February 22 2011

Guest commentary by Matt Zieger
Interim President & CEO, TeamPA Foundation


Today, two out of every five Pennsylvanians live in a municipality in fiscal distress. As this number continues to grow, it is slowly and steadily undermining the commonwealth’s reputation as a stable place to raise a family or build a business. 

A common response to this trend has been to say, “its the bigger governments – places like Pittsburgh, Philadelphia, Harrisburg, and Reading – that are in real financial trouble.” This point has also been used to fight against local government consolidation (even sharing of services or resources) noting that if bigger government is better why then are city governments in financial distress? Older cities are pitted against newer suburbs, with the leadership of urban communities painted as poster children for poor fiscal discipline. This politically favorable, if self-forgiving, narrative has replaced reality in our public discourse on this issue. 

With Harrisburg cornering the market on financial crisis headlines, it seems to many that newly suburbanized townships are immune to the financial challenges facing our older core communities.  As each budget grows modestly to meet the needs of a burgeoning community, next year’s revenue miraculously outpaces spending, and all is well. Even if township leaders prudently halt their budget growth for a few years, the trend of budgeted expenses will always be upward. 

The hard truth is that any local government that begins to provide a significant level of services starts a slow and steady march toward a financial tipping point. Poor management or an errant incinerator may accelerate this decline, but the fact remains that if you are lucky enough to have your tax base grow, so do your costs – and in the current system these costs will always outpace growth. Particularly challenging to this budget trend are the projected costs of healthcare and pensions that rise dramatically as community populations grow. 

Then comes the tipping point.  

A recession hits, a significant employer leaves town, or people just begin to move across the road to a neighboring tax-base. If this tipping point is not brought on by a loss in revenue, it’s brought on by increased costs.  An aging municipal facility needs to be renovated, energy or insurance rates jump, residents decide they want local police protection, or a new wave of retirees spike pension obligations promised during former heady growth periods. A municipality responds with a reduction in services, a tax increase, or often both. Either choice elicits slowed growth and further decline in revenue. 

This downward spiral that has nearly all our older core communities in its grip is beginning to affect townships. A map of financially distressed communities shows an even distribution of distress across our entire commonwealth, and the recent Survey of Financial Conditions submitted annually by each municipality demonstrates a growing number of townships experiencing or approaching this tipping point.  

Research by the Pennsylvania Economy League shows that local taxes produced 58% of total municipal revenues in 1970 (excluding Pittsburgh and Philadelphia) and that by 2006 that share had fallen to a mere 39%. Since 2006, with the recession’s onset and a corresponding rapid decline in revenue sources, municipalities have been hit with an extraordinarily tough period of fiscal pressure. 

As Pennsylvania’s 50,194 elected or appointed municipal officials wrestle with these challenges, they are often surprised by the limited tools available to them. The laws governing our municipalities, most of them unchanged since the 1950s, discourage innovation and collaboration, the two essential ingredients to a sustainable local government system. 

So where do we go from here?

First, a little sunshine is always good to promote healing.  We need to better publicize the debt burdens and legacy costs most municipalities now carry. Informed citizens are a powerful weapon for improving government.

Second, state government must allow local governments to be more nimble and flexible. Tax base and revenue-sharing agreements should be as common as those citizens who daily cross municipal boundaries.  Significant long-term costs, such as personnel-related obligations must be negotiated in a more fair, open, and relevant process that takes into account both benefits promised and the municipality’s financial condition and ability to pay expenses.

Third, creative inter-municipal collaboration should be encouraged both by the electorate and state government. Joint purchasing and inter-municipal sharing of services have proven to be very successful for those municipalities that have jumped through the hurdles to implementation. These process hurdles also have killed nearly every locally-driven attempt at consolidation or merger. 

Taken together, these outmoded processes strip power from the hands of those very citizens most intent on improving their community’s future. With the prosperity of our communities hinging on everyday citizens being empowered to build relevant and sustainable local governments, all of us should demand better.

Matt Zieger lives in Harrisburg city with his wife and son.  He leads Team Pennsylvania Foundation, a statewide public/private partnership focused on driving innovation in government and improving Pennsylvania’s business climate.



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