Thursday, December 30, 2010

Dedicated Funding Streams 101

You may (like me) have spent the last week gorging on Christmas treats and entertaining travelers stranded in Pittsburgh because of the crippling East Coast snowstorm. However, Pittsburgh City Council has been spending their holidays coming up with last-minute solutions to avoid a potentially disastrous state take-over of the city's pensions at the end of the year.

The latest political buzzword is "Dedicated Funding Stream." The idea is as old as dirt, though. Many of us set aside money every paycheck to contribute to our 401Ks. That's a simple dedicated funding stream. Instead of getting your whole paycheck, plopping it into one big checking account, then deciding how to divvy things up, you set aside a fixed percentage every month to your future retirement that you can't change without lots of annoying paperwork.

Allegheny County's Drink Tax
Back in 2007, County Executive Dan Onorato and his council passed the extraordinarily controversial Drink tax, dedicating 10% of every tipple consumed in the county to pay for the County's share of Port Authority expenses. Now, when it's time to pay Port Authority, the Council doesn't have to slice a piece of the budget pie - that money is already set aside.

City Council's Proposal?
Pittsburgh City Council wants to dedicate future parking rate increase profits to funding the Pittsburgh pensions. I, for one, am a fan of this method. Much like we don't sell our house and put the profits in our 401K and hope for the best, just to get all our savings wiped out in a bad market downturn, we regularly contribute to our future, exercising "Dollar Cost Averaging." If you need an extra reminder why plopping a giant wad of cash onto the problem doesn't fix the problem, you need to only look back to the year 1998 in Pittsburgh. That's when then-Mayor Murphy sold over $250 Million in bonds to shore up the pension fund. All that money has since disappeared in stock market dive after stock market dive while the city continued to contribute the minimum amount possible each year.

What's Next? Will Harrisburg also jump on the dedicated funding stream bandwagon? One can only hope. As it stands now, the Pennsylvania state legislature can barely pass budgets on time while it attempts to divvy up its giant general fund. Most of the time, Port Authority gets the shaft. Let's take the control out of the hands of selfish state legislators and add some transparency to the budgeting process instead of last-minute shady deals to pass the budget. Heck, maybe the Federal government could even learn some lessons here? If I can manage my own budget, surely our governments with their teams of Ph.D. degree-holders and economists should be able to as well.

1 comment:

shadow said...

The drink tax is a shell game though. it generated "too much", so it was reduced. it still generated "too much". during the last month or so it was discussed, but only barely. there's more to it than just that.