Pittsburgh, once known as America’s Steel City, is laying its Rustbelt heritage to rest by fostering growth in education and health services, while drawing strength from the booming natural-gas industry it keeps at a distance.
Drilling into Marcellus shale deposits is banned in Pittsburgh, yet hydraulic-fracturing, or fracking, operations in the countryside nearby have helped bring in jobs and boost demand for office space in Pennsylvania’s second-biggest city.
“Like eds and meds, like steel once was in Pittsburgh, it would be the industry to grow and employ people and turn the economy around,” Mayor Luke Ravenstahl, 32, said of gas extraction. Nearby drilling can provide a “growth mechanism” the city can use to propel a rebound, he said. The city faced insolvency in late 2003, as the population and employment fell.
Fracking is driving wage, job and population growth, even after health concerns led the City Council to ban it, according to development officials. Wells Fargo & Co. economists recently called Pittsburgh a “logistical hub” for the industry. To fuel the boom, Governor Tom Corbett, a Republican, is offering Royal Dutch Shell Plc (RDSA), Europe’s biggest oil company, at least $1.65 billion in tax credits to build a gas-fed chemical plant nearby.
New methods of extracting natural gas and oil are boosting the economies of states from Pennsylvania to North Dakota and Texas. Unconventional gas production alone is forecast to spur almost $3.2 trillion in new investment by 2035 and support more than 2.4 million jobs in the lower 48 U.S. states, according to an HIS Inc. study released in June. It projected a 14 percent annual compound-growth rate in Pennsylvania jobs tied to gas.
Pittsburgh has come a long way from August 2003. That’s when almost 100 police officers lost their jobs as the city cut 446 employees, closed swimming pools and curbed services to stem the financial hemorrhaging that pushed it into a state program for distressed cities, according to a June 2004 report.
“No one knew how bad it was going to get,” said Ralph Sicuro, 40, a firefighter and lifelong resident of the city.
By November 2003, Pittsburgh was the only major U.S. municipality with bonds rated below investment grade. Moody’s Investors Service, Fitch Ratings and Standard & Poor’s had all cut the city’s debt to “junk.” Today, the city’s score has been raised to A1 by Moody’s, fifth-highest investment grade, A by Fitch, sixth-highest, and BBB by S&P, ninth-highest.
Local development officials credit the city’s emphasis on expanding schools and hospitals to replace closed steel mills and foundries. And they look to gas extraction as a future key.
“The Marcellus and Utica shale represent a transformative opportunity for the Pittsburgh region,” said Dennis Yablonsky, chief executive officer of the Allegheny Conference on Community Development. The group promotes growth in 10 area counties.
That transformation is already taking place, with the city’s population rising to almost 307,500 last year, the first annual increase since 1950. Jobs in the metro area surpassed a June 2001 peak of 1.172 million last month, reaching 1.176 million, U.S. Labor Department figures show. A new 33-story headquarters for PNC Financial Services Group Inc. (PNC) is rising downtown, the city’s highest tower in about 30 years.
“Things are going well for us right now,” Yablonsky said in his office overlooking the hill where the first Pennsylvania coal was mined in 1761.
Since 2008, more than 5,200 natural-gas wells have been drilled into the Marcellus shale, a deposit that underlies two- thirds of the state. The Utica shale is a separate formation that stretches from Ohio into northwestern Pennsylvania. About 2,000 permits have been issued to drilling companies this year, Pennsylvania Environmental Protection Department figures show.
By the end of March, jobs in the Pittsburgh region’s gas industry had almost quintupled to 437 from 93 in the first quarter of 2009, according to state Labor and Industry Department data. Within the seven-county metro area, employment had climbed 4.1 percent, or 46,000 jobs, in the past two years, Wells Fargo economists led by Jay Bryson said in a March report.
Much of the gain was in health care and education, which accounted for 30 percent of the added jobs and 20 percent of all payroll positions in the region, the economists said. Yet 5 percent of the growth was driven by shale drilling, they said.
The San Francisco-based bank’s economists said that for every job created by drilling in one of the 14 Pennsylvania counties that host 90 percent of the state’s shale-gas wells, 2.5 more spring up in nonproducing counties. They said a collapse in gas prices may slow the rate of expansion. The Pittsburgh metro region includes five of the gas-producing counties, the economists said, and several more are nearby.