After accumulating properties incognito for years—to the point that it became slightly ridiculous, since there’s only one organization in Pittsburgh with an interest in pouring $18 million into downtown—PNC has finally announced its plans to build a new headquarters in the city. The revelation was naturally met with much fanfare and backslapping, and Mayor Ravenstahl, even more naturally used the vaunted ‘r’ word, “Renaissance.”
As usual, I must protest a bit. There is real economic growth, there is nominal economic growth, and then there are mere cosmetics. PNC’s plan bears a blend of all three. Here’s how I score it:
The Good: Let me start with the positive for a change. First of all the typical Pollyanna pap about revitalizing downtown and drawing activity to the city and, yes, renaissance are somewhat true. New, pretty buildings can have a real, if salutary, effect on economic health. What’s more impressive to me, though, is that Pittsburgh’s newest multi-hundred-million-dollar project will proceed without a dollar of government money. I was nonplussed—nay, abjectly annoyed—by PNC’s last skyscraper because it drew its libido from the taxpayer, taking a full $21 million out of state and municipal coffers. That no corporate welfare is needed to get this project out of neutral suggests that it is indeed a good investment. Piggybacked on top of PNC’s last great success, navigating the Great Recession without taking bailout money, the new tower could be the manifestation of a great corporation’s sustainable growth.
The Bad: First a problem that I’ve alluded to in previous posts. When you put up a new building, you need to fill it. If you fill it with people who were not previously Pittsburghers or were not previously employed, it constitutes development; if you fill it with people who were already living and/or working a few blocks away, it constitutes busy work. Here, the new tower promises to house 3,000 people. Impressive, but PNC hasn’t announced any new hiring. So that means that current employees are going get shuffled around from a handful of other downtown buildings in order to fill PNC’s new gem. Much has been written lately about the strong commercial real estate market in Pittsburgh (and not enough has been written about developers’ overexuberance to exploit it). Now, when the new skyscraper is completed in 2015, the market will have to absorb 3,000 more empty offices—and that’s on top of the vacancies created by the quixotic ideas of the aforementioned developers. At present, there are a few very sturdy buildings in prime locations downtown that are empty or mostly empty. If our commercial real estate market is so darn strong, why have we had such a hard time filling them? I worry that the bubble could burst and the property values downtown could crater due to overspeculation.
There is another thing on the horizon that concerns me, and it’s one of power. Economics as a discipline lends itself to a lot of axioms, and among my favorite is this: “If you’re $100,000 in debt, the bank owns you; if you’re $1 million in debt, you own the bank.” With that in mind, consider the extent to which PNC owns us. It owns several of our tallest building downtown and will soon add another; it is by far the largest employer in the Golden Triangle; quietly, Pittsburgh’s most powerful companies have been milking tax breaks (real tax breaks, too, not basic deductions) while the city’s finances have foundered; also, they have been negotiating their tax burdens in lieu of a standard tax rate—which is fine, as long as the city gets a fair deal, which I rather doubt. And what I said earlier about PNC taking no public money for the new tower is actually imprecise. PNC still needs to purchase property from the Urban Redevelopment Authority to acquire all the land it needs. Having already invested $18 million and promised the city a new skyscraper, it’s safe to say the can now name their price. The city will not stand in the way. PNC is in a position to call its shots, and the new tower ingrains that dynamic even more deeply.
Pittsburgh is near to becoming a company town for a bank—and although PNC has been a bank we can be proud of, it is nonetheless just in the business of moving money around. The city should resist the urge to indulge every grand plan that PNC cooks up and focus on attracting new, productive businesses to the region.
In the meantime, I suppose that a new skyscraper is pretty good news. But a paradigm change it isn’t.