Tag Archives: Recovery

Pittsburgh region jobs struggling to recover

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Background: Recently released jobs data for March 2022 show private-sector employment in the Pittsburgh Metropolitan Statistical Area (MSA) the seven-county area of Allegheny, Armstrong, Beaver, Butler, Fayette, Washington and Westmoreland, has failed to recover to the level reached three years earlier in March 2019.  The March job count remains 53,800 (5.1 percent) below the three-year-ago reading.

U.S. jobs performance

Note that the national jobs performance, while not sterling, was much better than the Pittsburgh MSA with private employment in March rising 0.8 percent above the three-year-earlier posting.  As previous Policy Briefs have pointed out, simply returning to pre-pandemic employment levels fails to take into account the job growth that likely would have occurred if COVID-19 had not devastated the strong economy underway in early 2020 with the impact extending well into 2021. In the three years from 2016 to 2019, private employment rose 5.2 percent.

Assuming, conservatively, that the 2019 to 2022 growth would have been a more modest 3 percent, the March 2022 job total would have reached 130.3 million, which is 2.8 million higher than the number actually reported. In short, while there is some satisfaction in recovering to pre-pandemic levels, there remains a lot of catching up to get the economy back on track.

Comparisons to other MSAs

To understand the Pittsburgh jobs situation more clearly and the context of what is happening in other metro areas, this Policy Brief reviews and compares private-sector job gains in nine other metro areas, five with much stronger employment gains and four others with poor performances.  

The five MSAs with strong post-pandemic gains chosen for comparison include Austin, Texas; Nashville, Tenn.; Tampa Bay, Fla.; and Charlotte and Raleigh, N.C.  The four poor performance MSAs to go along with Pittsburgh include Nassau-Suffolk Counties, N.Y.; Buffalo, N.Y.; Cleveland, Ohio; and Hartford, Conn. The selections were chosen to keep the sizes relatively close to Pittsburgh. Thus, very large metros such as Atlanta, New York City, Chicago or Los Angeles or much smaller areas such as Schenectady, N.Y., Charleston, W.Va. or Dayton, Ohio, or Erie, Pa., were not considered.   

In aggregate, the five strong performing MSAs posted an average private jobs gain from March 2019 to March 2022 of 7.7 percent. Among this group, Austin was the strongest at 13 percent growth while Charlotte was slowest with a 4.7 percent gain from 2019.

Meanwhile, for the five poor performing MSAs, employment, on average, remained 3.9 percent below the March 2019 readings. Pittsburgh was the worst performer with jobs still 5.1 percent below the March 2019 level.  Cleveland had the best of the five with employment 2.3 percent lower than three years earlier.  Buffalo and Nassau remained 4.7 and 4.1 percent lower, respectively.  Hartford remained 3.5 percent lower.

Austin is truly remarkable with employment nearly doubling since 2000 and is up 57 percent in the last 10 years.  Indeed, the five fast-growing MSA-average added 39.2 percent more jobs over the 10 years, March 2012 to March 2022.  During the same period the five slow-growing MSAs posted an average gain of just 2 percent with the Pittsburgh MSA the only one of the 10 reviewed that had fewer jobs in March 2022 than in March 2012. 

The relatively strong years in the Pittsburgh MSA from 2016 to 2019 were basically reversed during the pandemic and the bounce back has far to go to achieve full recovery and even further to go to regain the momentum of the 2016 to 2019 period.

Possible explanatory factors for MSA growth rate differences

 % Change in Jobs: Mar. 2019-Mar.2022% Public Sector Union
Avg. of Five strong performing MSAs7.714.5
Avg. of Five poor performing MSAs-3.961.2

Two related factors are apparently important in explaining growth rate differences.  The first is the presence of a right-to-work (RTW) law in the state where the MSA is located or the absence of right-to-work (NRTW).  Second, and closely related, is the percentage of public-sector workers who are labor union members.

All five of the poor performing, slower growth MSAs in this Policy Brief comparison are in NRTW states (N.Y., Pa., Ohio, Conn.). Moreover, all poor-performing MSAs have high percentages of public-sector employee union membership.  The five MSA average union membership was an estimated 61 percent based on unionstasts.com data for 2021(the latest year available). Union membership in the five MSAs ranged from a low of 49 percent in Cleveland (a drop from 55 percent in 2017) to a high of 78 percent in Buffalo.  Indeed, most New York MSAs have quite high membership percentages. 

Pittsburgh MSA public-sector union membership stood at 50 percent in 2021, a decline from 58 percent in 2012 and 57.3 percent in 2019. And it has been well over 55 percent for the last several years.  Hartford public-sector union membership stood at 69 percent in 2021. The recent declines in some areas could be related to the Janus Supreme Court ruling that public-sector union members cannot be forced to pay union dues.

Meantime, 2021 public-sector union membership in the five fast-growing MSAs averaged 14.5 percent, with a range of 10.1 percent in Raleigh to 21.5 percent in Nashville. Austin’s rate stood at 11 percent.  Austin saw the rate drop from 17.5 percent in 2012 while Raleigh’s rose from 7.8 percent in 2012 to 10.1 percent. Charlotte’s rate in 2021 was 10.5 percent and Tampa Bay came in at 19.5 percent.

All told, the five faster job growth MSAs had on average a 46.7 lower percentage of unionized public sector employees than the slow growth MSAs in 2021.  Coincidence? Seems to be highly unlikely.  The states and MSAs with high levels of public-sector union membership are far more likely to be areas with substantial union influence on government policies regarding economics, taxes and spending than the low union membership areas.  Unions can have substantial influence on elections through voting and fund raising. And public-sector unions certainly have a major impact on compensation packages and work rules.

As can be seen in these high union member areas, there are more laws and regulations regarding such things as wage rates and sick leave pay, mandatory time off provisions and other rules governing the private sector and general efforts to operate a top-down, government-involvement approach to managing the economy.

Effects of high rates of public union membership

Moreover, public-sector union benefits such as pensions, work rules, time-off provisions tend to be very generous and, once granted, never are withdrawn and become legacy burdens. All this leads to more expensive government provisions of service which, in turn, requires higher tax revenues. 

Higher taxes, work-place interference with burdensome regulations on the private-sector and development restraints all work to discourage entrepreneurism and business growth and expansion.   High tax rates and regulations that are costly to comply with are burdens that can lead to bankruptcies or business leaving since firms cannot continually pass on ever higher costs to their customers.

Obviously, there are special local situations around the country that can lead to a departure from the findings based on the 10 MSAs in this study. External or exogenous factors such as massive shifts in consumption patterns, foreign competition and technological innovations can offset somewhat the benefits of RTW and low public unionization on one hand or the hindrances of NRTW and high public unionization on the other.

However, from a public policy standpoint, special factors should not override the basic facts: High rates of public-sector unionization lead to more and unnecessary government involvement in the lives of citizens and businesses.  We see in country after country the negative effects of the heavy hand of government.  Little wonder Franklin Roosevelt did not support the creation of government unions.

Familiar Threads Woven in Harrisburg Recovery Plan

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Over three years ago, in February 2010, we asked if the debt related to a trash incinerator was pervasive enough to cause a municipal bankruptcy filing-colloquially, that the City of Harrisburg’s finances could possibly end “up in ashes”. 

 

After the City was placed into Act 47 status, saw the General Assembly make changes to the statute as it applied to Harrisburg, and operating under the direction of an appointed receiver, a plan, somewhat pretentiously titled “Harrisburg Strong”, has come together for placing the City on the path to a solid financial future.

 

Readers of our reports, especially as they pertain to Pittsburgh, will notice some familiar themes and one very different situation; namely, the presence of the aforementioned dollar devouring trash incinerator. That facility is slated to be sold-to another public authority-and some of the proceeds will go to satisfy creditors (but only partially satisfy since negotiations have produced settlements for less than owed) and reimburse Dauphin County.  That won’t pay all the bills, so a 40 year lease of parking garages, lots, and street spaces to a public-private partnership is expected to yield enough money to pay off parking debt, the rest of the incinerator debt, for the City itself, and for funds related to economic development, infrastructure development, and a trust fund for retiree health care obligations.

 

That last point is a good starting place to assess how the City and its employees are partnering up at this critical juncture.  As the February 2012 recovery plan pointed out, Harrisburg is similar to many municipal governments in that it is a very labor intensive undertaking and the lion’s share of costs are attributable to employee compensation.  Three bargaining units represent the majority of the workforce covering police, fire, and non-uniformed staff (461 employees total including non-represented staff) and all negotiated early-bird contract extensions that limited the City’s and the receiver’s ability to make changes.  Compared to other cities of the third class in Pennsylvania (Reading, York, Allentown, etc.) the plan found that Harrisburg public safety minimum salary ran about $10,000 higher. The recovery plan projected workforce costs to rise from $45 million to $52 million from 2012 through 2016. 

 

As described in the “Harrisburg Strong” plan, two of the three bargaining units (police and non-uniformed) have agreed to concessions during the lives of the existing contracts to move the City toward its goal of getting $4 to $4.8 million in savings.  There are tradeoffs for both the City and the bargaining units: for police, what were to be 3 percent annual wage increases through 2016 are now 0 rising to 1 percent in the final year.  Payments toward health care coverage for current employees will be made with variations based on the number of people covered on an employee’s plan with the percentage of income paid for insurance rising throughout the duration of the agreement.  Current employees who retire after the ratification of contract changes are treated the same as active employees and, as is almost always the case when it comes to legacy cost changes, new hires will not be eligible for post-retirement health care benefits. The police contract opens up the possibility that certain positions might be offered to civilian employees and that booking could be transferred to Dauphin County. Most of those same terms will apply to the adjustment for non-uniformed employees.  

 

So what sweeteners do the employees get in return for these concessions? For one thing they are asking for elimination of the residency requirement. This issue has been bandied about in Pittsburgh over the summer and will no doubt intensify closer to Election Day. In Harrisburg, the proposed amendments for both police and non-uniformed contracts contain language stating “…the residency requirement contained in prior collective bargaining agreements between the parties is eliminated, and employees, regardless of hiring date, shall not be required to establish or maintain a residence within the corporate limits of Harrisburg”.  Could that be a deal breaker for City officials who must pass some of the necessary ordinances to make “Harrisburg Strong”? 

 

Overall approval for the plan falls to the Commonwealth Court, which plans to review the proposal in mid-September. 

Is There a Catch in Receiver Plan?

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The Duquesne School District is about to move into the next step of school district financial recovery under state law as the Secretary of Education has just asked the County Common Pleas Court to appoint the person who has been acting as chief recovery officer to become a receiver under Act 141 as the Duquesne School Board opted to reject the plan to send the remaining students of the District (all of elementary age) to neighboring districts. That request has been made on a voluntary basis (several have already said they won’t) so there is a possibility that a state mandate would come to pass.

The court does not have to take the person nominated by the Secretary to be the receiver; it can name its own or ask for an alternate. Whoever becomes the receiver essentially becomes the school board, except the receiver cannot levy or raise taxes. The receiver has the power to implement the recovery plan, communicate with the state on a quarterly basis, make sure employees of the district are following the plan, tell the school board to raise taxes, and go to court to get a directive to get employees to comply with the recovery plan.

The act says that receivership is to terminate three years after the receiver is appointed unless the state petitions the court for an extension. Even after receivership is terminated the district remains in oversight from the state for a five year period, most likely to ensure that the district does not slip back into distress.

Is State Ready to Shutter District?

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A handful of years since the voluntary merger of two Beaver County school districts lowered Pennsylvania’s school district count from 501 to 500, the state appears poised to use its power to close down the Duquesne School District and bring the count to 499.

All that is left of the District is an elementary school-middle and high school students have been attending neighboring districts. We documented the academic and financial condition of the District in late 2011 and showed that proficiency was not getting better in upper grades and had fallen in lower grades. Spending per student approached $20,000, most of it coming from Federal and state sources. That piece was predicated on work done by the Institute in 2003.

Last year the District came under a new law, Act 141, which functions as a way to resuscitate distressed schools, much like Act 47. The recovery officer for the District (Duquesne operated under a control board for much of its recent history) made it known that the economics of keeping an elementary school open won’t work, nor would a charter school, so it looks like either a voluntary or mandatory transfer of elementary students.

At the conclusion of that 2011 Brief we offered the following: "one would hope the board, the administration, and the staff would care enough about their obligation to the kids and taxpayers to support drastic remedial steps, including closing the school". Here we are now, though the push to close the school is not coming from any of those parties

Pittsburgh: Exit Act 47, Enter Act 141?

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As City officials prepare to make their case to the state that they have progressed to the point where they can shed Act 47 distressed status, just up the road at Pittsburgh Public Schools’ headquarters they are asking whether the District is in such financially bad shape that it will be "bankrupt" in three years. One board member asked "By 2015, are we broke, out of business?" to which a consultant replied, "correct".

That’s a bit strong. Districts cannot go bankrupt in Pennsylvania as they are not permitted to file by the state (only municipalities can). But there are new provisions in state law under Act 141 that prescribe how the state, through the Department of Education, is to deal with school districts facing financial distress. We wrote about the legislation before it was singed into law this past June.

Act 141 applies to all districts in the state except for Philadelphia. A district can fall into either "moderate" or "severe" distress and for a district deemed as such (the law says there cannot be more than nine at one time) the state will appoint a Chief Recovery Officer who will write a recovery plan. The plan has to be approved by the district’s board, and there are procedures for what happens if approval is delayed. There are a variety of tools for getting a district back to sound financial footing from reopening of budgets, examining contracts, exploring charter schools, and other options. Exit from financial recovery depends on the progress of the district and the determination of the Secretary.

Is Pittsburgh headed here? Who knows? There might be other options on the table, but as the Superintendent noted "We believe there’s a way forward. It may not be something we thought of before. It may not be something that comes to the mind readily. It may not be something that’s easy to arrive at."

Golden State Municipality Hopes Chapter 9 Brightens Future

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Stockton, CA has a population of just over 291,000 people, making it slightly smaller than Pittsburgh. Located in the central part of the state, the city has just filed for Chapter 9 municipal bankruptcy. Unlike Pennsylvania, which has Act 47, oversight boards, and a receiver in the capital city of Harrisburg, California allows for bankruptcy filings without many conditions. California has a mediation process, and that is what just wrapped up for the City of Stockton.

Satisfying the various criteria to file (state has to explicitly authorize, filing must be done by a municipality, filing has to be voluntary, has to be insolvent, and has to have explored other options) Stockton has approved a "pendency plan" that describes how operations will continue during the filing. That plan states "…the city is insolvent. Now, only the difficult process of restructuring its long term financial obligations and personnel costs will enable the City Council to protect the community and make sure the City emerges from this financial crisis as a viable, sustainable institution".

Stockton has made significant reductions in headcount, with public safety employment falling 25% and non-public safety positions down 43%, bringing total general fund employment to 930, down from 1,350 in the 2008-09 fiscal year. In comparison, from the first Act 47 plan in 2004 to the revised plan in 2009, Pittsburgh’s headcount fell 10% (there were over 400 layoffs in 2003, prior to the Act 47 declaration).

Brookings Tells Us Nothing New About Pittsburgh Economy

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Since 2008, the Allegheny Institute has commented many times on the slow arriving recession and its relatively moderate negative impact on the region’s economy.  With no housing or general real estate boom there was no bust in the region-a major factor in the severity of the downturn in many fast growing cities such as Las Vegas, Phoenix and states such as Florida.

 

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The Best Laid Plans Not Good Enough

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govt city

When the Secretary of Pennsylvania’s Department of Community and Economic Development rejected Pittsburgh’s petition to have its Act 47 designation lifted last July, he noted that the City needed “a blueprint for it to exit Act 47 and address pending legacy costs of debt, pensions, post retirement benefits, [and] workers’ compensation”.

 

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