Pittsburgh Mayor Ed Gainey acknowledged Thursday that the city is preparing for the coming financial years, but told residents there is no reason to worry about major cuts to city services.

“The sky is not falling, but we have some difficult years ahead of us,” Gainey said.

Gainey and Jake Pawlak, director of the Office of Management and Budget, sought Thursday to allay fears that a 5.5 percent drop in state revenue forecast for next year could lead to massive cuts or tax increases.

Pawlak said the city is not planning to raise taxes or cut jobs.

Instead, Pawlak said, city leaders are looking for ways to optimize “operational efficiency” to contain costs. He did not name specific ways the city could reduce its operating costs, other than eliminating currently vacant positions and postponing new capital projects.

Gainey’s administration also released its five-year revenue forecast. This data is typically released along with the mayor’s broader budget proposal, which is due by the end of September.

Pawlak said the figures were released earlier this year to provide citizens with transparency about the city’s finances, as some officials feared declining revenues.

Pittsburgh officials originally expected the city to generate more than $714 million in revenue this year, including money from taxes, fees, permit fees and other revenue sources. However, new figures released this week show that the city’s revenue will actually be less than $700 million.

Next year, the city expects revenue to fall to less than $661 million.

Covid money is dwindling

Starting next year, the city will no longer be able to cover its operating costs with funds from the federal American Rescue Plan Act, which is intended to support city budgets during the Covid-19 pandemic.

Authorities also expect lower property tax revenues, largely due to lower revaluation of large downtown buildings, which are worth less now that the pandemic has led to a sharp shift in work to telecommuting.

City Treasurer Rachael Heisler warned other city leaders in March that their initial estimate of $151.8 million in property tax revenue this year was likely too high. She said the correct figure was probably about $5.32 million lower – a claim Gainey’s top officials rejected as they struck a more optimistic tone about the city’s financial situation.

This week, however, Gainey’s administration released statistics that paint an even bleaker picture when it comes to property tax revenue, predicting that number will be about $6.7 million lower than expected.

Pawlak said the updated calculations were based on data from the first two quarters of this year as well as tax appeals that have reduced the value of downtown’s tax base.

Sales forecasts show a continuous decline in this source of income over the next five years.

“While we are still analyzing the initial numbers, we are grateful that the Gainey administration has taken our concerns into account,” Heisler said in a statement.

The government’s figures, she said, “appear to be a response to the revenue forecasts made earlier this year.”

“We will face real challenges in the coming years, but as long as we provide citizens with an honest perspective, the City of Pittsburgh will be able to respond with the appropriate fiscal discipline,” Heisler said.

Despite the grim numbers, Pawlak and Gainey said there is no reason for citizens to worry. They criticized city officials who they said are spreading fear among citizens about the city’s financial situation, but did not name anyone directly.

Money from real estate transfer tax

Pawlak also pointed to real estate transfer tax as an area where revenues are expected to continue to decline.

Initial estimates for this year suggested the city could collect about $59 million in property transfer taxes, but updated figures released this week put that amount closer to $47 million. Next year, officials predict, that amount could drop to about $42 million.

The city has included money from the facilities user fee, a tax on out-of-town professional athletes and entertainers, in its revenue projections. The city is awaiting a decision from the Pennsylvania Supreme Court on whether the tax is unconstitutional. The court could rule that the city cannot continue collecting the tax — or even force the city to repay money it has already collected.

The city only expects to raise about $6 million from this tax, an amount that, according to McDevitt, the city council’s budget director, will not make much difference to the city’s overall financial situation.

Pawlak said city officials are confident the court will allow Pittsburgh to continue collecting the tax.

McDevitt said the revenue declines would likely lead to budget cuts next year, but what those cuts might look like is unclear.

“You have to be thoughtful and attentive and make some difficult decisions,” McDevitt told TribLive on Thursday. “Not everyone is going to get everything they want.”

McDevitt said the numbers the Gainey administration released this week appear to be accurate projections.

“They are not sugarcoating anything,” he said.

Concerns about supervision?

While McDevitt acknowledged that the city will be short of cash in the coming years, he said the future looks brighter in 2027, when much of the city’s old debt will be paid off and there will be more money for other expenses.

McDevitt said there are no signs the city is heading for a financial collapse that could put Pittsburgh under state supervision again.

“I have no concerns at this point that we’re going to go back to Act 47,” he said. “We’ve been talking about this for over a year, so hopefully the administration has prepared accordingly so that there aren’t major benefit cuts or anything like that.”

Pawlak said the city has already been working to save money and cut costs to ensure it can meet the financial challenges ahead.

The city is on track to stay about $25 million under budget in its operating expenses this year, Pawlak said. He did not specify how the city saved that money, but said city leaders are looking for ways to spend less money to achieve the same goals.

Although Pawlak praised the administration’s savings efforts, the city’s spending is still above previous estimates.

A 2020 budget forecast projected the city would spend $667 million in the 2024 operating budget. According to the city’s most recent quarterly report, the city is actually on track to spend about $695.5 million.

In 2019, the city projected it would spend $640 million in 2023. In fact, the city spent more than $704 million on operating costs last year.

In the second quarter of this year, the city spent $9.9 million more than it earned.

However, the city’s second-quarter report showed that the city is on track to end the year with a net balance of $3.8 million, suggesting that city leaders still expect to take in more money this year than they spend overall.

Related:

• Pittsburgh Controller warns of threat to city’s financial health, calls for budget changes

• Pittsburgh’s Controller Heisler warns in his annual report of impending problems for the city’s finances

• Pittsburgh may have to consider a tax hike after pandemic relief funds dry up, officials say