November 20, 2016

Fewer Regulations Key to Scranton's Revival

Adam Millsap

Assistant Director, L. Charles Hilton Jr. Center for the Study of Economic Prosperity and Individual Opportunity, Florida State University

Eileen Norcross

Vice President of Policy Research
Summary

Scranton may never be the same city it was a century ago — but no city will. Achieving past glory shouldn’t be the goal. If Scranton can learn to live within its means, focus on core government services and create an appealing economic environment, the city will be a better place to live and work for the people who call it home.

At any given time, some cities thrive while others struggle. Right now, Scranton is among the struggling cities. Over the past 80 years, its population has declined and economic activity has slowed. Is this the irreversible decline of yet another city in America’s industrial heartland? Fortunately, no.

Despite tough times, there are reasons for optimism. Scranton’s struggles are tied to economic forces beyond its control, which have afflicted cities from Lake Michigan to the Atlantic Ocean. But they are also partly self-induced — and thus correctable. In a new study published by the Mercatus Center at George Mason University, we compare Scranton with its regional neighbors and find much that can be done.

Our changing economic landscape has done few favors for Scranton recently. At various points in its history, coal, steel, railroads and manufacturing dominated — and people flocked to work in its mines, factories and rail yards. In 1900 it was the 38th-largest city in America and by 1930 its population topped 143,000.

Today, most industries that made Scranton a powerhouse have moved on or died off. The Delaware Lackawanna and Western railyard has been turned into a tourist attraction, the Steamtown National Historic Site. Like most other cities, Scranton now has a service economy rather than one based on manufacturing or mining. The population has stabilized at about 76,000 people, a nearly 50 percent drop from its peak.

Meanwhile, Scranton’s fiscal situation has been dire for 25 years. Since 1992, when it was classified as a financially distressed city under Pennsylvania’s Act 47, it has operated under five different state-mandated recovery plans. The most recent plan acknowledges that Scranton’s pension plans remain underfunded, government spending is unsustainable and the business environment needs improvement. We affirm these facts in our own research.

For a variety of reasons, a full recovery still eludes Scranton. Public officials have found it difficult to curtail spending and when they have made some progress on employee costs — as in 2008 — state law has actually obstructed their path.

Officials have also been reluctant to divest the city of unessential assets, though recently they have leased some parking facilities and made a deal — subject to state utility commission approval — to sell the sewer system and provide the city with much-needed cash. Some of the proceeds have already been earmarked for Scranton’s underfunded pension plans, as the required contribution will increase by $4.4 million in 2017.

These one-time fixes are a start, and to address short-term budget woes, Scranton may also need some combination of spending cuts and tax increases. Over the long term, the city needs to think bigger and become a more appealing place for businesses, creating sustainable economic growth.

Smaller northern cities like Scranton do not have the economic benefits that come from size and density — called agglomeration economies — like New York City or Philadelphia have, nor do they have sunny climates to attract high-skill workers and retirees.

But Scranton can create an environment that fosters entrepreneurship. Reducing and simplifying local regulation is a great first step. A citywide policy of “permissionless innovation” — our colleague Adam Thierer’s term for assuming that new technologies or business models are legal, rather than illegal by default — would make Scranton stand out in a country full of city officials that praise entrepreneurship in theory but perhaps unwittingly stifle it in practice.

Once Scranton’s fiscal situation is under control, it could set itself up as a business alternative to nearby New York and Philadelphia, with lower taxes and smarter regulations. Specifically, it could reduce or eliminate taxes that increase the cost of doing business, such as the business privilege and mercantile taxes. This could help offset some of its geographical disadvantages and build a healthier tax base.

Scranton may never be the same city it was a century ago — but no city will. Achieving past glory shouldn’t be the goal. If Scranton can learn to live within its means, focus on core government services and create an appealing economic environment, the city will be a better place to live and work for the people who call it home.