Many U.S. Cities on Verge of Economic Crisis

Pittsburgh doesn’t look like a city that almost didn’t pay its bills last year. Its streets are clean. Crime rates are low. A gleaming new convention center and two stadiums rise along the banks of the Allegheny and the Ohio, two of the city’s three rivers. Pittsburgh’s nonprofit sector, which includes world-class medical centers and three universities, is flourishing.

But just as a handsome house with a luxury car in the driveway may belie the owner’s empty bank account, Pittsburgh’s financial condition is bleaker than it looks. The city has run a structural deficit annually since the early 1990s. Debt service devours nearly a quarter of the annual budget. Pittsburgh’s credit rating dropped to junk status in 2003 and remained there for most of 2004. Finally, to avert possible bankruptcy, city leaders filed for “distressed municipality” status with the state of Pennsylvania. The state now oversees Pittsburgh’s finances.

For the city government, the struggle for solvency has brought a steady procession of committee reports, public arguments, and budget reductions. “It has been grueling,” says Ellen McLean, the city’s finance director.

Pittsburgh is not alone. Communities ranging from Atlanta and Buffalo to Chicago and San Diego are in dire shape. Compared with the fiscal troubles of the federal government, those of municipalities have received little attention from corporate executives. But sooner rather than later, businesses will feel the effects of local budget shortfalls, through higher taxes and fees, crumbling roads and bridges, and smaller police departments. Simply relocating may not be the answer ? many suburbs now face the same fiscal pressures as inner cities.

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