The Big Three

Our columnist’s prescription for change requires connecting some dots

The Big Three

Our columnist’s prescription for change requires connecting some dots


This column has covered a range of Philadelphia policy issues over the past six months including pension funds, childcare, K-12 schooling, community college, the tax code, and political culture.

Most of these issues can be organized around three questions:

Can Philadelphia’s fiscal position allow it to offer quality public services?

Can Philadelphia reduce its 26% poverty rate?

Can Philadelphia profit from tomorrow’s economy?

Let’s look at each question and then ask how to connect the dots.

Fiscal soundness in a nearly $4 billion city budget (along with a nearly $3 billion school budget) requires a tax system that incents growth, spending strategies that give us bang for the buck, and coming to terms with long-term liabilities.

When it comes to taxes, we have a strong candidate for change on the table in the agenda set by the Philadelphia Coalition for Job Growth.

A broad consensus exists for shifting the tax burden from those items that can relocate – people and firms – to those, like commercial and residential real estate, that cannot. The Growth Coalition is the best proposal for that position.

My colleague Larry Platt has been beating the drum for a zero based budgeting approach in order to address the second part of the fiscal integrity puzzle: spending.

With zero based budgeting you do not assume that this year’s budget will be based on last year’s architecture, but ask questions regarding what expenditures are most essential to the core mission, and what is the most effective way to meet that mission.

There are regulatory limits to what you can do with zero based budgeting, but a zero based budgeting simulation around a number of items could be done effectively.

A third aspect of fiscal soundness has to do with managing long-term liabilities eating away at our ability to operate government. This refers to unfunded pension liabilities, long-term healthcare costs, and various forms of public debt.

A great deal has been written about the impact of too much public sector debt and the effect of dramatic levels of unfunded pension liabilities. With the bankruptcy of Detroit, the recent bond defaults in Puerto Rico, and the looming crisis in Illinois and New Jersey, we are now getting the picture.

There are moments in time that no longer allow us to kick the can down the road. Recent changes by the Government Accounting Standards Board will force new disclosures based on more conservative assumptions. Look for a great deal of angst about the condition of restated government balance sheets over the next few years.

The PICA report that discusses Philadelphia pension funds still offers the best framework for change.

Presumptive new Mayor Jim Kenney will not be able to effectively govern for his likely two four-year terms (taking him through 2023) without dealing with this issue.

Poverty reduction is a moral and economic imperative. We need more, not less, able citizens in the work force earning wages that allow them to support themselves and their families. We need more household income and less long-term dependence on government payments. We need more asset growth for row home Philadelphia.

In education politics Republicans want outcomes without funding and Democrats want funding without outcomes. If Wolf wants to rise above the typical fray, he will stand for both.

Poverty alleviation assumes four things: jobs that pay a living wage, social policy that rewards work, educational institutions (from pre-K to post high school) that are social mobility ramps, and social practices that promote access and mutual aid.

I support a hike in the minimum wage, although it would be helpful to not have this function as city-by-city or state-by-state mandates, as that creates artificial advantages and disadvantages.

The academic literature on minimum wage increases is a mixed bag but there is little evidence that a hike to $10-12 per hour would have an adverse effect. If you took the 1968 minimum wage and adjusted it to today’s dollars it would be about $10 per hour.

The Federal Earned Income Tax Credit, passed in the 1990s, rewards work. Despite the activity of so many civic and public agencies to make sure people are getting their refunds, there are still too many Philadelphia households who either do not fill out returns or lose money to tax anticipation loans from tax preparation companies.

The most important anti-poverty strategies will continue to be investments in quality schools from early childhood to post-high school options. In previous posts I asked questions about early childhood center quality, argued for a pragmatic or agnostic approach to school choice (district, charter, and parochial) and addressed the effectiveness of our community college.

As Pennsylvania will soon increase its contribution to basic education, it will then have to grapple with methods of distribution and outcome accountability. The Governor will support a fairer system of distribution (with weighting toward low income and low tax capacity districts) but he and his education secretary lack any announced strategy for improving schools outside of providing more money.

The Governor’s ability to deliver more resources can be the basis for asking for changes in the present public system, some of which his union allies will not support. In education politics Republicans want outcomes without funding and Democrats want funding without outcomes. If Wolf wants to rise above the typical fray, he will stand for both.

For example, the administration should support a current bill in the House of Representatives that addresses chronically failing schools. The Education and Accountability Act  would convert the lowest performing schools through proven managers, work rule flexibility, and tying funding to outcomes. There is a lot to work out, but similar efforts in Tennessee have had early success.

There are many civic, public, and household factors that can enable or constrain economic mobility: from the way we incarcerate people and under-invest in their rehabilitation and reentry, to public safety, to public transportation routes that connect people to work, to patterns of housing segregation, to the proliferation of single parent households that have neither the work force skills nor access to multiple incomes needed to rise above the poverty level.

Again we are partially guided by political sound bites rather than untangling the complexity of change. Conservatives often point to behavioral and aspirational (culture) issues as key to poverty alleviation, while liberals point out structural or systemic issues. Republicans have a tendency to de-contextualize behavior while Democrats reify systems.

In real life it is harder to disentangle the two. Poverty in the United States can be driven by both bad circumstances and bad choices; the important thing is to figure out the policy incentives that maximize better choices while creating systems that reward those choices by making it easier to achieve mobility.

Tomorrow’s economy is a political metaphor that we will hear a lot in the upcoming Presidential campaign. Successful campaigns are about the future more than resentment over the past, although that too comes into play.

In the mayoral primaries there was precious little specificity in terms of economic growth, except that everyone was in favor of more jobs. I have never heard a candidate run against jobs; the question is how do we get the job creation machine moving? While tax and fiscal issues, along with human capital advancement help, they are necessary but not sufficient ingredients.

Philadelphia has to focus on increasing the number of start up businesses in the city, the rate of scale-ups for growing businesses, and the capacity and reputation of the city as a flexible, change oriented environment. Business growth has rarely been on the local policy agenda outside of urban real estate development.

The Greater Kansas City Chamber of Commerce invited about a hundred community, public, and business leaders to take part in choosing a narrow number of region changing issues they could all work on together. They began with 182 ideas and narrowed that down to 20, which eventually they narrowed to what they now call the big five.

High growth areas exhibit easy connectivity between capital, technical services, research institutions, new entrepreneurs, and established firms. Government cannot command this to happen. But government can understand the landscape of growth and figure out how to best enhance it: by sending the right signals through public policy, attitude, and strategic marketing.

We have three job growth clusters in the city: downtown, the university and health care district in West Philadelphia, and the Navy Yard. There are also a few centers of manufacturing, principally in areas of North and Northeast Philadelphia, and we have other growing anchor institutions (Jefferson, Temple, etc.). We are a major transit hub for goods, services, and people. There are regional sectors in which we have present (e.g. life sciences) and future (e.g. energy) competitive advantage. And we have one of the strongest cultural ecosystems in the nation.

Even with those assets we are working against our city’s feeble job creation history over the past four decades and a good number of national indicators that are troublesome.

Start-up business rates have been declining in America for the almost forty years which we have data (that data comes from the Census Bureau and the Kauffman Foundation). Those declines are not absolute, but relative to our growing population and the number of firms as a whole.

And technological change has made it possible to outsource or replace increasing numbers of white-collar jobs, where twenty years ago we still thought of outsourcing and replacement as a largely blue-collar issue. This article from a few years ago in the Economist gives a fair overview of the issue.

One impact of a changing labor market has been the emergence of large numbers of individual contractors or freelancers as they are called in the Gig economy. The incomparable Sara Horowitz has built a movement around the freelancer phenomenon, creating an association to deliver services like insurance for individuals that without singular employers. She is identifying new forms of association as a way to rebuild a social contract. What she is doing may be the tip of the civic iceberg.

Philadelphia’s economic development vision is still largely driven by a real estate deal mentality, perhaps a natural state of urban transformation. But the problem in front of us is increasingly less about the hardware (buildings) and more about the software (business growth and labor market dynamics).

There is no center of gravity for that kind of thinking to engage with public policy in this town. It is scattered around from place to place in transactional rather than policy terms. There are great things happening but the parts do not add up to a more robust whole.

Connecting the dots between the big three agenda items – fiscal stability, poverty reduction, and new business growth – is critical because the seemingly separate lanes each travel down are too functionally intertwined to do anything but look for common organizing principles.

But even more importantly there has to be some agreement on how we work together on these issues over a long period of time. Cities and regions need institutions that can set and keep a long-term agenda for the future.

We get this in sector specific ways through city administrations, chambers of commerce, and civic groups, but we would be wise to find a small number of high leverage agenda items we can take on together.

In Kansas City the Greater Kansas City Chamber of Commerce invited about a hundred community, public, and business leaders to take part in choosing a narrow number of region changing issues they could all work on together. They began with 182 ideas and narrowed that down to 20, which eventually they narrowed to what they now call the big five

I have spent time in Kansas City over the past 18 months doing work with the Kauffman Foundation and I am impressed by how often I hear people speak about the big five. Some organizations have stewardship for moving certain issues forward and they feel responsibility for success. Others are skeptical of the efficacy of the approach but they still know it is there as a kind of overarching agenda.

I am forwarding my big three in this column hoping that over the next year we can build a multi-sector agenda with a long-term vision. It would go a long way to sending a signal to those that want to invest and live here that we are as serious about the future as we are about our past.


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