Survival of the Fittest
In my previous blog, I put Detroit’s financial condition — or lack thereof — under the microscope. The truth is, Detroit’s story is not unique. Pittsburgh, for example, was on the brink of bankruptcy in 2004. Heavily in debt, the city borrowed $870 million, twice its annual budget at the time. The city teetered on the abyss but didn’t fall in. What happened?Pittsburgh’s demographics parallel Detroit’s in many ways:
- Its population shrunk from more than 600,000 in 1969 to 328,000 in 2004.
- It has a high poverty rate, more than 28 percent (the national average is 15 to 16 percent, the state of Pennsylvania is over 16 percent).
- Poverty is centered in the minority population (more than two-thirds of the population is non-white).
- It is breeding poverty. If you just look at single mothers with no husband present, the poverty rate is more than 70 percent. For all children, the poverty rate is more than 30 percent.
It was the differences that kept Pittsburgh from total financial failure, namely, diversity of industries, investment in education, and geography.While the city’s steel industry began to fade in the 1960s and 1970s due to cheaper foreign imports and a declining economy, companies such as Alcoa, PNC Bank, Mellon Financial and H.J. Heinz remained strong. The steel industry now concentrates on higher-end steel products. The aluminum industry continues and a titanium industry has developed.A thriving education sector creates job opportunities and improves the economy with added consumption by students. Pittsburgh is home to the University of Pittsburgh (if you ever get to Pitt, a must-see is the Hall of Learning), Carnegie Mellon and Duquesne. The United Steelworkers Union, Institute for Career Development and National Labor College embarked on a program that retrained laid-off steel workers. Education is a solution to most social problems.Pittsburgh has redeveloped more than 1,000 acres of decaying lots, and it doesn’t suffer from Detroit’s geographic sprawl (60 square miles as opposed to Detroit’s 140). This helps keep property taxes and consumption in the city.City government was streamlined, cutting 1,000 municipal employees since 2002 and slowly reducing debt. As a result, Pittsburgh’s municipal bond rating went from junk bond status to A (triple-A is the highest; the U.S. government is AA). Even so, Pittsburgh is still considered one of 21 distressed cities in the state, according to Pennsylvania’s Act 47 oversight law.There’s no question that Pittsburgh remains poised on the edge. Time and good city management will tell where it goes from here. But there are good lessons for bankruptcies-in-waiting such as Oakland, California. It has a $2 billion debt, seriously underfunded pension plans, and rocky demographics: high poverty among minorities, low rates of education, and high rates of crime. Sound familiar?John Tommasi is a senior lecturer in economics at Bentley University.