Philadelphia and Pittsburgh Both in State of Flux

The newspaper headlines paint portraits of two cities heading in opposite directions.

In Philadelphia, the bold-faced type touts a mayor who bends the president’s ear, a shipbuilder’s promise to bring industrial jobs back and economic growth for the first time in a decade.

In Pittsburgh, they lament the loss of beloved Westinghouse Electric Corp., thousands of young workers and a tax to finance stadiums and business development.

Despite perceptions, economists are loath to bet on either of these two very different cities.

Years into the nation’s economic recovery, both cities rank dead last in job growth among the largest American cities. Populations continue to plummet. And both face the specter of putting former welfare recipients to work.

“When you’re so far down, everything is up if you’re Philadelphia,” said Robert Inman, professor of finance and economics at the University of Pennsylvania in Philadelphia. “It doesn’t mean that Philadelphia is above Pittsburgh at this point. It’s all where you’re starting from.”

A decade ago Pittsburgh went through a rebirth that made it the envy of other towns suffering through life after industry.

But today, the rap on Pittsburgh, population 350,000, is that it is too isolated for expanding markets.

The old steel town is 260 miles from Washington and 400 miles from New York. Its nearest urban neighbors are Cleveland (160 miles) and Cincinnati (300 miles).

The isolation is not just physical.

“This is a very comfortable community that’s a little bit insular and really doesn’t recognize that it’s falling behind,” said Douglas Dunn, the dean of Carnegie Mellon’s Graduate School of Industrial Administration in Pittsburgh.

Pittsburgh does boast quality universities and medical schools, and it is the headquarters of seven Fortune 500 companies. But a corporate headquarters can mean little these days because departments can exist apart from the central office.

Making matters worse, Pittsburgh has seen a dozen Fortune 500 firms leave since 1979, including Westinghouse, a name that was synonymous with Pittsburgh.

Corporations aren’t alone in abandoning Pittsburgh. Its young people continue to flee in far greater numbers than any other group, according to Tim Parks, head of the Pittsburgh Regional Alliance. The city is left with an older population rather than young energized entrepreneurs.

So while 3,600 high-tech firms generated upward of 100,000 jobs over the last five years, the city’s overall job growth has nudged above 1% only two of the last seven quarters. In all of Allegheny County, jobs grew just 0.6% in the past year.

“What cities that are declining seem to lack are start-ups,” said Gerald Carlino, economic advisor with the Federal Reserve in Philadelphia and former Pittsburgh resident. “Young people with ideas don’t start up in Pittsburgh. They go elsewhere.”

Add to that catalog of troubles political difficulties: Allegheny County’s finances are in enough disarray to warrant all three rating firms to downgrade its bonds. And a campaign for a half-cent sales tax increase for two stadiums and economic development in southwestern Pennsylvania failed.

But Parks says the city is poised to take advantage of “high-tech innovation” industries, such as specialty manufacturing, information technology and biomedical science.

“Our stumbling block has been an almost mind-boggling negativity that we just can’t quite put behind us,” he said.

Philadelphia knows what that is like. The city has been to the brink of death and back--in five years. It was near bankruptcy and its bonds rated worse than junk when Edward Rendell became mayor in 1992.

Its predicament scared away businesses considering relocation and sent people and jobs to the suburbs.

Rendell became a local cult figure by balancing the budget, primarily through wage freezes and by farming out many city services. And in 1996 Philadelphia created more jobs than it lost, although the grand total of 100 was infinitesimal compared to the 99,800 jobs lost in the previous seven years.

The end of last year brought more good news: European shipbuilder Kvaerner ASA agreed to train 1,000 workers and build ships at the shipyard mothballed by the Navy in 1995. Company officials estimate that some 8,000 industrial support jobs could be created.

Economists are bullish about Philadelphia today, willingly touting its advantages: a diverse economy based on health care, business and financial services and manufacturing; good universities; and access to both the financial clout of New York, just 110 miles to the east, and the politics of Washington, 140 miles away.

But even Rendell, Philadelphia’s most vocal cheerleader, admits the city of 1.5 million is far from healthy.

Its health-care industry has already begun consolidation in the face of managed-care and federal funding cutbacks, starting last October with 1,200 jobs cut at the region’s largest chain of hospitals.

The Pennsylvania Economy League has predicted that 40,000 health care workers in the region will lose their jobs over the next five years, with only half finding new work in the same field.

And the federal welfare-to-work legislation passed a year ago means that some 66,000 people will be looking for jobs in the area by March 1999. The city estimates that only 15% to 20% will succeed.

“The economy is not growing fast enough to employ 66,000 adults,” said Donna Cooper, a deputy mayor for policy and planning.

The same can be said of nearly every Northeastern city. In the third quarter of 1997, Philadelphia and Pittsburgh lingered near the bottom of the job-growth rankings with New York and Boston. Phoenix and Seattle neared 6% for the same period; Tampa and Dallas each posted a 4% gain.

“Philadelphia has done incredibly well in the last year,” said Jim Dilfey of WEFA Group, a financial analysis group in Eddystone. “Is it going to continue? Absolutely not.”

Both cities may suffer from Pennsylvania’s long-standing reputation as anti-business. The state imposes the fourth-highest corporate tax at 9.99%, according to the Pennsylvania Economy League. Labor costs in both Pittsburgh and Philadelphia tend to be higher than in many other areas, even without unions. And wage taxes in both cities can discourage some good job candidates.