March 1 2007

Recommend Continued and New State Action to Reverse Current Trends

Three new studies are sounding a warning bell for Pennsylvania municipalities and the state as a whole: without major changes in the structures and laws that govern municipalities and the way they are financed, and unless communities are empowered to work more closely together, their fiscal and physical integrity is at grave risk and the state’s economy will continue to struggle in the coming decades.

The independent studies released by three major research institutions concurrently today are:

  • an assessment of the fiscal health of Pennsylvania municipalities by the Pennsylvania Economy League, called "Structuring Healthy Communities;"
  • an update of the 2003 "Back to Prosperity" report, entitled "Committing to Prosperity," prepared by the Brookings Institution for The Campaign to Renew Pennsylvania; and
  • "Strengthening Rural Pennsylvania," a policy brief on rural issues authored by a team of researchers from The Pennsylvania State University.

All three reports conclude that on the downside, the lack of 21st century tools puts Pennsylvania communities under stress and unable to restore and maintain their prosperity and quality of life. Municipal revenues are declining as a result of slow-growing or even shrinking populations, high-quality jobs are waning, and the local tax base is declining. The result is that many communities are unable to provide the services and infrastructure required for economic growth.

The reports also note, however, that the potential to modify this and other stark trends rests with continued systemic policy reform at both state and local levels. The reports recommend changes that modernize traditional approaches to Pennsylvania governance.

The Economy League, which analyzed municipal revenue from 1970 through 2003, found a systemic decline in the fiscal health of communities statewide. This decline cuts across all types of municipalities, in rural, suburban and urban areas, and in all regions of the state. It already impacts more than half of Pennsylvanians where they live, and without new tools for community leaders, it’s only a matter of time for the rest of the state.

The Brookings update shows that since 2000, the Commonwealth is experiencing a continuation of trends reported in the original report albeit with marginal improvements. These trends include slow growth, population loss in older places and replacement of high- quality jobs with jobs of low wages and low quality.

The Penn State study determined that similar concerns worry rural Pennsylvanians -- including a lack of inter-municipal coordination and cooperation, a change of employment base and lack of jobs that pay a living wage, the out-migration of young people, an aging population, the need for workforce development, and an inequitable local tax structure.

"These three studies constitute a clear and loud warning," said Todd Vonderheid, director of strategy for The Campaign to Renew Pennsylvania (RenewPA), which sponsored the Brookings update. (RenewPA is an initiative of 10,000 Friends of Pennsylvania.) "While there has been significant improvement in job creation and targeted investment during the Rendell Administration, the realities of the 21st century demand that our communities are healthy and able to invest in themselves and in most instances that requires intergovernmental collaboration. But outdated state laws tie the hands of our local governments."

"If we don’t empower our local governments to work more effectively, if the state doesn’t give them the tools they need to collaborate, then we’re doomed to see a steady decline in the fiscal health of our communities, as we can’t seem to outgrow these structural problems. And as the Economy League report indicates, no municipality is immune to that kind of decline," Vonderheid said.

The Economy League study shows that municipalities are having an increasingly difficult time providing the services that residents need and expect, and that this fiscal distress is often inevitable under the laws that apply to local governments.

The analysis identified several stages that municipalities follow toward fiscal distress. While new development brings prosperity with low taxes, what often follows is increasing demand for services, along with increasing tax rates and service fees to fund them. Next comes reductions in non-core services, then reductions in core services, and finally loss of tax base and distress as households begin to "vote with their feet" by relocating, often to newer and more prosperous areas.

"The cycle of fiscal decline is exacerbated by the fact that municipal governments do not have the tools required to break it. Current limitations on the manner in which municipalities can increase revenue and on the amounts they can raise have tied the hands of municipal leaders. Our local governments need the state to take action to relieve these restrictions," said Stephen Stetler, The Pennsylvania Economy League Inc.’s executive director. "The recommendations in these reports provide hope that the current trends can be reversed with the cooperation of state and municipal leadership."

The original Brookings study, completed in 2003, was a comprehensive analysis of statewide growth and development trends. The update, while recognizing some positive developments, such as increased inmigration to the state, new urban revitalization, and job creation, confirms that Pennsylvania still is barely growing, that older communities continue to hollow out, and that the transitioning economy is still lagging.

"Pennsylvania has made significant progress in recent years," said Mark Muro, director of policy at Brookings’ Metropolitan Policy Program, "but these three studies each show that there is more work to be done if Pennsylvania’s communities are to reverse the current trends." Muro pointed to ongoing work by the administration of Governor Ed Rendell to empower local government, make reinvestment in existing communities a priority and to invest strategically in promising industry clusters, but noted the need for additional work, particularly by the General Assembly, to enact systemic long-lasting change.

Among other findings, the report notes that:

  • Although it remains the sixth largest state, Pennsylvania’s population growth remains among the slowest in the nation -- 1.2%, which ranks the state 46th in population growth. However, the state has seen a shift in migration patterns. Between 2003 and 2005, the state had a net in-migration of 9,600 people.
  • Cities and boroughs continue to "hollow out" while outlying communities grew. Second-class townships grew by 5.9% between 2000 and 2005, while cities lost 3.3% of their population. However, there was an up-tick in housing permit activity in cities and boroughs: a 22.5% increase in the number of permits issued between 2000 and 2004 compared to between 1995 and 1999.
  • Employment growth is slow compared to the nation -- 1.1% between 2000 and 2006 compared to 3.3% nationwide. However, there were some improvements in that the ranking of job growth jumped from 45th in the 1990s to 37th between 2000 and 2006. The metropolitan areas of Allentown, State College, and Lancaster had the fastest job growth in the state, while Williamsport, Erie, and Pittsburgh lost jobs.

In light of these continuing trends, the Brookings report assessed the state’s progress on key policy fronts, recognizing "progress to date" and sketching the "way forward."

  • On local government reform, Brookings hailed the State Planning Board for proposing a reform agenda, and encouraged the General Assembly to enact legal changes to make inter-governmental cooperation on service provision easier. On prioritizing reinvestment, the report commended the Rendell Administration’s Keystone

    Principles that prioritize investment in existing communities, and urged further work to ensure that public investments support the needs for established areas.
  • And on economic revitalization, the report applauded the state’s recent initiatives to identify high promise industry clusters and match training efforts to employer needs, and suggested further work to make clusters the central tenet of economic and workforce development.

The Penn State study revealed that the trends -- both positive and negative -- impact communities of all sizes throughout the state.

"Sometimes we have a tendency to think of rural areas as being separate from urban and suburban areas, and we make decisions about each in a public-policy vacuum," said Ted Alter, Penn State professor of agricultural, environmental and regional economics. "We need to recognize that policy changes often create a domino effect that does not stop when it gets to rural Pennsylvania."

The issues rural Pennsylvanians identified as most critical are parallel to those of residents of more densely populated communities. Yet, rural development policy has tended to focus on specific economic segments, rather than address the complexity of rural communities. The report outlines a place-based policy approach that works to leverage a region’s unique assets, encourages regional cooperation among local governments and between the public and private sectors, and takes a more holistic view of economic development.

To download a .pdf of the Economy League report, click here.

For the executive summary, click here.