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We're Not Worthy!

When CEOs who bleed the city suggest more cuts

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All you really need to know about the latest plan to bail out Pittsburgh is where it was unveiled on Oct. 18: the Shadyside mansion of Elsie and Henry Hillman, Pittsburgh's foremost billionaire Republican couple.

 

The location was perfectly suitable. In the sunnier days of his administration, Mayor Tom Murphy handed out subsidies and tax breaks to deep-pocketed corporations such as Heinz and Alcoa, effectively turning city hall over to the wealthy. Now that times are tough, it's somehow fitting to see the wealthy turning their own homes into city hall. Maybe if the Hillmans can decide a few more public-policy issues in the drawing room, they can skirt the property tax by having their home designated as a government building.

 

It wouldn't be the most laughable attempt by wealthy taxpayers to get out of paying their fair share. For one thing, there's the plan itself, devised by a 30-member group chaired by former US Steel CEO David Roderick.

 

Give the commission this much credit: Its plan is several steps above one recently proposed by suburban Republican legislators, who seek to preclude any new taxes but want to put the city under the control of a five-member panel appointed by Harrisburg. Even City Controller Tom Flaherty acknowledges that "I'd take this plan before the other one." Murphy will likely get behind this plan with the same enthusiasm he has shown for so many other "public/private partnerships," and for the same reason: He doesn't have much choice.

 

But Roderick's plan would give the city tens of millions of dollars less than Murphy hoped the city would provide.

 

This time a year ago, you'll recall, Murphy put forward a plan to levy a "payroll preparation tax" of one-half of 1 percent on all city employers -- including tax-exempt non-profits and businesses that don't pay the city's business privilege tax. During his Nov. 12 budget address, Murphy groused that 17 of the city's 24 largest employers were tax-exempt, including "banks, utilities and manufacturers" (including Roderick's old firm, US Steel).

 

Roderick's proposal, meanwhile, is to hike the city's $10-a-year occupational privilege tax to $60 on those who work within the city, and then charge their employers $99 a year for every worker on the payroll. Roderick hasn't said how much revenue his payroll levy would generate, and there may be a reason: It will certainly be much less than Murphy originally hoped for. A Murphy-appointed commission called PGH21 estimated that Murphy's original tax could raise $60 million from the city's employers. It also found that merely closing business-privilege tax loopholes would have raised $40 million.

 

Roderick's proposal, would not affect nonprofits, and even for-profit employers affected by it get off easily. Unlike the PGH21 tax, which is levied on what the company pays out in salary, Roderick's tax is a flat $99 for each worker, regardless of what he or she is paid. Unless you're paying your employees less than $20,000 a year, that's a much better deal than having to pay a half-percent of their salary. And the median pay in Pittsburgh is over $40,000 a year. 

 

To take a real-world example: PNC Financial Services employs nearly 7,000 people in the region. Assuming each of those employees worked within the city (which they don't) PNC would owe $689,000 under Roderick's plan. That's a lot of money, but it's far less than the $10 million most estimates surmise the bank would have to pay if it lost its business tax exemptions. In fact, that $689,000 is less than one-fifth of what PNC paid to one person alone last year: CEO James Rohr.

 

Or take the case of Federated Investors, a Downtown money-management company that demanded its own privilege-tax exemption in 1996. Murphy helped shepherd that exemption through Harrisburg over the objections of city councilors, who Murphy insisted were suffering from a "basic ignorance of business." There was sharp disagreement over just how much that exemption cost the city: Estimates ranged between $500,000 and $2 million. But Federated would be substantially better off under Roderick's deal either way: The company would have to pay $168,300 in payroll taxes if its 1,700 employees all worked inside city limits.

 

Federated, incidentally, earned $204 million in net income last year. PNC earned almost $1.2 billion.

 

Murphy's argument for Federated's exemption was the same argument many people have about business taxes today: If you tax businesses too heavily, they'll leave. That may be true, but it's also what makes all the self-satisfaction coming from the Hillman mansion so hard to take. Here, for example, is Roderick boasting of Pittsburgh's corporate citizenship in the Oct. 19 Pittsburgh Post-Gazette: "[T]he business community has indicated a willingness in order to solve the financial crisis and to help cover the city deficit. We will accept this tax, and that's a rare thing."

 

How nice. For years we've carried the burden for the tax breaks enjoyed by US Steel and other companies, and now we're being offered tens of millions less than Murphy claimed was fair a year ago. Yet Roderick thinks we should be grateful.

 

Roderick himself is a good example of what champions of tax fairness are up against. He doesn't even live in Allegheny County -- he's a resident of Ligonier -- and he's a lot like Mayor Murphy. Except minus the people skills.

 

Roderick presided over US Steel during its brutal 1980s downsizing, and while many of those job losses were inevitable, he carried them out with a high-handed arrogance that still rankles. Among other things, he laid people off just after the holidays, and as William Serrin wrote in his book Homestead: The Glory and Tragedy of an American Steel Town, under Roderick US Steel "acted in a most arrogant and imperious manner....Often union officials would receive no official notification [of plant closings] but instead would receive a telephone call just before an announcement, or read rumors in a newspaper." Ask Jeff Vesci, the head of the city's paramedics union, if this sounds familiar.

 

Perhaps the high point of Roderick's career came in 1982, when US Steel sought federal tax credits it insisted were necessary to modernize its mills. Hoping to save jobs and communities, politicians and workers lobbied for the credits and won them. US Steel responded by promptly investing $6.4 billion -- not in steel, but in the purchase of Marathon Oil. It then laid off another 3,800 steelworkers in Mon Valley plants -- the very plants the company claimed the credits would help save.

 

Which sums things up nicely: Roderick's company -- like many of the city's other largest and most undertaxed firms -- bled the city for years, taking whatever tax breaks they could get. For decades they tore the heart out of this town, offering Band-Aids in return.

 

That's all we seem likely to get this time, too.

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