Why Cities Fail

Harrisburg is broke.  Literally.  So are 26 other cities across the commonwealth that are stuck in the state’s Act 47 program for financially strapped municipalities.  Many enter in—like Pittsburgh—but very few ever get out.  And many more cities are likely to join them in the near future.

While the stories of urban fiscal decline may be unique, the underlying causes of municipal decay are generally the same: toxic combinations of underperforming schools, violent crime, relentless government unions, outmigration of middle and high income earners, inhospitable business taxes and regulations, woefully underfunded pensions and major financial blunders.

But in every Act 47 case, a common destructive denominator is present: government unions insisting on higher salaries and costly benefits regardless of a city’s ability to pay.  Years ago, Scranton tried to renegotiate union contracts, but instead, courts ordered the city to give workers bonuses and raises.  Last month, Democrat Mayor Chris Doherty took the desperate measure of cutting all city employees’ pay to minimum wage to demonstrate the city’s dire financial distress.  The unions, of course, took him to court.

In Harrisburg, government employee unions refuse to surrender any ground to help America’s most indebted city.  And recently, a state court ruled that the mayor and city council must double the local earned income tax in order to pay, in part, the salaries, pensions, and health care for the city’s unionized employees. 

In city after city, local elected officials—mostly Democrats—are complaining that state law and court rulings have so tipped the balance of power to organized labor that just personnel costs, especially pensions, threaten to bankrupt local governments.  While government employees themselves are certainly not to blame for the financial blunders of mayors and city councils, the reality is that the taxpayers cannot keep all of the promises made by politicians to union bosses at the bargaining table.

What these city officials are experiencing is why President Franklin Delano Roosevelt—no enemy of organized labor—adamantly opposed giving government employees the ability to unionize and collectively bargain with politicians.  He understood that once union bosses gained the power to hire and fire the very people they negotiate contracts with, the taxpayers would be victimized.  And this is precisely what is happening across Pennsylvania, not only in our cities but particularly in our public schools.

Of course, taxpayers can appreciate government employees and teachers without loving their unions.  But unless we address the unfair and unaffordable labor policies and practices, the inevitable end will benefit neither government employees nor taxpayers.

In short, cities must cut their spending.  Raising taxes and borrowing more money will only exacerbate the problem.  Real solutions will require the state legislature and local officials to work together and change state laws to give municipalities the ability to control unaffordable and unsustainable personnel costs.  Reforms like 401(k)-style retirement plans instead of defined-benefit (guaranteed-government-income-for-life) pensions, ending prevailing wage laws that unnecessarily inflate the cost of construction projects, and privatizing functions that should be left to the private sector will help save our cities.

What won’t work is increasing taxes and going further into debt.  Such “solutions” will do more to aggravate a city’s financial woes than ameliorate them.  Most cities already have exorbitant taxes and burdensome debt, and when you add in crummy schools and shoddy public services, you can understand why higher income families fled to the suburbs years ago.  Further increasing the cost to live or work in a city will only encourage another mass exodus and discourage future investment.

Cities will ultimately have to save themselves from those who benefit when governments spend too much.  This will happen only when city officials—and state lawmakers—are willing to confront the government union bosses and their unaffordable and unsustainable demands on the taxpayer.

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Matthew J. Brouillette is the president and CEO of the Commonwealth Foundation (www.commonwealthfoundation.org), Pennsylvania’s free-market think tank.