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After 2023 deficit, Allegheny County’s financial future gets mixed review in annual report

Allegheny County Controller Corey O'Connor stands behind a podium bearing the controller's crest. Next to him are two large posters, one showing that county expenditures outpaced revenues in 2023, the other showing a steep decrease in the market value of the county's pension fund over the past few years.
Julia Zenkevich
90.5 WESA
Allegheny County Controller Corey O'Connor presents his office's annual financial report at the Allegheny County Courthouse, June 26, 2024.

Allegheny County Controller Corey O’Connor warns the county is at a financial “inflection point” and projects stormy days ahead unless officials find a way to increase revenues.

In an annual report of county finances released Wednesday, O’Connor noted that in 2023, county expenses outpaced revenues for the first time in 12 years. Big drops in assessed property values for the county’s commercial buildings, combined with dwindling federal funds from the American Rescue Plan Act cut into expected revenues — and a struggling pension system could signal more challenges ahead.

The county spent over $921 million last year — about $23 million more than it took in, according to the report.

“We are in a good place for the next couple of years because of our reserves, but we do not want to tap into them,” O’Connor said.

Allegheny County has $113 million in its “rainy-day fund,” about half of which is unassigned for specific purposes. But, O’Connor said, “We need to make sure over the next few years that we do not irresponsibly dip into those funds in order to operate our government. That would be like dipping into your savings fund almost every time you have to go to the grocery store.

“It's not feasible, and we need solutions” to the problem of declining revenues, of which 40% comes from real estate taxes, he added.

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The total assessed value of properties in the county fell by $720 million last year, mostly due to a slew of successful commercial property appeals. That equated to a loss of $3.3 million in revenue for the county.

But even a possible court-ordered reassessment wouldn’t fix all of the county’s financial woes, according to O’Connor.

“We should not pursue a solution to a revenue problem driven by large commercial properties that will fall on individual homeowners,” he said. “If there is a reassessment, we need to do everything in our power as Allegheny County to protect our most vulnerable residents as well as our seniors. … It has to give benefits to longtime homeowners as well as first time homeowners.”

Since 2021, county finances have been buoyed by American Rescue Plan money, about $40 million of which was used last year to cover losses. But O’Connor warned that the money is running out: ARP funds must be obligated by the end of this year and spent by the end of 2026. After that, officials will need to find another way to pay for the various government services that currently rely on that money.

The most significant driver of revenue growth last year was a $12.9 million increase in interest income on federal emergency aid funds, which will expire at the end of 2026 and result in decreased interest income in the future.

Proceeds from the county’s 1% sales tax increased by $4.8 million, and property tax revenue grew by $500,000.

General cost increases also contributed to the deficit. Spending on health and welfare went up by $35.9 million. Public safety spending increased by $17 million, about $10 million of which was spent at the Allegheny County Jail. And the cost of operating the county’s Kane Community Living Centers went up $12 million, largely driven by an increased reliance on contract nursing agencies.

Contract employees don’t contribute to the county pension, which O’Connor said is in a dire state after being chronically underfunded. At the end of 2023, the pension was only 31% funded (down from 33% funded the year before). The controller’s office estimates that without intervention, it could become insolvent by 2037.

“This is a long-term conversation that should have happened many, many years ago, and it didn't,” O’Connor said.

But he said he is optimistic about the county’s ability to turn things around while maintaining services for the county’s most vulnerable residents.

“It's all of us collectively looking at these numbers, where we can go as a region, what we want to push forward as a region, and giving not only businesses opportunities here, but residents and people that feel like they haven't had opportunities in the past providing them with those opportunities to succeed,” he said.

Abigail Gardner, a spokeswoman for County Executive Sara Innamorato, said the administration appreciated the office’s “thorough and balanced report.”

“As County Executive Innamorato has said since her inauguration speech, the county has mixed economic indicators right now. There is good news, and several reasons to be optimistic, and also some challenging headwinds, including pension funding. The lack of a meaningful revenue increase in the last decade was temporarily backfilled by federal COVID relief funds,” said said.

“We are grateful for APRA and CARES Act funding, we think the county has spent the money wisely, and we will make sure every dollar is obligated and spent so none of it has to be returned,” she added. “But as the nearly $400 million in ARPA funds winds down, it is time to be clear-eyed about Allegheny County's finances and what changes need to be made, headed into the next budget season.”

The budget in question was put together by the previous administration. Innamorato took office in January after the passage of that 2024 budget. The county will plan its 2025 budget this fall.

Julia Zenkevich reports on Allegheny County government for 90.5 WESA. She first joined the station as a production assistant on The Confluence, and more recently served as a fill-in producer for The Confluence and Morning Edition. She’s a life-long Pittsburgher, and attended the University of Pittsburgh. She can be reached at