(Pittsburgh) May 13, 2021 While Downtown Pittsburgh’s County government complex—consisting of the Courthouse, City-County Building, and County Office Building—is the center of Allegheny County government, the County also leases many properties around the County to assist with carrying out various functions. While many of these properties are leased by the Courts to house the County’s 46 Magisterial District Judge offices, ten other County departments leased at least one property during the period of 2017 through 2019. The County was engaged in 117 leases of at least $20,000 during this period, totaling nearly $42 million.
“Having County functions and services available and accessible throughout the County is essential, and leases with private property owners are often appropriate to achieve this,” County Controller Chelsa Wagner said. “While without a doubt many landlords are valuable partners to the County and their communities, our government has a duty to ensure these leases achieve value for the taxpayers, and that landlords meet their obligations. Our audit found that this hasn’t occurred in all cases, and that proper measures must be put in place to ensure it.”
The Controller’s office found a lack of safeguards for taxpayers to ensure that the County is paying fair market value for rental properties, that improvements required of property owners by the County’s leases are carried out within specifications, and that the County’s landlords are current on their property taxes. Representatives of the County’s Law Department, which negotiates and enters into leases on behalf of the County, acknowledged reforms are needed and have already taken action on some issues identified in the audit, Wagner noted.
“I am appreciative of the Law Department being cooperative and receptive to changes recommended in our audit, and I am hopeful that my office can continue to work in concert with the administration on monitoring and safeguards for the taxpayers when it comes to leases,” she said.
Auditors examined in detail six new leases entered into by the County during the audit period. They found that files on these leases maintained by the Law Department contained no documentation related to research on fair market values of rental properties. Only one file contained documentation of how the County identified and selected the property for lease.
The County often agrees to pay the cost of alterations to leased space to meet its requirements and specifications, with the work being carried out by the landlord or its contractors. However, there is no requirement for the landlord to solicit bids to ensure this work is carried out most cost effectively for the taxpayers.
“Competitive bidding and ensuring our taxpayers are getting the best price for any product or service should be the rule in government with very limited exceptions. Our County has a Purchasing department with expertise in this area, and the Law Department should utilize their services to analyze lease opportunities and costs,” Wagner said. “There is no reason that tried-and-true government procurement processes like requests for proposals and competitive bidding, which can prevent favoritism and waste in government spending, can’t be used for leasing private office space.”
Wagner said that ‘shopping around’ for office space is likely to be even more important in the coming months, as the COVID-19 pandemic and economic downturn has transformed local rental markets. A recent report from the Pittsburgh Downtown Partnership showed rents down 5 percent to 15 percent during the pandemic and landlords offering new incentives to attract tenants.
“There is no reason why the County taxpayers should not benefit from what is essentially a ‘buyer’s market’ for office space in the region as the pandemic subsides, and many landlords would welcome a reliable tenant like the County,” Wagner said. “The Law Department should carefully examine the market and new opportunities as it renews leases in the coming year.”
A significant lease examined by auditors was for the new 911 Call Center and Emergency Management offices in Moon Township, which is owned by the Allegheny County Airport Authority.
The County entered into a 20-year lease for the 911/Emergency Management facility at a rate of $87,831 per month. The County paid up-front costs of $2,450,000 for renovations, which it will recoup in credits toward rent. The County also agreed to pay any renovation costs in excess of $4 million.
The renovation project specifications require the submission of various certifications, reports and shop drawings. Some of the improvements involve critical improvements required for the ongoing operation of the center.
Auditors selected a sample of 25 certifications or reports and five shop drawings and requested these documents from the Airport Authority, the Department of Emergency Services, the Law Department, and the contractor. Emergency Services and the Law Department indicated they do not possess these documents and the contractor indicated they turned over all project documents to the Airport Authority. As of the report date, the Airport Authority has not provided the Controller’s Office with any of the requested information.
“It is impossible to ensure that the taxpayers are getting what they pay for from landlords, or that essential workers like our 911 Call Center operators are being provided the best work environment, when documentation showing lease terms are being met aren’t kept or can’t be produced. This is especially concerning when the landlord is a public agency, in this case the Airport Authority,” Wagner said. “This lack of transparency from a public body with obligations to the taxpayers that go beyond that of a private landlord is appalling, and my office will be continuing to seek to hold the Authority accountable for all work and services due to the County and our hardworking employees at this critical facility.”
County lease contracts also contain language requiring the landlord to pay all real estate taxes when they are due and payable. Auditors reviewed Allegheny County’s Real Estate Portal to determine if County real estate taxes were paid for the years of the audit period as well as for 2020 and found that seven properties have unpaid taxes for at least one of these four years. This indicates that there is no process in place to verify County real estate taxes are paid on properties being leased by the County.
A property housing a Magisterial District Judge office in the North Hills owed County property taxes and fees for all four years examined, totaling over $14,000. A McKeesport property housing a satellite facility of the District Attorney’s office owed County property taxes and fees totaling nearly $6,300 for three of the years examined.
Two more properties housing Magisterial District Judge offices, on Pittsburgh’s North Side and in the North Hills, also owed County property taxes for multiple years.
“Meeting one’s own tax obligations should be a prerequisite to receiving tax dollars, and it is clear there is no process in place to ensure this when it comes to County leasing. This deficiency in oversight and accountability must be fixed. Those who make their tax payments year-in-and-year-out expect nothing less of those getting County dollars,” Wagner said.
View the full PERFORMANCE AUDIT REPORT ON ALLEGHENY COUNTY REAL ESTATE LEASES FOR THE PERIOD JANUARY 1, 2017 THROUGH DECEMBER 31, 2019.