Welcome to Pennsylvania, where cash-poor cities work together with state emergency managers.
PITTSBURGH – If you want to understand the problem with Michigan’s emergency manager law, Pittsburgh is a good place to start.
More than 200 miles east of the Michigan border, Pittsburgh is a rust belt, financially distressed city of its own, dealing with population loss and economic upheaval like many of Michigan’s cash-poor communities. It has been under Pennsylvania’s version of state control for more than a decade.
That’s where the similarities end.
Pittsburgh leaders get along with the state’s management team. Budget decisions are made in partnership with locally-elected officials, not solely by someone appointed by the governor. The city’s financially distressed status gives it the ability to raise local taxes, and puts it at the top of the list for state grants for economic development, all things that make a Flint disaster unlikely to happen in Pennsylvania, according to city and state leaders in the Keystone State.
“(Michigan’s) emergency manager law encourages quick decisions, and I think that’s an institutional problem there with the law,” said John Fournier, deputy chief of staff to Pittsburgh Mayor Bill Peduto. Before moving to Pittsburgh, Fournier worked as a speechwriter in the administration of former Gov. Jennifer Granholm.
“As terrible as what happened in Flint, I think it’s also not entirely surprising that eventually the emergency manager law would have produced a result like that.”
Cities across Michigan are facing a financial crisis, largely as a result of the accumulation of state policy decisions over the past 40 years that make it difficult for cities to pay for even basic services.
In Part One of this report, “Flint syndrome: Postcards from a city’s edge,” Bridge explored how cities across Michigan are facing dire, sometimes dangerous consequences as a result of shrinking budgets.
Today, we look outside our borders to see what lessons Michigan can learn from other states on how best to maintain strong cities.
Just over the border, Toledo is the type of old rust belt city that, if it were in Michigan, would likely be in poor financial shape. But the city has a stable middle class and a bigger police force than comparable cities in Michigan, partly because Ohio cities have more ability to raise their own revenue as needed.
More coverage: Revenue tools help Toledo survive and grow
Pittsburgh did what Flint couldn’t
Because of structural issues in Michigan that cities have no control over, Michigan is one of a handful of states with a double-digit number of cities in financial distress.
One state is Ohio, but Ohio’s has three levels of municipal distress, with only the most serious, “financial emergency,” coming close to the level of financial distress of Michigan cities under control of emergency managers.
Another of the states is Pennsylvania, which, like Michigan, was hit hard by a changing economy.
But the two states take radically different approaches to helping their cash-poor municipalities.
In simplest terms, Michigan’s policy involves a state-appointed emergency manager taking complete control of a municipality, generally cutting costs deeply and quickly to balance the budget.
“The solution is always cuts,” said Josh Sapotichne, Michigan State University assistant professor of political science, who was part of a team of researchers who looked at municipal finance constraints at a state-by-state level.
“You cut because it’s the easiest fix,” Sapotichne said. “You probably restructure some contracts and cut police. That’s not the recipe for a sustainable future for cities like Flint or Benton Harbor or Highland Park. There’s potential for a death spiral, as services decline, people move or are less likely to pay taxes, making city revenues drop more.”
Financially distressed cities in Pennsylvania also often face cuts, but because the state also gives these cities tool to raise revenue, the cuts are typically not as severe as in Michigan. For example, in 2003 when Pittsburgh fell into Pennsylvania’s distressed cities program, called Act 47, the police force was cut by 16 percent,, a cut Pennsylvania’s Act 47 program director Fred Redding told Bridge was “draconian.”
But that’s less of a cut than even the average Michigan city experienced between 2005 and 2014. Flint, under emergency management twice since 2002, lost 58 percent of its police force to save money, despite being one of the nation’s most violent cities.
Even with a trimmed police force, Pittsburgh has 3 officers for every 1,000 residents. Flint has one cop per 1,000 residents; the average in Michigan cities is 1.6 police officers per 1,000 residents.
“You can’t just look at the numbers and make your cuts and balance the budget,” Redding said.
“You need to look at a strategy that will provide long-term sustainability. To do that, you need to look at things from a holistic standpoint.”
In Pennsylvania, that means giving financially distressed cities the ability to raise more revenue through taxes, such as income taxes on those who work in the city but live outside city limits.
It also means bumping distressed cities to the front of the line for grants from the state, such as from the departments of transportation, environmental protection and community and economic development.
The key to long-term improvement for cities isn’t cutting budgets, Redding said, though that may be necessary in the short-term; the key is increasing revenue.
“You need a strategy that takes into an account the assets a community has and builds on that,” Redding said.
In Pittsburgh, that’s meant a transition from the steel industry to a diversified economy built around the city’s major universities (Carnegie Mellon University and the University of Pittsburgh), and medicine. The riverfronts, once dominated by sooty factories, are now greenways.
“The reality is Pittsburgh was a city (of) 700,000 at its peak, and when you lose more than half of that population, you’re going to have financial problems,” Fournier said. “That legacy caught up to us, to the point we couldn’t pave streets, we couldn’t maintain buildings, our financial problems were sprawled across the newspaper all the time.
“Today what people would notice is that the facilities we have are better cared for, our rec centers are in better shape, we’re hiring more police officers,” Fournier said. “Overall, the quality of city services is improving.”
The city’s debt service, which had averaged around $90 million, will sink to $40 million by 2018, Pittsburgh Finance Director Paul Leger said.
Economic development spurred by coordination between the city and state has helped revitalize the city. “You see a city that is viable instead of one that is dying or abandoned,” Leger said. “You walk around downtown and you don’t notice decay like you do in some other cities in financial trouble.”
Another key to the Pennsylvania program: a long-term, more collaborative relationship between the city and the state.
Unlike Michigan cities under emergency management, Pittsburgh leaders still have a voice in their city. Budgets are created by the city and then approved by the state Act 47 team. By contrast, in Michigan, a state-appointed emergency manager makes all the budget calls.
“Act 47 allows local officials to take a first pass, and even a second pass, at budgeting and management decisions,” Fournier said. “We’re more than 10 years into this process, and there’s a broad understanding in city leadership as to what direction we need to be headed in.”
Brian Jensen, executive director of the Pennsylvania Economy League of Greater Pittsburgh, said the lack of local control under Michigan’s emergency manager program “makes people nervous” in Pennsylvania.
“Particularly since we saw what happened in Flint,” Jensen said. “If you don’t have local control, and someone is making these decisions for you who doesn’t have the knowledge of the municipality that you do, do they really care what happens there?”
Partnerships, not dictatorships
Jensen’s advice for Michigan: Allow financially distressed cities keep some control, even if that means changes take more time. “You need control over what is happening in your own municipality,” he said.
Pittsburgh Finance Director Leger recommended Michigan loosen the rules on how cities can raise revenue, so communities can have more say in their own budgets.
Pittsburgh Deputy Chief of Staff Fournier said Michigan needs to think more about long-term solutions for its cash-poor cities instead of searching for quick fixes. “It’s not about silver bullets,” Fournier said. “Private businesses might be able to find gimmicks to turn things around at the drop of a hat, but governments can’t.
“You have to think about what your city is going to look like in 10 or 20 years.” Fournier said. “And I don’t think the (Michigan) emergency financial manager law is designed to think like that. It’s designed to come into a crisis and make a bunch of changes all at once. Sometimes that works, and sometimes it doesn’t. But managing a city budget is more about slow and steady, not acting like corporate restructuring specialists.”