Friday, July 06, 2012

In Your Heart, You Know Regional Cooperation is Right

Pennsylvania’s penchant for discouraging cooperation about regional governments could prove to be it’s undoing. An immediate addressing on the benefits of regionalism may even prove too late, yet there is little chance of that happening. This caution is noteworthy for the District of Columbia which has little ability to reach out for cooperation from its cross-border suburbs.

There is a basic point to regional success. The urban areas supply the region with much of the population arts, culture, athletics, etc.. and are often where many higher education, employment opportunities, health care facilities and other opportunities enjoyed by the regional population exist. These urban areas generally lack the tax base to meet the critical social needs and operating costs. The suburbs, which resulted from government investment in highway systems, allowed more affluent urban areas to flee the urban areas and create communities with fewer per capita social needs and operating costs. Much of the urban tax base over the last half century shifted from cities to suburbs. Many of the social needs concentrated more in the cities, leaving less affluent city residents with higher taxes to pay for these social needs. This created a cycle of those who could afford the leave the city for the suburbs doing so while leaving a diminishing tax base to deal with increasing costs. While this is an over-simplification, and there are examples where these dynamics differed and there has been some movement back into some  cities, this is a basic general summary of the cause of regional problems.

Several cities have inbuilt regional cooperation, such as the five merged boroughs of New York, while others cities such as Indianapolis economically survived by annexing its suburbs. Such mergers allow a shared tax base to benefit the entire region. This also results in benefits from eliminating duplications of government operations that are consolidated and allows economies of scale where a larger public sector may purchase goods and contract services at lower overall costs.

Pennsylvania is a state with the most restrictive laws discouraging regional cooperation. DC faces problems in that its region crosses into two other states beyond its legal jurisdiction. Pennsylvania at least could do something about its difficulties and DC may need to reach out for mutual cooperation or Federal actions.

Pennsylvania prohibits its cities from annexing its suburbs, Attempts at regional cooperation among local governments have proven burdensome. Little regional cooperation exists in Pennsylvania and when it does, it is usually found between a few small communities taking advantage of the benefits of economies of scale and making duplicate services more efficient.

School desegregation failed in Pennsylvania, which added to the current system of communities operating primarily with regard to their internal needs with little regard for their neighbors. While lawsuits decades ago to provide quality schools for both urban and suburban schools forced many states to merge at least some aspects of urban and suburban schools, the courts found Pennsylvania lacked what was then the amount of inequality to force legal action. While desegregation was controversial, it did force school districts to cooperate and various communities to learn about each other. Ironically, the education inequalities in Pennsylvania schools have grown to where the courts of past would have decided they are inequitable. While the rest of the nation provided greater equality in education, Pennsylvania’s inequality broadened.

Harrisburg, the capital city of Pennsylvania, is the literal canary in the mine. The canary has died and many Pennsylvanian’s reactions has been to deny there is a problem. Like a Monty Python comedy sketch, many Pennsylvanian residents insist the canary is only sleeping.

The fault of Harrisburg’s demise, according to economic coroners, is attributed to a city owned incinerator whose debt overshadowed overshadows the city’s ability to repay the debt. This cause of death is symptomatic of the lack of regional cooperation. The incinerator was designed to handle the region’s trash needs. After its construction, the communities surrounding Harrisburg each calculated their individual short run economies were better for each to continue land filling their trash. These decisions were concluded even though the likely long run costs would have been better if each community used the incinerator. Local governments run on annual budgets and local officials seldom see past a current annual budget. Harrisburg was thus stuck with an incinerator that for decades never reached the operational capacity to become profitable. The incinerator bled money and continually added debt.

Most other cities earn profits on their incinerators. Most cities, including Harrisburg, could not afford to take on the burden of such an unprofitable operation. A majority of Harrisburg’s land is tax exempt, which much of the land exempted for government buildings. The Commonwealth makes some payments to Harrisburg yet there are some estimates that the state government pays about 1/15th of what it would pay if it had to pay taxes. The fiscally-minded Governor seeks to lower even those payments.

Harrisburg lacks the tax base to sustain its public sector operations. The population of Harrisburg has fallen from around 100,000 residents to around 48,000. A sizable minority of these residents,some estimate around 40%, are on public assistance and thus pay no wage taxes. In an area where homeowners abandon their homes by walking away from their mortgages, increasing city property taxes would likely backfire by driving more homeowners among Harrisburg and discouraging new homeowners to buy in a city with much higher taxes than those of the communities surrounding Harrisburg.

There are economists who argue that once an entity has reached debt equal to 90% of earning that the debt may then be too high for that entity to ever recover. Harrisburg’s debt equals about 200% of the city’s earnings. 48,00 Harrisburg residents live in a city with over $1 billion in debt.

Harrisburg is an example of how municipal authorities are allowed to push municipalities past debt limits. State law allows authorities to vastly increase municipal debt. This authority was abused in Harrisburg. State officials are responding more to prevent Harrisburg from defaulting. Many state officials appear more concerned about the finances of the lenders who continued loaning money to a city they had to have known could never repay such debt than about the welfare of the city residents and their needs.

New York City faces a similar problem several decades ago. Despite how many people remember a famous newspaper headline believing that President Ford told New York to “drop dead”, it actually was state and Federal government actions that bailed New York City out of its fiscal crisis and allowed it to rebound. Today, New York City is one of our nation’s strongest urban economies

The Pennsylvania state government and Harrisburg’s suburbs have made it clear they do not intend to bail out Harrisburg. A modest commuter tax proposal has been thwarted. State officials passed a law preventing Harrisburg from defaulting. That law is nonsensical.

Harrisburg should have defaulted long before its debt reached this incredible amount. There are proposals that Harrisburg sell its sources of revenues, which are parking garages and, ironically, the incinerator which recently became profitable. Removing the revenue generating sources from the city government would be a short term bandage that would make an ultimate default more assured.

Forcing Harrisburg from defaulting is forcing it into de facto default. Harrisburg already lacks sufficient revenues to pay creditors. There are estimate is will soon lack revenues to pay for basic services. Harrisburg is technically, if not legally, in default.

Had the Harrisburg area regionalized earlier, these problems could have been avoided, There is no effort to belatedly achieve regional cooperation. The communities surrounding Harrisburg each seek to shelter themselves. The state government pleads it has no money to help. Each ignores that Harrisburg is not dying. Harrisburg is dead. It can’t pay its obligations. Ignoring the problem won’t make it go away. Ignoring that other cities, such as Scranton, Pittsburgh, and even Philadelphia have huge economic problems won’t make their problems go away.

The state government has to seriously help Harrisburg. The welfare of the residents should be the primary concern. If the state government does not act, Harrisburg will be dissolved by its debt. This debt is too large to be practical. When the debt destroys Harrisburg, the city, as an instrumentality of the state, could fold into the Commonwealth such that state officials will be forced to act. A Governor proud of his beloved balanced budget might find the burden of collapsed municipalities an end to his pledge never to raise state taxes. The issue of regional cooperation may finally be addressed only because there will be no other choice.

For D.C., these issues will fall upon the Federal government. Hopefully care is being taken to see the needs of residents are met and debt is checked. Regional cooperation on such issues as mass transit hopefully are expanding to other areas. Without regional cooperation, urban areas are in peril.