Philadelphia Inquirer, June 2nd, 1998

Economic development in Philadelphia demands higher education, not lower taxes.

A question: Why, after 20 years of relentless public and private pursuit of development, does Philadelphia's economy remain anemic, while the region around it thrives?

High taxes, respond business and political leaders. But if that were so, how to explain the strong growth of 1984-87, after four straight real-estate tax increases and a 9.8 percent wage-tax hike?

In its first five-year financial plan, the Rendell administration produced a chart showing that Philadelphia had the nation's third-highest tax burden on families earning $25,000. City Hall has been talking up statistics like this ever since.

But the city that topped Rendell's tax-burden chart was Portland, Ore. -- the same city that was ranked sixth nationwide in job growth by Demographics Journal in 1996. The rankings were based on data from the Bureau of Labor Statistics.

Philadelphia was 91st.

In fact, there was no discernible relationship between the journal's job-growth rankings and Rendell's tax-burden chart. Here's where the top five growth cities stood on their tax burdens: Las Vegas (47th), Salt Lake City (19th), Atlanta (9th), Austin (not listed) and Phoenix (17th).

Do you see any pattern here? The mantra "high taxes means slow growth" may sound persuasive, but it bears little relationship to the facts. So what's the key?

Education. Today's fastest-growing cities are those with the highest percentage of high school and college graduates.

Look at those growth rankings again. As reported in the 1990 Census, the graduation rates of the fastest-growing larger cities were, respectively, Austin (87 percent), Phoenix (83 percent),Portland (82 percent), San Jose (76 percent) and Dallas (72 percent).

The graduation rates of the slowest growers: Philadelphia (66 percent); Baltimore (62 percent); Buffalo (69 percent); El Paso (66 percent); and New Orleans (69 percent).

The top growth cities averaged an 80 percent high school graduation rate; the bottom, only 66 percent.

Of course, more than one factor is involved in such comparisons, but the contrast here is too striking to ignore.

The same pattern holds in our region. Regularly, we hear that the differential wage-tax rate between residents and nonresidents working in Philadelphia makes it impossible to persuade businesses to locate here. That may be a problem.

But consider, too, the difference in high school graduation rates in the city and suburbs: Philadelphia (66 percent), Bucks County (83 percent), Chester County (85 percent), Delaware County (82 percent), Montgomery County (84 percent).

If you were running a company that relied upon skilled employees, would you move to Philadelphia? No. And that is why the city stagnates while the rest of the region continues to grow.

Suburban growth today is fueled largely by a dramatic expansion in business service companies -- temp agencies, data-processing firms, information analysis. These depend on employees who can read, write, communicate, calculate and compute at a college level.

The 411,000 Philadelphia residents without high school diplomas cannot compete for these jobs, so the city cannot participate in this expansion. And lowering the wage tax will do nothing to address this problem.

The implication should be clear. The only way to rebuild Philadelphia's economy is to close the literacy gap -- between the city and suburbs, and between Philadelphia and high-growth, better-educated cities nationwide.

Until we upgrade our workforce at every level, we can restore the entire Navy Yard brick by brick, but our ship still won't come in.


Ed Schwartz is president of the Institute for the Study of Civic Values