has offered its services to a committee organized by Governor-elect Ed Rendell that would work to address the city’s budget deficit and taxing structure.

“A vast amount of non-profit organizations in the city have voiced opposition to this plan. This will undoubtedly affect health and social services in the region and our school will feel its effects in some of our priority initiatives for the university,” said Smith.

The city does not deny that the University has been an important driving force behind Pittsburgh’s new economy, but cannot ignore the lack of balance in the city’s tax structure.

“There’s no doubt that the universities have become a driving force behind Pittsburgh’s new economy, but at the end of the day, not everyone is paying their fair share when it comes to the tax burden of the city,” said Kwiecinski.

“This new tax is about reform and bringing our tax structure into the 21st century to reflect the city we are today.”

Strauss said that if the payroll tax is approved by the state General Assembly, CMU will feel some of the repercussions.

“If the city goes through with the payroll tax, CMU will do the arithmetic and pay it by decelerating its wage increases and it’s going to come out of our hides. In terms of tuition, they are talking about a 5 to 10 percent increase in tuition prices,” said Strauss.

The tuition increase will be combined with other budgeting strategies to take care of the estimated one million dollars a year that this tax would cost the university, said Smith.

Until the tax is passed, all the University can do is wait to see its future. Strauss believes, however, that the urgency is a necessary agent to helping the city realize that this budget deficit is a big problem.

“The mayor and city council are both in cars playing chicken. Neither wants to let go of the gas and they don’t care if they go down, as long as the other goes with them,” said Strauss. “In front of them is a concrete wall and right now, we are at the point where we can see the mortar between the bricks.”

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