Nearly broke Pittsburgh steels itself for state oversight

Tuesday, December 9, 2003

PITTSBURGH -- Pittsburgh entered another one of its postindustrial renaissances in the 1990s, getting rid of many of the slag heaps and soot-stained smokestacks that defined the Steel City for more than 100 years.

Biotechnology companies and financial services firms moved in. New sports stadiums and a new convention center opened. And so many construction projects are under way that it looks as if a flock of giant whooping cranes has come to roost.

But it turns out that Pittsburgh -- the mighty forge that supplied steel for America's skyscrapers and warships -- is resting on a shaky financial foundation.

The city is nearly broke.

Hoping to stave off bankruptcy, Mayor Tom Murphy recently asked the state of Pennsylvania to designate Pittsburgh a "distressed" city and appoint an overseer to draw up a recovery plan. A public hearing on the request is set for Tuesday.

For years, the city masked its financial woes by selling off assets and shuffling debts. But that has become harder and harder.

"It's much like selling grandfather's watch to pay the water bill," said David Miller, former budget director under Murphy and now associate dean of the Graduate School of Public and International Affairs at the University of Pittsburgh. "There's only so many tricks in the bag and the string has run out on the city."

Over the summer, hundreds of city workers were laid off, including more than 90 police officers. Trash collection was halted for some large apartment complexes, and the grass was allowed to grow a little longer. Two-thirds of the city's swimming pools and half of its recreation centers padlocked their gates and turned out the lights. The Pittsburgh Marathon for next year has been canceled.

"It makes you want to cry this mess. But then it really makes you angry and you want to strangle someone," said Barbara Reichman, shopping this week at the downtown Lord & Taylor's department store that will soon close for good.

Somewhere in its transformation from a smoky industrial powerhouse described in the 19th century as "hell with the lid taken off," Pittsburgh stumbled.

The city has run deficits for the past three years. Its credit rating hit junk bond status in October. The $398.6 million budget proposed by the mayor last month is about $42 million out of whack. And without help, the city will probably be out of cash sometime next month.

Murphy's critics, who mounted an impeachment drive that was struck down in October as unconstitutional, say he has pushed development too hard. Under Murphy, the city borrowed heavily to reclaim blighted property and offered high-tech companies tax breaks and other financial incentives to move here.

Murphy, whose third term runs until 2005, now acknowledges two mistakes: underestimating how long it would take for development to pay off and failing to lobby earlier to change a tax structure that was "written for a city that doesn't exist anymore."

Pittsburgh's fundamental problem is a shrunken tax base. The steel mills in Pittsburgh are all gone, and the city's population has dropped by nearly half since the 1950s, to about 335,000.

Twelve of Pittsburgh's top 24 employers are affiliated with health organizations and universities that own more than 12 percent of the total assessed property value in the city but are largely exempt from local taxes under state law.

An estimated 270,000 people a day who work in Pittsburgh or, say, catch a musical or a football game in town leave at day's end for homes outside the city and do not pay city income tax. Nonresidents who work in the city do pay an occupation tax -- but it is just $10 a year and has not changed since 1965.

Pittsburgh has not been able to get the required approval from the Legislature to raise taxes on nonresidents who work in the city.

Many state lawmakers who represent the surrounding towns -- and Allegheny County has 129 other municipalities, making it one of the most politically fractured counties in the nation -- say a tax increase is out of the question. Pittsburgh, they say, has bungled its finances for too long.

"There are alternatives that could have been taken a long time ago and raising revenues is a last resort," said Republican state Sen. Jane Orie of Allegheny County, who is pushing legislation to create an oversight board to come up with ideas for balancing the budget without raising taxes.

Murphy says that Pittsburgh residents are taxed heavily already and that he cannot raise taxes on them without causing an exodus.

That all but means the city must either cut spending drastically or sell off more assets.

The state Department of Community and Economic Development could decide by the end of the month if things have become so bad that a state overseer should submit a recovery plan for City Hall approval.

Many Pittsburgh residents say those working in the city but living just outside it must pay a bigger share if the city is to survive.

"I don't think anyone here is too comfortable asking for help, and I don't know that we're just not asking for people to be fair," said Reichman, who wrapped a scarf around her face before heading out to the street with two bags of Christmas gifts. "It makes you wonder if there's a Santa at all."


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