The Rise of Vacancy - Part I (by Jeffery Fraser)

East Liberty Development, Inc. was still figuring out how to jump-start the housing market in the Pittsburgh neighborhood when it built 10 houses on Mellon Street across from a handful of vacant and blighted buildings. At $105,000 for three bedrooms, a bath and a half, a two-car garage and a zero-percent second mortgage for income-qualified buyers, the new homes were priced to sell.

None of them did. 

“Nobody was willing to buy on that block until we were able to tell them a good story, something concrete, about what was going to come about across the street,” said Kendall Pelling, project manager for the community development corporation. “We learned from experience that vacant and abandoned properties have a terrible impact on the housing market.”

Others are getting a similar education. Vacant and blighted properties are increasing across southwestern Pennsylvania, the state and the nation, robbing local governments of desperately needed tax revenue, consuming millions of tax dollars, eroding housing values, posing health and safety risks and complicating the already challenging job of reviving distressed neighborhoods.

In Allegheny County, a program for turning tax-delinquent vacant properties into community assets doesn’t come close to keeping pace with the rate at which properties become vacant. And the story is the same throughout southwestern Pennsylvania.

In Homewood, mapping routes to get children to and from school without exposing them to mean streets littered with vacant lots and abandoned buildings is one of the first steps the Homewood Children’s Village is taking as it attempts to improve the educational outcomes and overall well-being of children in one of Pittsburgh’s most distressed neighborhoods.

In Philadelphia, one of the few studies of the price that communities pay for vacancy and blight reports that housing values fall by 6.5 percent citywide and that at least $22 million a year is drained from the city in lost tax revenue and to cover maintenance, police and fire costs.

In Flint, Mich. and Cleveland, Ohio, land banks seize thousands of vacant tax-delinquent properties using laws Pennsylvania doesn’t have, and sells, rehabilitates or tears them down following comprehensive blight redevelopment strategies that haven’t been developed in southwestern Pennsylvania.

If there is a bright side to the growing problem, it lies in the opportunity vacant properties offer to redesign neighborhoods in ways that are better suited to their down-sized populations, such as widening narrow lots found in many former industrial towns to accommodate fewer, but more marketable parcels, and turning empty lots and buildings into greenways, community gardens, recreational space and other amenities that give local housing markets more appeal.

“Any community that has blighted and abandoned properties and sees them only as a strain and a drain is undervaluing the real estate,” said Court Gould, executive director of Sustainable Pittsburgh, which last year published a comprehensive report on vacant property in southwestern Pennsylvania. “We need to be thinking about those properties as stranded economic assets.”

East Liberty Development, Inc. got the message. The new houses on Mellon Street sold after the nonprofit bought the vacant properties across the street and came up with a plan to renovate some of the vacant houses and build new ones on the other lots.

Recent Pennsylvania legislation offers municipalities, community organizations, and even residents a more expansive menu of legal options for dealing with neglectful landlords, absentee owners and the vacant and blighted properties next door.

But when dealing with tens of thousands of vacant properties, effective intervention comes down to a question of scale. And in southwestern Pennsylvania, local government attempts to combat vacancy and blight fall far short of recovering anything but a fraction of the vacant lots and houses found along city, borough and township streets.

Over the past seven years, the Allegheny County Vacant Property Recovery Program has helped put some 500 vacant, tax-delinquent properties into the hands of buyers interested in turning them into side yards, small parks and other neighborhood-friendly uses. At that rate of recovery, the program barely makes a dent.

The percentage of vacant housing in the county jumped from 6.8 percent to 9.4 percent over the past two decades – a trend experienced in every county in the region, according to U.S. Census data. More than 55,000 housing units, including apartments, stand vacant. And the Census Bureau doesn’t count vacant lots, which greatly outnumber vacant houses.

“Even if we did 1,000 properties this year – and we won’t – I would have a job for life,” said Richard Ranii, who oversees the program as manager of the Housing and Human Services Division of the Allegheny County Economic Development Department.

A creeping crisis

Shifting, aging or declining population, weak housing markets, poor housing stock, crime, underperforming schools and other factors that make some communities less than desirable places to live -- all of these factors contribute to vacancy and blight. High mortgage foreclosure rates, decimated job markets other consequences of recession have exacerbated the problem.

Antiquated tax foreclosure systems can take years to move against delinquent properties, and many accrue several years’ worth of delinquent taxes and penalties. In depressed markets, such Homewood, where the average price paid for residential property was $9,060 in 2009, back taxes and penalties can easily exceed the market value of a house, encouraging owners to ignore its upkeep or to walk away from it entirely.

“There isn’t a place I go where someone doesn’t talk about a problem property they are frustrated with,” said Irene McLaughlin, an attorney and consultant on vacant property issues for the Housing Alliance of Pennsylvania and others.

More than 11 percent of the houses and apartments across the United States are vacant, according to the 2010 U.S. Census. In states hit hardest by the mortgage foreclosure crisis, the rate is much higher – 17.5 percent in Florida, for example, and 16.3 percent in Arizona.

Nine percent of the housing in the seven-county Pittsburgh Metropolitan Statistical Area is vacant, up from 6.8 percent in 1990.

Cities tend to have higher concentrations of vacant property, and Pittsburgh is no exception with nearly 13 percent of its houses and apartments standing vacant. Higher rates are found in several nearby cities. The vacancy rate is 19 percent in Cleveland and Youngstown, Ohio. And 15 percent of Steubenville’s housing is vacant.

Even higher concentrations are found in poor urban neighborhoods and municipalities that have endured decades of economic decline. In other words, the places shouldering the heaviest burden are the most fragile and the least likely to have the resources to do something about it.

Many pay the price

While those living on blight-ridden streets are the most directly affected, studies suggest the economic and social costs of long-standing vacancy are widely shared.

What those costs amount to in southwestern Pennsylvania is unclear. Pittsburgh’s year-old Land Recycling Task Force, planning department and others are working on an analysis of the economic impact on the city, which is expected later this year. And there is no countywide or regional accounting of the total cost of vacant property.

Philadelphia is one of the few places that examined those costs. Its study found that vacant properties reduce market values by 6.5 percent citywide and by as much as 20 percent in high-vacancy neighborhoods, resulting in an average loss in value of $8,000 for each city household. Tax-delinquent vacant properties in Philadelphia owe an estimated $70 million in back taxes, a sum that grows by $2 million every year. And vacant properties consume $20 million in city services a year, including $8 million spent on code enforcement and maintenance.

When housing values plummet, those who are hurt the most include long-time homeowners, many of them senior citizens – the very people who tend to hold together what is left of declining neighborhoods.

“We got a call last year from an elderly woman in one of those neighborhoods,” said Rob Stephany, director of the Pittsburgh Urban Redevelopment Authority. “She had a $9,000 bid from a contractor to replace her roof, which had started to leak. Her next-door neighbor’s house had sold for less than that, about $7,000. Here was a responsible, salt-of-the-earth-Greatest-Generation senior citizen asking whether she should repair her roof or just ride it out. That is loss of equity.” 

Vacant and blighted properties also play a role in unraveling of the quality of life in a neighborhood and dimming the outlooks of those who live there.

For Malik Bankston, one of the more challenging aspects taking control of vacant properties in Pittsburgh’s Larimer neighborhood and then creating gardens, parks and a safer and more vibrant place to live was convincing residents that it could be done. “It was tough getting a conversation going,” said the Kingsley Center director. “For so long, the neighborhood watched a deliberate kind of disinvestment play out, which resulted in us having one of the highest incidence of vacant and blighted property.”

More than 42 percent of the lots, houses and buildings in Larimer are unoccupied. And, like most neighborhoods with high rates of vacant and blighted property, crime rates are higher than citywide averages – in Larimer’s case, 30-50 percent higher.

In Homewood, where nearly 44 percent of the lots and 28 percent of the houses are vacant, finding ways for school children to avoid them is a priority of the Homewood Children’s Village, which is based on a program in New York’s Harlem neighborhood that concentrates community support and services on mending the social fabric and improving children’s outcomes.

“The impact of vacant and abandoned properties on kids is a real concern,” said John Wallace, a University of Pittsburgh associate professor of social work who spent several years planning the Homewood initiative. “These properties are risk factors for crime, they’re a safety risk and they’re a health risk.”

The “broken window” theory argues that is not by coincidence. The theory, introduced by social scientists James Q. Wilson and George Kelling in 1982, has become widely accepted by law enforcement. It suggests that vacant and blighted houses, abandoned cars and other visible evidence of neglect send the signal that nobody cares, erode community controls and leave neighborhoods more vulnerable to crime.

Southwestern Pennsylvania police departments don’t track the relationship between crime and vacant property. And the few local studies that looked at the relationship offer contradictory, inconclusive findings.

Evidence elsewhere suggests the relationship is not benign. Philadelphia spends close to $6 million a year on police and fire calls to vacant properties. A study published by the Federal Reserve Bank of Chicago reported violent crime rates in the city rose 2.3 percent with every 0.01 percent increase in mortgage foreclosures. After a sharp rise in foreclosures and vacancy, the Charlotte-Mecklenburg Police Department in North Carolina analyzed its records and found that high neighborhood foreclosure rates predicted higher crime rates, including violent crime, which rose steadily in those neighborhoods, but stayed much lower in places with few foreclosures.

Whether residents of neighborhoods with a high percentage of vacant, boarded-up stores and homes, litter and graffiti have a higher incidence of disease and premature death was a question RAND researchers looked at in 2003. Even after controlling for poverty, they found that those who live in deteriorating neighborhoods have higher rates of premature death and death by cardiovascular disease and homicide than people in neighborhoods that are not in decline.

That was not the only troubling effect they noted. In neighborhoods where residents were seen as willing to work toward a common good, the rate of premature deaths was lower. The one exception was in neighborhoods with a high number of vacant homes and other signs of decline, where the willingness of residents to help out made no difference.

Liabilities to assets

The flip side of vacant and blighted properties is that under the right circumstances they can be used to improve conditions in the neighborhoods they helped lead down a path of decline. In southwestern Pennsylvania, both public and private sector interest in reclaiming vacant property to add elbowroom and a little green to crowded urban neighborhoods is growing.

“With a lot of liabilities, your only option is to eliminate or reduce them. To be able to turn a liability into a asset is a unique opportunity,” said Frederick Thieman, executive director of the Buhl Foundation, which funded the Sustainable Pittsburgh report on vacant property in southwestern Pennsylvania. “Vacant property provides us with such an opportunity.”

Demolition is a common municipal response to abandoned houses. Clarksburg. W.Va. took a low-interest state loan to finance a campaign against the blight that had accumulated during decades of economic decline, tearing down nearly 300 homes. More than half of the 900 vacant houses acquired by a public land bank in Cuyahoga County, Ohio last year have been razed.

“It’s like cleaning the cancer cells out of the body so the rest can be healthy,” said Frank Ford, vice president for research and development at Neighborhood Progress, Inc., a Cleveland neighborhood development agency. “It’s hard for me to say that. Like most of my colleagues, I was a preservationist 20 years ago. We rehabbed houses. That’s not feasible now. The market isn’t going to come back until we clear out the bad stuff and allow it to come back.”

“Greening” vacant lots is an increasingly popular strategy for helping turn around distressed neighborhoods.

In Pittsburgh, the city’s Green Up Pittsburgh program has put hundreds of vacant lots in the hands of community groups and residents who use them as neighborhood green spaces and side yards. Before Larimer residents decided to reinvent themselves as a green community, nonprofits used vacant lots to introduce them to ideas such as community gardens and urban farming. And in Homewood, a community group that began gardening vacant lots a decade ago established its own urban landscaping company and youth training program.

But before any house is rehabilitated or lot seeded with sunflowers, those interested in doing the work must take title of the property, which can be a time-consuming and costly process. In some cases, their local government lends them a hand.

Allegheny County, for example, helps municipalities and others acquire vacant properties through eminent domain-like powers granted in the state’s Urban Redevelopment Authority law and pays for clearing the title, which costs about $3,000.

And Pittsburgh takes tax-delinquent properties through treasurer’s sales, “quiets” the titles and holds them in its land reserve until community groups arrange financing to buy them. But financial and staffing constraints cap acquisitions at 300 properties a year, which represents about 1.5 percent of the vacant houses and lots in the city.

Pennsylvania added a number of legal tools to help combat vacancy and blight in recent years. The state’s new conservatorship act, for example, allows community groups and others to petition courts to appoint a third party to take temporary possession of a blighted property, rehabilitate or demolish it, and then offer the property back to the owner for the cost of the work done or sell it under court supervision to someone else.

But the consensus best practice for tackling vacant property on a large scale is not available in Pennsylvania. Genesee County, Mich. and Cuyahoga County in Ohio are showing how land banking and property tax reform can be used across entire counties to take control of thousands of vacant tax-delinquent properties, keep them out the hands of slumlords and speculators and manage them as community assets.

In June, legislation to empower land banks was introduced in the Pennsylvania House of Representatives by state Rep. John Taylor (R-Philadelphia). The bill, which received the endorsement of Pittsburgh Mayor Luke Ravenstahl, is under consideration in the House Urban Affairs Committee.

But costs are an issue. Genesee County and other land banks are able to recover much, if not all, of their operating costs through sales and the collection tax liens and penalties.

Start-up costs are another matter. While a land bank in Pittsburgh is estimated to cost $3.7 million a year to operate, it could take another $15 million to clear the titles of the more than 7,500 vacant properties in the city’s inventory, according to an unpublished report prepared for the city Land Recycling Task Force.

Spending that kind of money makes many municipal officials nervous, particularly when most face serious budget shortfalls. “We run into that all of the time,” said Dan Kildee, a former Genesee County treasurer who now directs the Center for Community Progress, a nonprofit that specializes in vacant property issues. “But it ignores the costs taxpayers already pay for vacant property and abandonment. You have to measure the cost of change against the cost of the current path that we’re on. Anybody who argues that the current path we’re on is the right one isn’t examining the full cost of vacant and abandoned property.”

(Matt Stroud of PittsburghTODAY.org contributed to the reporting for this article).

Download this article.

Download list of resources.

Municipal Revenues Falling Behind (by George W. Dougherty, Jr., Ph.D.)

Revenue Indicators Analysis (2001 – 2005)

The Local Government Fiscal Indicators Project is a series of reports produced by the Innovation Clinic at the Graduate School of Public and International Affairs at the University of Pittsburgh that provides analysis of the overall financial condition of local government in western Pennsylvania. This installment covers municipal revenue. The presence of many already-financially vulnerable municipalities suggests that the current global financial crisis will further adversely affect, both short and long term, the fiscal health of many of the region’s local governments. A prolonged period of declining economic activity, rising foreclosure rates, and higher inflation raises the possibility that a number of the region’s local governments will not be able to collect adequate revenue to pay for their expenditures. The problem is complicated by two factors. First, elected officials are generally unwilling to increase revenues. Second, county assessing policies often limit a municipality’s ability to capture what economic growth is occurring in their communities.

The information in this report analyzes revenues collected by municipalities in the 10 county region from 2001 to 2005. We reviewed performance in a number of revenue areas with specific attention paid to the two largest municipal revenue sources, property and wage taxes.

Download the full dataset.

One factor that affects municipal finances is inflation as it has the effect of reducing the value of money raised as revenues and decreasing the level of services provided for a given level of expenditures. While 60.1 percent of municipalities experienced revenue growth from 2000 to 2005, approximately 47 percent of local governments saw rates of revenue growth below the rate of inflation. Unfortunately, with inflation rising at a faster rate in the past year, many citizens may be faced with unusually large tax and fee increases as local governments strain to maintain their buying power and/or provide current service levels.

Real Estate Taxes

Real estate taxes are typically the largest source of municipal revenue in Pennsylvania. As they often make up more than half of a municipality’s revenues, they can be indicative of a municipality’s fiscal health. In our review of inflation adjusted data from 2001 to 2005, many municipalities from the 10 county region of Southwestern Pennsylvania experienced a decrease in the amount of revenue collected from real estate taxes. In fact, 43.9% of municipalities failed to beat inflation, collecting less revenue from real estate taxes in 2005 than they did in 2001 in constant dollars.

This finding might not be a concern if municipalities choose to raise their revenues through other sources. But few communities in our region fit this description. Most of the municipalities that experienced lower real estate revenues in 2005 did not or were not able to take the steps necessary to keep up with inflation. Some municipalities fail to adjust taxes upward to match expenditures while a number of county assessment systems do not allow municipalities to benefit from assessment growth. In addition, hard caps on millage rates, and limited means of obtaining revenues from tax exempt organizations in urban centers also play a role.

Further analysis shows that 58% of municipalities that experienced a structural deficit from 2001 to 2005 reduced or did not adjust their tax levy during that time. While a handful of communities might have supplemented their revenues with fund balances not reported in our data set, it is clear that a large portion of our cities, townships, and boroughs were unwilling or unable to adjust real estate taxes to deal with existing structural deficits. It is this set of communities that will be particularly challenged by the global fiscal crisis.

Earned Income Taxes

Revenue from earned income taxes, traditionally the second largest revenue source in our region, is another measure of fiscal health. Given that income-based taxes are considered elastic and grow with the economy, the data surprisingly revealed that more than half (55.4%) the municipalities in Southwestern Pennsylvania failed to beat inflation between 2005 and 2001. Given that only home rule communities have much ability to adjust their earned income tax rates, this result is likely due to a poor collection system. Pennsylvania’s movement to a county-wide collection system in the next few years may increase earned income tax collection rates.

Further analysis shows that approximately 25% of municipalities in the region failed to beat inflation in both Earned Income Taxes AND Real Estate Tax revenues. That a quarter of the region’s municipalities saw a decline in their two largest sources of revenues during a relatively healthy fiscal period suggests the need for immediate corrective action by state, county, and local officials.

Non Tax Revenue Sources

Like all organizations, strong municipalities need to diversify their revenue streams to weather changes in the local and global economy. Local governments can offset tax revenue loss by increasing service fees to cover the full cost of providing services. In municipalities with a large elderly population, raising property taxes substantially may not be viable because many households are on a fixed income—increasing taxes may do more harm than good. But by imposing or increasing service fees, households can regulate their consumption levels so those who can afford to pay more do, and those who cannot afford higher costs can change behavior to avoid the higher fees. Furthermore, service fees are generally viewed as more palatable since they approximate our experiences in market transactions where we pay for services received. Taking full advantage of state and federal sources of revenue and negotiating payments-in-lieu of taxes with tax exempt organizations are other important means of building nontax revenues that help stabilize municipal budgets and relieve pressure on taxpayers.

Reviewing tax revenue data as a percent of total revenues allows analysts to zero in on the specific revenue collections of a government. In the Pittsburgh region, the data shows that 53% of communities experienced an increase in tax revenue as a percent of total revenues from 2001 to 2005. One would prefer to see growth in non-tax revenues that approximate markets, especially considering the large elderly populations in the region are less likely to pay wage taxes as they retire and are increasingly unable to pay higher property taxes. Thus, increasing tax revenue as a percentage of total revenue is cause for concern as it will impose a larger burden on a smaller tax base.

Summary

The results of our analysis suggest a poor outlook for many municipalities in the Pittsburgh region. A little less than half of our townships, cities, and boroughs failed to keep pace with inflation in Real Estate taxes while more than half were unable to beat inflation in their Earned Income Tax revenues. Approximately 25% lost ground to inflation in both of their largest revenue sources. At the same time, more than half of our municipalities became more reliant on taxes from 2001 to 2005. A number of steps should be taken to improve the revenue generating potential of our boroughs, townships, and cities. At the municipal level, officials need to be willing to use both revenue and expenditure strategies to compensate for revenue growth that fails to beat inflation. County officials need to support regular reassessments in the short term while pushing for state-wide assessments in the future and actively embrace and plan for county based earned income tax collections. Finally, the Commonwealth of Pennsylvania needs to give local governments more revenue generating tools, remove arbitrary real estate millage caps that are not indexed to inflation, and give local governments wider latitude to set earned income tax rates.

George W. Dougherty, Jr., Ph.D. is Assistant Professor and Public Service Degree Coordinator in the University of Pittsburgh’s Graduate School of Public and International Affairs.

One Place at One Time (by John G. Craig Jr.)

Most indicator programs issue reports, more often than not bi-annually. Pittsburgh Indicators depends on a web site that is updated every time new data become available with the result that it is changing weekly. An unfortunate by-product of this important emphasis on timely information is a lack of appreciation of the volume and comprehensiveness of information available on www.pittsburghtoday.org.

Thanks to the magazine Pittsburgh Quarterly and the Pittsburgh Foundation, which have supported indicator work since its inception, a new 20-page report has been made available in the magazine's winter issue that addresses the problem. It does so by pulling together an overview of all the data available in topic areas and accompanying it with explanatory material on the significance of particular indictors.

There is also information on the organizational structure of Pittsburgh Indicators as well as brief essays from experts in various areas of Pittsburgh life on why they are involved in the project and why particular information is worth paying attention to.

To view the entire article click here, to get a hard copy of the report pick up a copy of the magazine.

The indicator report is presented in a format that permits its easy separation from the rest of the publication, permitting its retention as a separate piece of reference and reading material. As always, all criticism, proposed improvements for the web site and its content and the direction of the project are particularly welcome in this Forum.

Local Government in the Middle (by John G. Craig Jr.)

At last week’s Southwestern Pennsylvania Smart Growth Conference, there was a session on what companies look for when seeking a place to locate Northeastern University’s Center for Urban and Regional Policy directed the discussion and used 10 questions to help those in attendance determine how ready local government in this region is to attract business and industry.

Each question had three possible answers: this subject is "very important" to businesses, it is "important" to businesses, it is "less important" to businesses. The audience with the moderator’s direction went through the subjects one at a time and with a show of hands indicated its choice.

In the exercise it did not matter what members of the audience themselves believed to be important; what counted was what the Northeastern Center’s accumulated knowledge about preferences in site selection indicated business decision makers care about.  It was also made clear that the 10 questions were a representative sample and many more factors are involved in location decisions.

For reasons I will get to in a moment, it was notable if not surprising that two of the four most important factors in the demonstration involved motor vehicle operations: the availability of on-site parking and a major arterial highway within two miles.  The other two "most important" factors were (1) a well-educated population and (2) local government that is able to move quickly and efficiently on matters of consequence.

I did not count hands but it was doubtful to me that any of these hot factors came as a surprise to an audience heavily populated by people involved in local government.  Bankers and developers and newspaper columnists have been telling us for years, "go suburban young man, go suburban" and we have Monroeville and Cranberry and Southpointe to prove it.  If the region wants to get ahead, government needs to be quick and simple, employees need to be smart and adaptable and you always have to have a place to park.

What made this presentation notable for me was that it came immediately before the keynote address by Christopher Leinberger, Brookings Institution fellow and director of the University of Michigan’s Graduate Real Estate Program.  Leinberger made it clear that from his perspective the opposite is true: the suburbs are no longer the center of the action and not likely to be so ever again if development trends now underway in the United States continue.  The wave of the future, Leinberger said, are urban areas made up of "walkable communities."

By way of example he cited the mushrooming neighborhood that has sprung up in South East Washington D.C. around the convention and Verizon centers.  Real estate prices are solid, places to work and play are abundant and a wide range of shopping and dining is within a comfortable walk.  Leinberger also described the Main Line communities of Philadelphia as examples of historic walkable communities in the process of rebirth.

He was a bit vague about the optimum size of such places, but 25,000 to 50,000 residents would seem to be the range with the key determinant being building height limits: if you can’t go up, population numbers are circumscribed by walking distances that become uncomfortable.  By Leinberger’s count there are 14 of these communities in the greater District of Columbia area with Metro service obviously being a key element.  He said Pittsburgh had two such neighborhoods but had a long way to go.  (He did not elaborate on what neighborhoods he was citing, so I found myself thinking that Mt. Lebanon and Squirrel Hill might fit the bill.)

Adding to the irony of mixed messages for me was the fact that for the previous two days I had attended the annual conference CEOs for Cities that was held in Pittsburgh this year.  Its theme was summed up in a paper delivered by Chicagoeconomist, Joe Cortright:  "Driven to the Brink.  How the Gas Price Spike Popped the Housing Bubble and Devalued the Suburbs."  There was also a session on "Sustainable Urbanism" at which another Chicagoan, architect Douglas Farr, emphasized the same message.  He quoted liberally from his recent book of that title which explains why cities composed of viable neighborhoods, linked to each other by easily accessible corridors (as in mass transit), are what regions should be developing.      

The conclusion that drove all these futurist sessions: The Era of the Automobile is over in the United States because the infrastructure subsidies necessary to support its ubiquity are increasingly beyond the economy’s capacity to sustain and the annual operational costs of motor vehicles are beyond the means of more and more people.  Add to this, the new realities of climate change, global food shortages and housing bubbles and it is obvious to these experts that the handwriting is on the wall for the three-car garage and cathedral ceiling. 

I have two reactions; first, one has to take notice even as you have to be cautious about any such sweeping conclusions; second, and more important, sympathy for the plight of the elected local official.   On the one hand she is being urged to consolidate with her neighbors in order to act with dispatch on zoning applications and approve an extra lane of highway in front of Wal-Mart, and on the other being told by the deep thinkers to just say "no" to demands that are already out of date. Pittsburgh Indicators is presented with a similar challenge, if not comparable pressures.  If you look at our topic areas indexed on the PittsburghToday site, you will find links to 260 indicators.  The unstated bias of a great many of them is measurement of the very sort of growth that CEOs for Cities and Brookings experts are warning against.

I do not believe this makes these data suddenly irrelevant, but it is clear that we need to supplement it.  We should provide not just government officials but also the general public with relevant measures on matters like the accessibility of mass transit and annual miles driven per capita, affordable housing and the region’s capacity to sustain over time a healthy and productive life for its residents.  As we do this, I would welcome your reactions and recommendations on other indicators that we should be developing.

The Enormous Problem of Municipal Distress (by George W. Dougherty, Jr., PhD)

The fiscal health of communities in the Pittsburgh Region has been a major concern for the past 30 years, but much of our understanding of the problem is based on intuition, sensational stories of fiscal catastrophes, and filings for Act 47 Distressed Community status. A more informed discussion of local government financial health requires a thorough analysis of the available data to identify the scope of the problems. PittsburghToday.org and the University of Pittsburgh’s Graduate School of Public and International Affairs have teamed up to provide the data necessary for improve public dialogue. 

Download the summary tables here.

Annual Deficits
The most basic measure of municipal fiscal health concerns the annual results of municipal revenue collections and expenditures. Healthy communities run a small annual surplus that allows them to build a rainy day fund and budget for long-term capital and infrastructure needs. Even healthy municipalities face the occasional shortfall due to unexpected events. Governments that run regular deficits, commonly defined as two or more annual deficits in a 5-6 year period, show significant signs of fiscal distress.

Using data from the Pennsylvania Department of Community and Economic Development surveys of municipal governments (cities, townships, boroughs) over a six year period from 2000 to 2005, Table 1 shows that 58.5 percent of municipalities in the ten county Pittsburgh Region experienced two or more annual deficits. A full 80.2% of our local governments experienced at least one deficit during the period, with only 101 of 509 (19.8 percent) cities, townships, or boroughs able to avoid deficits during the period. This is an astounding finding and represents widespread financial problems beyond expectations.

Structural Deficits
Because annual surpluses and deficits simply give us a snapshot of governments’ finances, a better measure of fiscal health compares growth in revenues and growth in expenditures over a period of time.  Structural deficits occur when expenditure growth is greater than revenue growth over at least a five year period, a trend that is not sustainable. One would expect struggling municipalities to increase revenues and/or reduce expenditures in response to poor financial performance, but there are substantial impediments to doing so. On the revenue side, elected officials face state imposed limits on tax rates, citizen sentiments strongly opposed to increased tax burdens, and placing their town at a competitive disadvantage if rates are raised higher than surrounding communities. Expenditure cuts are limited by statutory requirements to provide specific services, labor contracts, and citizen demands for services. After all, someone needs to police our neighborhoods, respond to fires and car crashes, and plow our roads.

Table 2 shows that 48.9 percent of municipalities in the region experienced a structural deficit from 2000 to 2005. This means that expenditures grew at a faster pace than revenues. A closer look at the data shows that 29.3 percent of our local governments faced severe structural deficits where expenditure growth was more than 3 percent larger than revenue growth. Cities, townships, and boroughs in the severe category will quickly run out of rainy day funds and face increasing annual deficits. Once again we find that almost half of municipalities in the Pittsburgh Region face fiscal distress.

Factoring in Inflation
One important factor that we have yet to address is the effect of inflation on municipal finances. Inflation has the awful effect of reducing the value of money raised as revenues and decreasing the level of services we receive for a given level of expenditures. It may be the case that even those municipalities that have not experienced annual or structural deficits are providing lower levels of service due solely to the corrosive effects of inflation. While 87.9 percent of municipalities experienced revenue growth from 2000 to 2005, Table 3 shows that a little less than two thirds (63 percent) of local governments were able to increase revenues at or above the rate of inflation. On the expenditure side, 77.4% of local governments saw expenditure growth in real dollars. Table 4 indicates that 58.2 percent experienced expenditure growth at or above the rate of inflation. In both cases, substantial numbers of our cities, townships, and boroughs lost buying power by not keeping up with inflation.

To download the complete dataset, click here.

Summary
The purpose of presenting this information is to improve the quality of dialogue on an extremely important topic. The findings presented here do not constitute a thorough review of municipal fiscal health in the region, but they review a handful of the most important measures analysts should use. It is shocking that most of the measures above suggests that almost half of our local governments are facing financial crises.

These results lead to a number of important questions that we hope to see discussed in this forum.

  • What tools can elected officials and managers use to stem the tide of red ink?
  • How can currently healthy local governments avoid financial distress and maintain their competitiveness within the region and nationally?
  • What actions should state officials take to respond to local government distress?

Note: The revenue and expenditure figures used in this analysis remove the categories of “other revenue sources” and “other expenditures” since these categories traditionally include transfers from surplus accounts, nonrecurring revenues, and nonrecurring expenditures.

George W. Dougherty, Jr., PhD is Assistant Professor and Public Service Degree Coordinator in the University of Pittsburgh’s Graduate School of Public and International Affairs.

Get more data on parks (by Rich Ekstrom)

Regarding statistics on dollars per resident for maintaining parks, I would like to suggest that the Pittsburgh Today site should also include the data (population and acreage) by which the quotients are derived in order that the data can be validated.

Recently I asked the Pittsburgh Parks Conservancy about comparative statistics and was directed to the Trust for Public Land where there are numerous statistics related to parks. This source gives a somewhat different picture.

Download ParkSpendingPerResident.xls

Some of the differences may be that the Pittsburgh Today data is from 2002 and the TPL data is from 2005. I am always concerned about data quality when there are extreme outliers or statistics from one source are very different than statistics from another source. (The TPL site does not disclose their sources and it is not always clear if they are using MSA regions or just cities.)

As indicated in the above table, the $/resident is very high for Denver on the Pittsburgh Today list, but 61% lower on the TPL list. Boston’s spending per person is 167% higher on the TPL list. There are also big differences with many other cities. The $/resident for Pittsburgh is similar on both sites; but the TPL data appears to be just for Pittsburgh, not the MSA. But my expectation was that the numbers for non-city $/resident would be much different.

It is often very helpful to look at data from different perspectives. This often yields new insights. For parks, maintenance cost is heavily a function of size. If you look at spending per acre, (using TPL data), Cleveland appears much higher than any other city (assuming the data is accurate). If the Cleveland data is excluded, than Pittsburgh's spending (per acre) is about average.

Download ParkSpendingPerAcre.xls

All this is not meant to suggest the TPL data is better. Indeed, there are many anomalies in what they present. Good data is vital to decision making, but anomalies need to be validated if the data is to be useful.

Richard Ekstrom has served as an executive or consultant for public and private healthcare and biotechnology companies for over 15 years. He is a Principal at Socius Partners, LLC.

Better preparation needed for social consequences of casino gambling (by Tracy Soska, Ray Engel, and Danny Rosen)

With the region absorbed with the economic benefits and development issues of video casino gambling, the School of Social Work took interest in the national research that underscores the adverse social impacts of problem gambling that tends to rise in the wake of casino gaming. Mental health, substance abuse and key social service and faith-based organizations that will be called upon to address problem gambling and its related mental health, substance abuse, family and social problems were surveyed to ascertain if and how they were preparing for this likely role.  Professors Ray Engel, Danny Rosen, and Tracy Soska released the results of their "Raising the Stakes: Assessing Allegheny County’s Human Service Response Capacity to the Social Impact of Casino Gambling" at a press conference on January 22, 2008 at the University. Among the study’s key findings for this region:

  • With the exception of a few agencies on the front lines of addictions treatment – about one third of those surveyed, the majority of agencies are not interesting in training staff, don’t see problem gambling as an issue among their clientele, lack the resources to train or don’t know where to find training.
  • More than three-quarters do not screen, treat or refer clients for gambling-related problems. While about of one-fourth of those providing mental health and substance abuse service do screen, the most common reason offered for not screening, treating or referring was that problem gambling is not seen as an issue.
  • Only slightly more than 30% of human service providers surveyed were aware of any public awareness or educational campaigns on problem gambling; fewer – less than 10% - are education their own clients on problem gambling and even less – under 4% - are engaged in educating the community on gambling-related issues.

Given that the state has been engaged in bringing video casino gambling to venues across the Commonwealth for nearly two years now, these findings are somewhat surprising and, perhaps, speak most loudly to PA’s failure to give a more balanced focus to preparing the community for both the positive and negative impacts of casino gaming.  While our region’s long-standing culture of gambling, i.e., daily numbers, bingo, strip tickets and other small games of chance, that are often part and parcel of our nonprofit and faith-based sectors, might account for many not seeing problem gambling as an issue.  The research on pathological and problem gaming cited in the study stresses two critical findings:

  • Most problem gamblers have other co-occurring disorders, including mental health, e.g. depression, mood, personality disorder, and substance abuse issues.
  • Casino gambling increases the number of individuals who gamble and, therefore, also increases the number of individuals who will become problem gamblers.

Pennsylvania has set aside $1.5 million to cover the education, prevention, training, treatment, and monitoring of problem gambling, but this might increase as .001% of gaming revenue are dedicated to these social costs.

With these concerns strongly in mind, the study recommends:

  • The human service providers, County and private providers, cannot wait on the state any longer and should develop a comprehensive human service educational program on the nature of problem gambling, as well as undertake a corresponding community-wide education campaign;
  • A simple screening process should be developed for human services provider to use and a centralized database – perhaps through the new www.humanservices.net – should be established to make providers aware of regional resources for problem gamblers and their families.

Relative to the limited state support for social costs, which the investigators note amount to about $15.50 per potential problem gambler in the state, the study further recommends:

  • An expansion – actually a better start – of a statewide public awareness campaign on problem gambling associated with casino gambling.
  • An increase in the set-aside to address issues of problem gambling – the study notes that in Ontario, Canada, fully 2% of gaming revenues are targeted to offset social cost and for research and monitoring.
  • An expansion of training efforts to be more inclusive and accessible to both mental health and substance abuse clinical practitioners, especially those with PA professional licenses, which the current state guidelines are not fully involving in its training initiatives.

Finally, the study cautions that while the state and the gambling interests have allocated modest resources to monitor the impact of gambling and problem gambling, no effort made to benchmark current gambling behavior and issues that would establish a baseline to legitimately measure impact.  Without a baseline, monitoring is meaningless.  The investigators further recommend that

  • In lieu of state or gaming interest support, Allegheny Countyand the Pittsburgh regional funders and policy-makers will need to step up and insure that a benchmark study is done before the Pittsburgh casino opens to help plan for services and legitimize monitoring.

The School of Social Work and UCSUR stand ready to take on this critical benchmark/baseline study that might help this region “Beat the Odds” of the adverse impact of casino gambling.

Tracy Soska, Ray Engel, and Danny Rosen are Professors at the University of Pittsburgh School of Social Work and co-investigators on the gambling study.