The New Pittsburgh

Try this on:

Pittsburgh is working.  At the micro level -- the level of the neighborhood, the community, specific and visible public and private resources (sports facilities, museums, some schools and libraries, some real estate redevelopment), the sense of individual good will, and the cost of living and the livability index -- the city and region are in pretty good shape overall.

Pittsburgh is broken.  At a macro level, its economic "model," such as it is, has exhausted itself.  To pay its collective bills, the city and region really rely on a combination of models, all of them badly outdated, that are strapped together with baling wire and duct tape.  The result is the simultaneous 21st century "Renaissance" of Pittsburgh, celebrated by the Allegheny Conference and by National Public Radio, and the disintegration of Pittsburgh's public sector, perpetuation of urban poverty, and the drumbeat of violent crime in several Pittsburgh neighborhoods.  Pittsburgh's public image of itself as a place that has turned itself around has the clarity and certainty of the Ptolemaic view of the universe:  it's perfect, except that it only works with a dizzying range of adjustments and qualifications.  And it's completely wrong.

Like many people writing about Pittsburgh, including many who write about it professionally, I've focused in the past more on the micro and on individual elements of the macro.  And individual elements of the macro get talked about and written about mostly when there's some kind of crisis at hand.  The libraries are closing!  The state will take over the pension system!  Bus routes will be eliminated!  When the individual elements get added up, however, there is a pattern here.  This post steps back and looks at it, in non-crisis mode.  Call the following a New Year's cosmology of Pittsburgh.

The sun does not revolve around Pittsburgh.  Pittsburgh revolves around the sun.  The sun is this:  There is no such thing as a free lunch.  What I mean is that in the fundamental economics of Pittsburgh -- a city that cannot afford itself -- the haves of Pittsburgh, who can pay for what they want, are slowly but surely separating themselves from the have-nots, who cannot.  People who live in the city's handful of hipster neighborhoods and in its better-known gentrified neighborhoods have the political will and economic clout to attract more residents and more local businesses; people who live in the region's more successful suburbs are gradually building better walls and moats to ensure that the rich stay rich.    The many, many neighborhoods and towns in the middle, places with retirees, public school systems, fire departments, public libraries, and need for public transit, depend on transfers of wealth to balance their metaphoric books.  Pittsburgh's tech sector, higher education sector, and medical services sector are fiddling -- sweet notes, to be sure -- while the rest of the region largely burns.

There are Copernican solutions at hand, if the region wants to remain somewhat integrated and stable.  But nothing comes without a steep price.  The price will be financial (cost of living will go up; range of public services will go down), cognitive (Pittsburgh's NPR-enabled sense of collective self-satisfaction will be disrupted), and political (established interests will resist mightily, and several options require cooperation from Harrisburg and/or Washington, DC).  The Mayor and the City Council have been playing a Ptolemaic game of Three Card Monte over the last three months, trying to solve Pittsburgh's pension crisis by flipping cards quickly on the top of a folding table set up on a grimy sidewalk and assuming that all would be well with Pittsburgh's finances once the cards were turned over.  I'm not optimistic that the current political climate will produce anything better.  But in the interest of laying out the options -- the routes to a stable future, if you will -- I've put together the following list of the real, hard options.  It seems to me that these things should be talked about in public together, rather than separately.

One:  City/county consolidation.  The City of Pittsburgh is an island of about 300,000 people in a region of nearly 2 million; Allegheny County is divided into a billion municipalities and other taxing authorities.  Consolidation is no panacea, but at least it puts in place a framework for aligning the costs of administering the region with the obligation to pay for those costs.  

Two:  Privatization.  Privatizing public services is often an article of faith for market-oriented philosophers rather than a pragmatic alternative to public provision, and privatizing things -- that is, selling them, or selling the rights to them -- just because they can be sold is usually a bad idea.  The relevant government is simply borrowing from Peter to pay Paul.  That said, there is often no good case for the government to be providing the services in the first place.  Take last Fall's flap over privatization of the City of Pittsburgh's parking assets -- parking garages and parking meters.  It is not clear to me why the City is in the parking business to begin with, except for historical reasons.  The City likes the money, of course.  The parking garages and the parking meters could be sold -- what the proceeds would be used for is a different question -- and rates regulated so that parkers don't get gouged.  Parking, of course, isn't the only public business that could be outsourced.  Public authorities could get out of the business of building, managing, and financing stadiums and arenas.

Three:  Tax reform.  This could take one or more of several forms:

 -- A commuter tax.  This has been a favorite of city residents, but it is terribly inefficient.  The idea of equalizing tax burdens is a good one; this strategy invites administrative problems -- and rewards economic development outside the City limits.  And the City is pretty small to begin with.

-- Income tax reform.  The City's Local Services Tax ($52/year) is astonishingly low.

-- Sales tax increases.  Increasing sales taxes is regressive and therefore disfavored.  But the most important sources of the regressiveness -- taxation of food and clothing -- are already off the table; those aren't taxed in PA.  Dedicated or targeted sales tax increases -- the "drink tax," for example -- are particularly problematic because they appear to be targeted at specific populations and the beneficiaries are often political favorites.  That combination means that they are likely to be unstable political bargains rather than stable structural reforms.

-- Property tax reform, including taxation of property owned by not-for-profits.  This could be a long blog post of its own.  Allegheny County is on the cusp of another round of reassessments, when the real problem is not inequitable assessments but a combination of inequitable distribution of tax liability (the enormous amount of untaxed land in the county, and the absence of a land tax) and inequitable administration of the current system (tax liens, about which I have written before).

Four:  Municipal bankruptcy.  This is the nuclear option in Pittsburgh, the He-Who-Shall-Not-Be-Named of local political debate.  An out-and-out default on the City's bonds would be one really terrible, no good, very bad thing, but worse would be the idea of ceding authority over the future of the city to a federal bankruptcy judge.   In the private sector, however, we've seen "pre-packaged" bankruptcy used strategically and mostly successfully to revive underwater companies.  Look at General Motors.  Applying that thinking to the public sector is appealing, at least conceptually.  Could we generate a New Pittsburgh and an Old Pittsburgh, a la New GM and Old GM?  The key, of course, would be to spin the City's legacy pension obligations into the "Old" Pittsburgh, where they wouldn't keep dragging down the "New" Pittsburgh.  One obvious solution would be to privatize the existing pension obligations.  If Pittsburgh wants to sell off some of its income (say, by selling its parking revenue), then Pittsburgh should match that by selling off its debt, too.  Completely isolate the economics of pensions (a legacy obligation) from the economics of the City's current operations.  Unfortunately, I believe that both federal law and state law prohibits this sort of thing, and of course the unions would flip out.  A "pre-packaged" municipal bankruptcy is not likely to be feasible.  But I put it on the table as an option because bankruptcies in the private sector are used more cynically to wipe out pension obligations altogether.  Pittsburgh's public retirees may have to think about the better of two bad options:  reduced pensions, or no pensions.

Five:  A state takeover / bailout.  Pittsburgh has its toes in this water already.  Perhaps more than its toes.  The problem here is not only that a state takeover of the City's finances is politically unpalatable, but that the state isn't exactly flush with money itself.  Harrisburg isn't looking to take on Pittsburgh's problems.  And a state takeover might stop the bleeding, emphasis on "might," but wouldn't revive the patient.

Six:  Shaving down pension obligations.  Pensions aren't the only thing dragging down the City of Pittsburgh, but they are the biggest thing.  Short of municipal bankruptcy or a state takeover, the City's public retirees and unions could voluntarily restructure their pensions in order to help save the City.  (Before you fall out of your chair laughing and crying, consider this column about similar problems in Atlanta.  Undoubtedly, there is more to the Atlanta story, but Atlanta suggests that this is not an inherently impossible conversation to have.)

Seven:  Shaving down the public sector generally:  public works, schools, libraries, police/fire.  Pittsburgh has dipped its toes in this water, and Pittsburgh doesn't like it. The political blowback from cutting the public sector in a City of 90 neighborhoods is profound.  The reality, however, is that Pittsburgh's public sector was built for a City that held vastly more people than the City holds today.  Even with new revenue (from somewhere) and reduced costs (from elsewhere), it is all but certain that public services generally will be cut back and cut back permanently.  The question is whether this is done consensually and collectively and strategically, or whether it is done involuntarily, haphazardly, and politically.

Eight:  Grow Pittsburgh's way out of the problem.  Just about everything that I've written above focuses on cutting costs or on making transfer payments.  What about raising income and therefore raising revenue?  In my native California, where the economic catastrophe of the public sector is worse than Pittsburgh's problems, history teaches that the state can grow its way out of its problems.  (History may have run its course out there, but that's a topic for a different blog.)  Some of Pittsburgh's relative success over the last decade might be attributed to economic growth, particularly the eds-and-meds businesses.  But the economic benefits of that growth have not been distributed equally across the region, and a good amount of Pittsburgh's relative success should be attributed to the region staying in place while peer regions have fallen behind.  I wrote this post last week; in Sunday's Post-Gazette there were several columns or op-eds -- Brian O'Neill, Chris Briem, and Harold Miller -- that all push on bits and pieces of a growth theme.  Putting the best face on this, however, there is no reason to think that future growth, even if it is sustained, will be broad enough and sufficiently fast-paced to cure all that ails the Pittsburgh region.  The Marcellus Shale is no panacea.



11 Responses to "The New Pittsburgh"

Mitch said... 1/03/2011 11:50 AM

Lovely writeup, Mike. It's scary, but in the same way, the fact that there *can* be a solution is what makes me hopeful.

I'm generally wildly against the cutting or privatization of necessary services (education, public transit, healthcare, infrastructure such as roads & bike lanes), and I feel like this city generally agrees with me. And I feel comfortable about that.

BrianTH said... 1/03/2011 1:57 PM

All of the above?

I'll say my biggest concern is that the City doesn't really have the unilateral ability to systematically solve many of these problems, meaning doing more than simply reacting to the latest crisis on a haphazard basis will likely take sustained action at the county and state levels. Unfortunately, anti-central-city sentiment is a big part of the current partisan-political dynamic, and while I hope that will change in the future, it may take a while.

MH said... 1/05/2011 9:32 PM

People who live in the city's handful of hipster neighborhoods and in its better-known gentrified neighborhoods have the political will and economic clout to attract more residents and more local businesses; people who live in the region's more successful suburbs are gradually building better walls and moats to ensure that the rich stay rich.

Those are two very different cases you've crammed together there.

Mike Madison said... 1/05/2011 10:45 PM

True. Actually, I have likely crammed together more that two different cases there. The whole post crams together a lot of things that could be parsed separately, at great length, and to different effect. Shadyside, Squirrel Hill, and Point Breeze are all different places; Lawrenceville isn't Bloomfield and vice versa; Upper St. Clair isn't Murrysville, and so on.

But it's a blog post, not a treatise, which means that it's designed primarily to provoke people into thinking and talking about old stuff in new ways, not to exhaust all possibilities and details. If the reaction is -- "that's completely wrong, and here's why" -- then I'm just about as happy as I am if the reaction is "that's completely right." And all things in the middle.

So I thank everyone for taking the time to read and especially thank those who comment. ;-)

MH said... 1/06/2011 12:33 PM

It is trivially true that things could be parsed differently. However, the city/suburb distinction is crucial for your points 1, 3, 4, and 7 and related to the others. You make a great deal of:

the haves of Pittsburgh, who can pay for what they want, are slowly but surely separating themselves from the have-nots

But the whole of Pittsburgh proper, even the wealthier neighborhoods, are fundamentally different from the suburbs on that count.

Mike Madison said... 1/06/2011 2:33 PM

Explain "the whole of Pittsburgh proper, even the wealthier neighborhoods, are fundamentally different from the suburbs on that count." I don't want to comment, let alone disagree, unless I know more about where you're coming from. Does "the whole of Pittsburgh proper" mean "the City of Pittsburgh," and do you mean that neighborhoods in "the City of Pittsburgh" are not distributed along a have and have-not spectrum?

Also, are you speaking of "the city/suburb distinction" in terms of terms of contemporary political boundaries or in terms of demographics/income/commuter status, both, or something else?

I tend to look at the region in terms of its aggregate economy, meaning resources supplied and resources demanded. City and suburbs are divided from one another politically -- and suburbs are divided from one another -- that's a blunt fact, but it's something that gets in the way of productive thinking about how to align costs and benefits regionally. That doesn't mean that city/suburb politics should be ignored. But in my view they shouldn't be accepted at face value.

MH said... 1/06/2011 2:57 PM

I mean that the residents of the city of Pittsburgh, the 2nd class city as defined by the state, are in a different situation than the residents of the suburbs. And that residing in a suburb is a far more completely way of being "walled off" from the problem areas of the city than living in a nice area of the city.

Mike Madison said... 1/06/2011 3:08 PM

OK. Sure, the wealthy suburbs of Pittsburgh find it much easier to separate themselves from the rest of the region (not just the problem areas of the City) than the wealthier neighborhoods of the City do. City neighborhoods are permeable in ways that many suburbs are not; wealthy City neighborhoods necessarily participate with poor City neighborhoods in an overall financial and services infrastructure. I agree with that. But I stand by the point the wealthier neighborhoods of the City -- primarily in the East End -- are positioned to help themselves economically in ways that other City neighborhoods simply can't do, and that they are happy to distinguish themselves physically and financially from the rest of the City. I always notice the fluid boundaries of Shadyside as it expands northward into what was, in classic times, East Liberty, and the fluid boundaries of East Liberty as it expands to the east into Larimer. Do City neighborhoods have the same ability to put up barriers that Upper St. Clair or Wexford do? No.

MH said... 1/06/2011 11:22 PM

I also understand that the wealthier neighborhoods of the city can help themselves in ways that other areas can't. I rarely leave the those neighborhoods and live in one for that very reason. I want the house next to mine to be worth enough that it doesn't fall into ruin because fixing it costs too much.

But, to go back to the topic you started your post with and that I only indirectly mentioned at 12:33, the regional economic consequences of wealth in Pittsburgh are also different than wealth in the suburbs, especially the out-of-county ones.

The regional economy doesn't work and I'm certain you know more about the details of that than I do. But, baring some kind of special circumstances, you'd expect that when there is no political body large enough to coordinate things. Much beneficial investment does not take place because of the difficulties of coordination and micro-local government prerogatives. All other things being equal, you'd expect the smaller Pittsburgh is relative to the region, the worse the chances for reform.

Mike Madison said... 1/07/2011 8:35 AM

OK. Now I think I get it. I agree with a lot of that, especially you're last point: "All other things being equal, you'd expect the smaller Pittsburgh is relative to the region, the worse the chances for reform." That's certainly true.

As for "bar[r]ing some kind of special circumstances, you'd expect [a dysfunctional regional economy] when there is no political body large enough to coordinate things," I don't think that's right. There are a lot of good examples in the US of thriving regional economies (or, at least, regional economies that thrived in the recent past) without broad political coordination. The question is really the extent to which *economic integration* depends on *political integration.* In Pittsburgh, that relationship is relatively close and tight, but for historical reasons, not for principled reasons. In places where history teaches a looser relationship, the economy can do relatively fine even while government implodes. Until recently, much of coastal California worked this way.

Western PA is never going to turn into coastal CA, in all kinds of ways! We have to play the historical cards that we're dealt, up to a point. Having circled around that detour, I agree with your basic point: Western PA is in a mess that can't be cured without aligning politics and economics.

Finally, on housing markets and how they speak to City/suburb relationships generally. Anyone who owns a house in Shadyside (to take an example) wants to do what he/she can to protect the value of Shadyside and ensure that it doesn't become Garfield. (I'm picking neighborhoods for examples, not because I have anything for or against either of these places.) The same is true of Mt. Lebanon (where I live) and Dormont. (Sorry, Dormont: I like Dormont and have friends in Dormont, but I also know a lot of people in Mt. Lebanon who are scared to death that Mt. Lebanon might actually become Dormont.) But these two phenomena -- Shadyside/Garfield and Mt. Lebanon/Dormont -- not only share basic economic characteristics (read the work of Tiebout) but they are not disconnected from each other (Tiebout, again). The Shadyside housing market competes against the Mt. Lebanon housing market (again, I'm just using examples). Not every prospective home buyer in each place is evaluating the other place, and not everyone who currently owns a home in each place is evaluating a possible move to the other on a regular basis. But there is enough overlap in those markets (and in commercial real estate in those markets, too) that each has *some* disciplinary impact on the other.

I have friends who work in Pittsburgh who commute to and from out of county suburbs -- Butler, for example, and Washington PA. (Are those really "suburbs"?) A fair amount of new and emerging business in the Pittsburgh region is located in places like Canonsburg and Wexford -- and City residents who work there have a "reverse" commute. The disciplinary echoes of those places on City of Pittsburgh housing and commercial real estate markets do not all share the same strength, but they are real. I certainly agree that "closer in" economies are more interdependent with the City of Pittsburgh economy than "farther away" economies, but I don't think that a categorical "the City works differently than the suburbs" proposition is accurate.

Tom Mc said... 1/07/2011 9:51 AM

Your blog is great!!

IMO, I am not as optimistic about the SWPA regions advancements. Granted I grew up in NJ, where options were prolific. I was appalled, on my arrival in 1998, that the region really only had one supermarket choice. Since then Costco, Sams, WF and Trader Joes have shown up, but really just the Giant Eagle?

In 1998, I moved in to Manchester on the north side, 2002 South Side flats and 2004 Squirrel Hill. I agree that certain city neighborhoods get more attention than others. It took 3 years of lobbying to get children at play and oneway street signs replaced in Manchester just across the street from the elementry school. Shady ave seems to get paved every other year.

Tax wise the city is different from the burbs. The disparity of income/wealth levels is greater between City neighborhoods vs burbs in same taxing jurisdiction. The "hipster" neighborhoods are funding more of the public transit, pension and safety services then others and using less of them. The pension "crisis" handling is not being handled by people in "Big Boy Pants" How about addressing the real issue, the pensions? Why is the Mayor and council still accuring years torwards pension? For that matter, how about means testing pensions for elected officials across America. Why is City Council getting a full time salary when County Council gets a stipend?

There are ~300,000 people in the city. Do we need full time council people?

Most of the folks in the burbs that I work with have started working from home. This movement will kill the idea of X number of "revenue" taxes on out of city commuters.

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About Pittsblog

Updated September 2020:

Pittsblog 2.0 was written by Mike Madison, a law professor at the University of Pittsburgh, from January 2004 through December 2011.

Since then, Pittsburgh-themed essays have appeared from time to time at, on law and technology, and in some of Pittsburgh's classier professional media venues.

Chris Briem of Null Space drops by Pittsblog from time to time.

All opinions expressed at Pittsblog 2.0 are those of their respective authors and of no one (and no thing) else, least of all the University of Pittsburgh.

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