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  To pay its collective bills, the city and region really rely on a combination of models, all of them badly outdated, that are strapped together with baling wire and duct tape.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.

Thoughts?