Falling revenue, soaring costs threaten Pittsburgh’s financial future

Story by Mike Wereschagin, Pittsburgh Post-Gazette (TNS)

For city leaders, the internal report one year ago was startling: Pittsburgh’s finances, despite the glowing claims of some elected officials, were on the brink of disaster.

Revenues were plummeting. Expenses were rising. Without a major course correction, the city could drain its bank account as early as 2027 — a threat it had not faced since the darkest days of state receivership decades earlier.

Mayor Ed Gainey’s administration pushed back hard against the dire predictions, and top officials promised they could weather what they referred to as the coming “lean years” without major changes to the city’s spending plans.

But a trove of new documents, some of which have not yet been made public, show critical threats to the city’s financial health have only grown since the alerts were first raised in April 2024.

On Thursday, city Controller Rachael Heisler warned that key sources of tax revenue fell short by tens of millions of dollars of what the city had expected last year, and that others — federal COVID aid and higher-than-normal investment returns — were rapidly dwindling.

And just months into 2025, the city’s revenue is down sharply — $53 million, mostly due to the federal aid drying up — from where it was during the first three months of last year, according to records obtained by the Post-Gazette.

At the same time, overtime pay in some of the most crucial city departments is on pace to blow past the government’s budget by millions of dollars, and massive increases in the city’s debt payments are looming.

“We’re dealing with historically high interest rates, fewer home sales and less tax revenue,” Ms. Heisler said in releasing her office’s latest report.

Some of Pittsburgh’s top leaders are increasingly voicing concern that the shrinking revenue and rising costs are sending the city hurtling toward a financial crisis, even as fears of a nationwide recession grow and the flood of federal aid that has helped prop up the budget in recent years dries up.

Experts say it’s not just the drop in revenue that’s worrisome; it’s also which revenue streams are falling short.

In the first months of this year, a slowdown in home sales, a key economic indicator, has continued to drive down the flow of cash into the city’s coffers, according to a report on revenue through the first quarter of 2025.

In the first three months of this year, the money the city gets from home sales — the deed transfer tax — brought in $1.8 million less than the same period last year.

That’s already on top of an $11.2 million shortfall for the same tax last year.

Economic fears

The decline is the latest setback to the city’s real estate market, which has long been the local government’s largest money generator.

Nowhere has that been starker than in the amount of property taxes the city is bringing in, especially from its biggest cash cow: the Downtown real estate market — which accounts for as much as a quarter of all real estate revenue.

That money pays for many core services, from public safety and street repairs to storm cleanup.

As more people shifted to working from home during the pandemic, the companies that occupy towering office blocks in the central business district have dramatically cut the amount of space they’re using, sending the value of those properties plummeting.

The effect on the city’s bottom line has been severe: $8.3 million less than $714 million the government expected to take in last year, and $7 million less than it collected in 2023, according to the controller’s report.

That fall-off continued into the first months of this year, when property taxes brought in $2.6 million less than they had during the same time last year, the revenue report shows.

The drop in the number of people coming into the city to work is rippling through other parts of the budget as well. The local services tax, a $52 fee on everyone who works in Pittsburgh, generated $256,000 less in the early part of this year than it did in 2024, according to the revenue report.

It’s a troubling signal that the city’s economy is stagnating, Ms. Heisler said. “We need to be managing growth — not decline,” she said.

The Gainey administration did not respond to a list of questions about the government’s finances emailed by the Post-Gazette.

In recent years, the city enjoyed a massive cushion against unexpected drops in its tax base. The American Rescue Plan Act, a $2-trillion stimulus package passed during former President Joe Biden’s administration to boost the economy after the shock of COVID, funneled $335 million into Pittsburgh’s bank accounts.

That money fueled unprecedented interest earnings for the city as leaders invested the money and reaped tens of millions in returns during a booming stock market.

Despite the drop-offs in taxes last year, the city ended up taking in about $4 million more than it spent — a surplus driven by that interest income, which was more than $5 million higher than the city had expected, according to the controller’s office.

But the pot of cash has been steadily drying up as officials move to spend all of the money by the end of next year, the deadline set by the federal government before Washington claws back any remaining dollars.

Top officials, including Ms. Heisler, have long warned about the fund ending and driving down both the cash available to the city and the enormous interest income it reaped from the investments.

“Over the last two years, city expenditures have outpaced revenue. While we were able to manage this with the help of the American Rescue Plan, that support ended in 2024,” Ms. Heisler said.

Soaring costs

Even as the warnings intensified, though, the city has added hundreds of jobs to its payroll during Mr. Gainey’s tenure, driving up personnel costs as the financial forecasts turned more ominous.

In the last two years, the 217 new positions have pushed Pittsburgh’s budgeted workforce to more than 3,600 — the highest it’s been in at least a decade, according to the annual report.

The city’s payroll grew to almost $270 million last year — $24 million more than when Mr. Gainey took office in 2022. Adding those positions locks in not just pay and benefits, but millions in long-term pension costs as well, said Sheila Weinberg, the CEO of Truth in Accounting, a government finance watchdog group.

Ms. Weinberg, who reviewed the city’s financial report, noted that the government used much of its COVID aid to stave off layoffs and cover personnel costs.

“Now that the COVID money is running out, are they going to have to get rid of people?” Ms. Weinberg said.

The Gainey administration last year budgeted for the falling revenue by cutting what it planned to spend on, among other things, overtime pay for hundreds of workers in some of the most essential city departments.

But severe staffing shortages in police and EMS, and pressing infrastructure needs across the city, have pushed those workers to rack up overtime payments at rates that are on track to be millions more than what the administration has prepared to pay.

On Tuesday, severe storms tore through the region, killing at least one person in the city and downing trees and powerlines. Mr. Gainey declared a state of emergency and deployed Public Works crews to clean up the damage.

But the department had already spent 68% of its annual overtime budget in just the first three months of the year.

The cuts to police and EMS overtime sparked fierce debates on City Council over whether the city would be able to live within the numbers that Mr. Gainey’sadministration proposed — fears that are bearing out already this year.

Police burned through 37% of their budgeted overtime in the first quarter of the year. For fire, it was 34.7%, and the city’s struggling EMS department has spent more than 66% of its total premium pay budget for the year.

If that pace continues, those four agencies alone could rack up nearly $20 million that the city hadn’t planned to spend this year. Even if revenue figures rebound and the city collects as much money as it plans to, that’s more than enough to wipe out the projected $3.2 million surplus and send the government deep into the red, City Council’s finance chair, Erika Strassburger, wrote to leaders on April 17.

“I fail to see how the numbers outlined in the controller’s report represent anything but an imminent financial disaster,” Ms. Strassburger wrote.

The financial crunch is also expected to make it more difficult in the years ahead for the city to meet critical needs like fixing and replacing aging vehicles and machinery.

Right now, there’s a sizable reserve fund of about $200 million, but the city expects to spend most of that over the next five years to meet its obligations.

That means debt payments, payroll, street paving, garbage collection and the equipment that workers need to perform their jobs.

“We need more money for the city’s fleet, period. That includes fire trucks and water trucks. It includes ambulances, which is a truck and a chassis. It includes police vehicles, snow removal vehicles,” Ms. Heisler said.

“Ambulances are breaking down. Fire trucks are breaking down. If you go down to the City Garage, there’s a waiting list for vehicles and large equipment to be seen,” she said.

In the years to come, the city will be forced to make difficult decisions on where to spend its shrinking resources.

“You need to be honest about how people might not see their roads paved,” Ms. Heisler said. “It’s a conversation we need to have with city residents. We need to make sure that they understand where things are headed.”

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