Pittsburgh's Next Decade: The Suburbs

[Second in series of occasional posts; read the first one here.]

This is how I began this series:
So long to Pittsburgh's last decade. What will the next one bring? Long-range forecasts are easier in some ways than short range ones; my list of predictions for Pittsburgh's 2010 includes only one sure thing. My view of the next decade is on surer footing. These things take longer to come into focus - and most of them have been emerging for some time already.
But I've been traveling a lot, a working some more, not paying close attention to local events and news, and when that combination hits then the blog suffers. Momentum is a difficult thing to recapture. Fortunately for me, occasionally little local issues just rise up and slap me in the face.

Long-time observers and occasional readers of this blog will remember the simmering passions over the distribution of tax burdens between City of Pittsburgh residents and commuters who live in the suburbs. Suburbanites (suburbanauts?) cruise into the City each day in large numbers, soak up the benefits of a broad range of public services, then retreat beyond the City's boundaries, free of City taxes. It is often argued that much of the financial crisis that afflicts the City could be solved by rebalancing this tax burden (a commuter tax, in other words), and even if that wouldn't save the City, then the rebalancing is in order as a matter of simple fairness.

Let's assume that there is a lot of sense in this suggestion. The future-of-Pittsburgh question is whether the economics are likely to pay off. Is the money going to be there? My strong sense is that over the next decade, some of Pittsburgh's suburbs, and their residents, are going to be doing pretty well, others not so well, and still others - well, to call them "suburbs" might turn into an insult to that term. A commuter tax is going to fall unevenly on the suburbs themselves, and it's difficult to tell whether, as a group, the suburbs are going to fair well enough to provide a strong source of City income.

The North Hills suburbs are likely to be big winners over the next decade, in terms of population, income - and jobs. To the extent that people continue to commute down the I-279 corridor into Pittsburgh, that's good news for commuter tax proponents (and bad news for everyone who has to endure the horror that is McKnight Road). To the extent that the Cranberry and its neighbors continue to attract jobs, including jobs that used to live in or might have been destined for Pittsburgh or Allegheny County, then commuter tax proponents are likely to be disappointed. This, of course, shows one of the weaknesses of the commuter tax concept. If jobs are mobile -- and pace Chris Briem's work that shows that in Pittsburgh's case, many of them have not been -- then a differential tax burden may influence how they move.

South Hills suburbs, by contrast, are creaking, and over the next ten years they likely will continue to do so. Population growth has slowed. Income growth will follow. No one in the South Hills is building employment clusters comparable to what we've seen in recent years up north, though new investment around the Pittsburgh International Airport suggests some reason for optimism - especially if the airport itself somehow manages to build more traffic. PIA as the hub of South Hills community economics is indicated by shifts in South Hills retail: Century III and South Hills Village malls are both struggling; retail in Robinson and North Fayette is expanding.

The doubtful future of the South Hills was brought home to me (again) recently as a little financial scandal erupted in my home township, Mt. Lebanon. I've written before that Mt. Lebanon is the canary in Pittsburgh's financial coal mine. If the suburb that most of Pittsburgh both envies and loves to hate can't get its financial house in order, given its professional planning and city management apparatus and the wise elders who have dominated the town for decades, then the rest of the region has little chance for stability. And Mt. Lebanon's financial house is collapsing all around us, while public officials are scrambling for cover.

Last year the township's School Board voted to proceed with construction of a brand new high school building (tear down most of the old, build up the brand new) at a nominal cost of roughly $110 to $115 million (I say "nominal" because the real cost is likely to be much more). That's a lot of money in anyone's book, and I and others in town argued that the the time wasn't (and isn't) right for such a huge capital investment. Fix what needs to be fixed, we said, and wait until the financial weather clears for the rest. But the Board disagreed, relying in part on the promise that 15% of the project's cost would be reimbursed by the Commonwealth. That wasn't a special deal; reimbursement for school projects is a standing obligation of the Commonwealth.

Last week, local residents were informed that the reimbursement rate would be roughly 8% - meaning that the local share of the project, the amount that has to be financed by local debt and school taxes - has now jumped by a couple orders of magnitude. Couple that with other state-mandated increases in school spending over the next several years, and Mt. Lebanon -- once the showpiece of public education in Western PA -- is looking at tax increases over the next few years on the order of 40% - 50%. (For local blog posts describing this fiasco, take a look here and here.) I refer to this as a little scandal because School District officials publicly relied on the 15% number in selling the project to the taxpayers, successfully sold the project in the public's mind, and now they have backtracked to the 8% number. One school director has tried to explain what looks like a bait-and-switch in terms that make the sale of collateralized debt obligations look simple and sensible. She argues that the high reimbursement rate is fair because it applies to the nominal cost of the project; the new, low reimbursement rate is also fair because it applies to what the district and its taxpayers will actually pay to finance the project. Since the latter figure is what comes out of my pocket, I think that it's fair for me and my fellow critics to be outraged: The town was told that it would have to pay one thing (based on a high reimbursement) and now is being told that it will have to pay much, more more (based on a low reimbursement).

Besides the fact that I still hold out hope that the Post-Gazette will send its crack investigative reporters to Mt. Lebanon (I'm advised that this is unlikely; too many PG staff live here!), and besides the fact that other South Hills suburbs have built or renovated schools of comparable scope at significantly less cost (Baldwin, Upper St. Clair), the real lesson here is a broader one: Pittsburgh's older, southern suburbs are not aging well. The pool of resources is relatively fixed; fights are erupting over their distribution. The center of Pittsburgh's suburban gravity is shifting north, where the resource pool is growing. Among other things, that means that South Hills suburbanites are likely to fight a commuter tax even more intensely than their North Hills neighbors will - because the South Hills pie is shrinking while the North Hills pie is growing.

That leaves points west and east. I see much of suburban Pittsburgh through my South Hills lens, so I have less to offer here. Points west (down the Ohio River - Aliquippa, Beaver, and so forth) and points east (and south) up the Mon River (especially up the Mon River) are not looking healthy today, and there is little reason to expect that they will do more than continue to limp along for the next decade. [Sharp-eyed readers will note that PIA and Robinson are really west of downtown Pittsburgh, not south. I think that lots of Pittsburghers, region-wide, think of PIA and so forth as "south" even while they drive the Parkway West to get there.] Things may get worse. The battle for Braddock is under way right now; we will see what happens there. Will there be anyone in Braddock, ten years from now? The older generation that ties that town to its past will be almost completely gone by then; the newer generation that is trying to reimagine the place (I'll call them "Socio-Industrial Entrepreneurs") will have to fish or cut bait, because their money will either come in or dry up. In truth every town up that way and beyond will become a battleground of one sort or another over the next decade or two, if it hasn't already. Homestead is an exception that partially proves the rule; via the Waterfront development, Homestead effectively resolved its own battle by voluntarily annexing itself, economically speaking, to Squirrel Hill. I wonder whether the region will have the stomach and the energy to fight the same fight over and over again, town by town. Close the hospital? Close the high school? Close the grocery store? It may. It may not. There are a lot of City of Pittsburgh neighborhoods that need that stomach and energy, too.

Points due east, out the Parkway to Monroeville and beyond, look somewhat more promising to me, with a future that is not as comparatively bright as the future of the North Hills, nor as comparatively bleak as the South Hills. I've been watching the progress of Vocollect's proposed expansion in Penn Hills, as a signal of the future of the eastern economy. Gradually, that project is moving forward, but it has been a struggle at every step.

Of course, few people think of down-river and up-river communities when they think of a commuter tax. The coming battles over saving those towns are significant to their residents and to the broader identity of the Pittsburgh region, but in economic terms, they are cost-sinks. The question there is how many resources is Pittsburgh willing to sink into them. The commuter tax question raises the income question, that is, the benefit question: How can the suburbs help Pittsburgh, not how can Pittsburgh help the suburbs? The mental model of a commuter tax is white-collar professionals driving in from Wexford, Upper St. Clair, Churchill, and Murrysville. Those communities and their neighbors are worth watching especially closely.

Comments

12 Responses to "Pittsburgh's Next Decade: The Suburbs"

n'at said... 1/17/2010 1:20 PM

The best idea that I've heard is to normalize the wage tax at the state level, then divide it equally between your residence and your place of business. There are pluses and minuses to be argued, but the revenue to be gained by prominent business centers within a distressed city, township or borough will be well received - same would go for cities of the first class.

Bedroom communities be damned :>

Jonathan Potts said... 1/17/2010 4:34 PM

Hmmm, I think that might tip the balance a little too far. Maybe there's an empirical way to prove me wrong, but I suspect I consume more services from the city of Pittsburgh -- where I live -- than in Moon Township, where I work. Should Moon get half my municipal wage taxes?

Anonymous said... 1/17/2010 9:13 PM

Mt. Lebanon is a sundown town.

Paz said... 1/18/2010 9:06 AM

Lot of development further south though, wouldn't you say? Southpointe may not be as big as Cranberry, but Washington County still has had sizable investment over the last decade or so.

Mike Madison said... 1/18/2010 9:26 AM

True, Paz. Peters Township (residential) has grown substantially; the retail area around the Meadows is thick with stores and hotels (and a casino!); Southpointe looks bright (but is emptier than it appears from the highway); parts of Washington PA itself have come back nicely.

But I'm skeptical that it adds up to much. Here's why: For a long time, there was a Charles Schwab office on Route 19 in Peters/McMurray. Several years ago, that Schwab office was relocated to Southpointe. Following the money, you might say. Then Schwab closed that office and consolidated its operations in Downtown Pittsburgh. Similarly, Fidelity has its one and only Pittsburgh-area "Investor Center" in Wexford. I'm applying what you might call a Willie Sutton approach to demographics: I'm going where the money is. Pittsburgh's money is flowing north.

Mark Arsenal said... 1/18/2010 2:55 PM

Not sure I have an answer to the questions, but just some observations:

- San Francisco has a payroll tax that is essentially a commuter tax in the sense that it taxes a percentage of payrolls. If you assume that employers take this cash from their 'payroll budget' then yes, essentially commuters are paying a part of their wage for the 'privilege' of working in SF and living outside the city. Not sure what that privilege is, tho... I'm just saying the concept works in many other cities, without the employment armageddon often shrieked by fear-mongers ever happening. It should be tried.

- Urban amalgamation could be cited as what got Canada's finances in order in the 90s. Everyone hated it, but a national drive to stop living amid perpetual deficits forced the issue. Maybe if DC keeps letting the states and cities fall like dominos into the fiscal abyss this will become a more realistic idea than most people think it is right now, especially in uber-Balkanized NE cities (Pittsburgh, Buffalo and Albanty come most readily to mind).

- Better PR could help the city attract and retain its own suburbanites. Jim Russell would disagree with me here, probably, but if we would explain exactly WHY Pittsburgh always gets these 'quality of life' awards, maybe more people would believe it? Defining quality and prosperity and growth and such in terms that people understand (like, hours of free time, community relations, welfare economics) rather than nebulous things like the city budget or GDP per capita will probably help.

Mike Madison said... 1/18/2010 3:01 PM

A quick note on the "quality of life" recognition that Pittsburgh has had:

It's a bad thing. Or at least highly misleading.

The biggest factor in Pittsburgh's "best places to live" standing is the low cost of housing. The fact that homes here are cheap, and the fact that they appreciate slowly (or not at all), is essential to Pittsburgh's rated "quality of life."

Why is Pittsburgh such a cheap place to live?

Because demand is so low. So long as relatively few people migrate to Pittsburgh to live, the real estate market will remain flat.

For those of us who already own homes, that is mostly a good thing (it's not so good if you look at your home equity from an investment standpoint, but it's OK in most other respects).

If and when Pittsburgh ever becomes a "hotter" destination for mobile professionals, watch real estate prices move up - and watch the awards disappear.

Mark Arsenal said... 1/18/2010 3:34 PM

Agreed. But observationally it still works out. Maybe statistical methods don't work because it's lot is being thrown in with cities that don't have the same unique value propositions.

Some ideas to include in future quality-of-life surveys:

- In-city park acres per capita

- grocery store concentration (avg distance to a full-service deli, produce dept, butcher, baker)

- Average cost of tuna

- hours spent commuting

- per capita pizza slices

- feet of topographic variation per capita in city limits (if we can get people out of their cars it could make a big dent in health matters)

- Average distance to decaying brick buildings

Pittsburgh ins hands-down on all these.

As for housing costs, hey, we got a second home in Pittsburgh because it was so dirt cheap and pretty, and we still don't know what the hell to do with it :P

Maybe increase the demand by pushing it as "cottage country" to disillusioned seaboarders?

Mike Madison said... 1/18/2010 4:44 PM

Or simply wait until Penn Hills offers an ocean view.

jp said... 1/19/2010 1:00 PM

Citing the physical location of a brokerage office as evidence of a money trail is murky at best, as the need for face to face brokerage services is growing increasingly unnecessary with more sophisticated investors willing to seek out services 100's or even 1000 miles away thanks to technology and the globalization of the financial services industry. Actual brokerage offices are necessary to serve older less technological savvy investors, hardly the indicator of growth you are looking for. One could even argue their absence is a contra indicator citing the higher use of technology and mobility as an indicator of education, age, median income etc. Not disagreeing with you per se, but I do not think your observation is that useful

Mike Madison said... 1/19/2010 5:24 PM

jp, that's a point well-taken in the abstract. In the concrete, I'm not so sure. If Schwab was really serving its tech-savvy client base by closing the McMurray office, then why did it open the office at Southpointe? My guess is that it was moving a needed office facility closer to its clients. Why close the Southpointe office? Maybe because everyone was going online. Or maybe because Southpointe was struggling (which it was, and perhaps now is) and there is a demand for in-person service that is independent of online access -- and that demand was declining. Probably some of both. Up north, Fidelity still has a big physical presence in Wexford. Lots of wealthy, tech-savvy people there, yet there is still demand for in-person services.

Jim Russell said... 1/20/2010 2:53 PM

The geography of finance is an excellent indicator. Financial services still concentrate in a select few places. There's plenty of cheap real estate available if said brokerage offices are really geographically independent.

Why would Schwab have a downtown office at all? Why the geographic distribution of services in the first place?

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Pittsblog 2.0 is written by Mike Madison, a law professor at the University of Pittsburgh. Send email to michael.j.madison[at]gmail.com. Mike also blogs at Madisonian.net, on law and technology. Chris Briem of Null Space drops by from time to time.

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