02.06.14

The Challenge of Vast Empty Spaces. One of the most daunting challenges to any long-term hopes for recovery in Detroit is how to address its vast empty spaces where the decades long atrophy of population today means that some 125,017 residential parcels are unoccupied and cost the city not just $173 million in lost property tax revenues, but also enormous costs to provide public services—especially for public safety. Detroit, one of the largest cities by land area in the U.S. today features 10,950 acres of vacant land or 12.3% of its total size. Publicly owned parcels represent 42% of this citywide vacancy and amount to 5,900 acres (55% of total vacant acres and 6.6% of city area). In our report on Detroit, we noted that absent some change in its geographical dimensions, any long term recovery and vibrancy would be unlikely. So it is that this morning Laura Berman, of the Detroit News, hints at some hope (See: “Urban forest planned for Detroit’s east side inches upward” http://www.detroitnews.com/article/20140206/METRO/302060053/Urban-forest-planned-Detroit-s-east-side-inches-upward), writing that Mike Score, an agricultural expert at Michigan State University, and the president of Hantz Woodlands, last week hand-delivered a $431,000 check to the city to purchase vacant land that will become a mini-forest, an urban forest, in one of Detroit’s most depressed areas — an area of about a square mile on the city’s lower east side: the world’s largest urban farm. The proposal would provide for planting some 15,000 hardwood trees —each about three feet tall —to be planted on about 150 acres in its first phase. The Motor City Arden or forest would replace 1,600 lots—after the land is cleared. Mr. Score is uncertain whether the land would eventually be used for harvesting lumber, cleared for farming, or eventually sold for development. What is certain is that about one eighth of the city which has produced little in the way of property tax revenues—but imposed significant public safety related costs could be unilaterally changed from the debit to the asset side of the city’s budget and demonstrate some new, outside-the-box thinking on the single most challenging obstacle to Detroit’s future sustainability.

Steel City Upgrade. S&P has upgraded financially distressed Pittsburgh’s credit rating to A-plus, citing strong reserves and spending that is better in line with revenues. S&P reported that the Steel City’s future outlook is stable—its actions followed a three notch upgrading for the turnaround city last June―this time reporting: “The current five-year forecast includes what we regard as more-conservative revenue assumptions than previous plans. It, however, does not incorporate the use of reserves to balance future budgets.” Nevertheless, Pittsburgh Mayor Bill Peduto said he will continue to push for Pittsburgh to remain under state oversight in Pennsylvania’s Act 47 program intended to help financially distressed communities “so that Pittsburgh may continue our efforts toward full financial recovery.”

Mayor Peduto, inaugurated last month, takes the helm of one of the six cities of our Municipal Sustainability Project supported by the McArthur Foundation., a city that was junk-bond rated just a decade ago. At his State of the Budget presentation in Harrisburg this week, Pa. Governor Tom Corbett told the legislators: “Ten or 15 years ago, few would have guessed that Pittsburgh would become a leader in biotech or high technology. Well, today it is a leader in both.” In its upgrade, S&P noted: “We believe Pittsburgh will likely maintain its ongoing efforts to maintain structural balance and strong available fund balance.” Nevertheless, Mayor Peduto supports keeping the city under Act 47, the state’s workout program for fiscally distressed communities, as a means to provide leverage in labor negotiations and to forge a long-term agreement with nonprofits for payments in lieu of taxes, two key elements he believes to limit debt and maintain structural balance.

In part, the new Mayor’s success might stem from the fact that he is, in fact, not new at all; rather he has served 19 years for the Steel City government — seven as a City Council chief of staff and 12 as a councilman — during which time he developed a rapport with nonprofits, especially Pittsburgh’s Gang of Four — the University of Pittsburgh, Carnegie Mellon University, Blue Cross-Blue Shield Highmark Inc., and the University of Pittsburgh Medical Center. The latter is Pennsylvania’s largest private employer, so that he well understands their respective, critical roles in redefining the city’s emerging 21st century economy: “Their development is central to the economy. I’ve worked with a lot of master plans. I have a very, very positive relationship with Chancellor Mark Nordenberg of the University of Pittsburgh, have an excellent working relationship with Medical Center’s President, Jeffrey Romoff, the new management at Highmark, and Carnegie Mellon President Dr. Subra Suresh. Moreover, as a Steel City councilmember in 2003, Mr. Peduto was the first to propose Pittsburgh join the program. Even though he was the sole supporter then, a year and a half later, his motion was adopted on a 5-to-4 vote. In its report, S&P remarked on the city’s improving reserves, especially available fund balances, which have risen to $84.4 million, or 18.4% of expenditures, in fiscal 2012, up from $42.6 million, or 8.6%, in fiscal 2010. For its FY14 budget, Pittsburgh has achieved balance without using any fund balance, as well as posting operating surpluses in two of the past three years. The current five-year plan indicates balanced operations through fiscal 2018, before pay-as-you-go capital contributions, and the continued maintenance of what S&P calls “good reserves.” In its report, S&P wrote that while continued participation in the Act 47 program limits Pittsburgh’s rating, S&P could raise the rating if the city exits Act 47 while maintaining structurally balanced operations and strong reserves.

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