It is a fitting end for United States Steel that its long history as a corporate behemoth ends with plans to be acquired whole by Japan’s Nippon Steel. Once a world leader, the steelmaker has long been in decline, and locally it has long been more a part of the region’s self-image than a partner in regional development.

Few places have retained an indelible moniker for as long as Pittsburgh has been known as the Steel City. It makes sense that a city and region that were the home to an unparalleled cluster of metals industries since long before the Civil War would be known for what they produced and exported to the world. 

But the painful truth is that U.S. Steel, long the dominant local player in the industry, has never had anywhere near the commitment to Pittsburgh as Pittsburgh had to the corporation. And now a company that became moribund in strategic direction and management practices will be acquired by one from a country — Japan — that had no modern steelmaking when Andrew Carnegie first built the Edgar Thomson Works at Braddock, but continued to innovate long after U.S. Steel stopped doing so.

Born in NYC, U.S. Steel’s marriage to Pittsburgh was fraught

When first contrived by J.P. Morgan and his collaborators, the behemoth U.S. Steel was not a Pittsburgh-based firm at all, even if the core of its assets were formed from Andrew Carnegie’s plants clustered along the Monongahela River. Like many a financier since, Morgan valued proximity and made the Empire Building in lower Manhattan the home of the new corporation. Decades would pass before U.S. Steel officially moved its headquarters to Pittsburgh in 1931, where it remained for further decades — but not forever.

Just a few years after U.S. Steel was created, the new conglomerate built its largest steel works in Gary Indiana, prompting questions about its future in Pittsburgh. By the end of World War II, it was almost heretical to question steel’s role in Southwestern Pennsylvania. But as postwar demand for steel increased, U.S. Steel looked east and built its most modern plant, the Fairless Works, outside of Philadelphia in the 1950s. 

Nonetheless, Pittsburgh looked the part of the nation’s steel capital. For the last half-century, downtown Pittsburgh’s tallest building has been the steel-clad skyscraper originally built as U.S. Steel’s headquarters. Before rust became a symbol of decline, the entire building was intentionally transformed by the company’s patented weathering steel giving it an oxidized sheen visible to the horizon. 

Yet a few years after the 64-story U.S. Steel Tower opened in 1971, the company placed full-page advertisements in local newspapers asking, “Did we make a mistake locating our headquarters in Pittsburgh?” The unambiguous threats stemmed from local efforts to regulate the nearly unabated pollution that remained endemic to carbon steel production. U.S. Steel may have wanted to move, but a century of sunk investment made any such move inconceivable at the time. Pollution from the plants remained, an artifact of the failure to make sufficient investments to keep many of the company’s legacy plants in Southwestern Pennsylvania competitive into the future.

By contrast, as Japan emerged from World War II it built a steel industry around modern basic oxygen blast furnaces, a technology US Steel eschewed until it was too late.

Closing in Pittsburgh, moving to Houston

At the beginning of the 1980s, U.S. Steel was quick not just to shut down, but to deconstruct much of its Pittsburgh-based production. 

The corporation vigorously opposed attempts by employees to acquire plants and continue production as employee-owned firms as steelworkers at nearby Weirton Steel were able to do in 1984. Laid-off workers at U.S. Steel’s Duquesne Works went so far as to set up round-the-clock sentries at the plant to keep the corporation from taking vital equipment away from the site. Saving jobs or preserving the communities that had literally been built around its steel plants were never a corporate priority.

The corporation’s goal was to rapidly write-off the remaining value of its legacy plants, no matter the cost to workers and the communities they lived in. Shuttering plants facilitated a rapid shift away from steel production, and from Pittsburgh. Even as the corporation generated large net cash flows in the 1980s, the historic tax write-offs enabled U.S. Steel to purchase Marathon Oil in 1981, and then Texas Oil and Gas in 1985. The firm not only renamed itself, but then later in the 1980s did the unthinkable and moved its headquarters to Houston, until U.S. Steel was spun out of USX in 2002.

As a region, Pittsburgh has fought hard to keep its core steel production in operation, but those efforts have come at a cost. Faced with an undeniable loss of competitiveness in modern steel production, efforts to keep legacy plants in operation have only made a final reckoning that much more painful. 

That U.S. Steel’s future was far from Western Pennsylvania has been clear for years. Not only has the company canceled major investments in its regional plants – investments that were vital to their future – but recent investments have been concentrated in locations such as Alabama and Arkansas.

Though it has been decades since any steel has been produced within the limits of the City of Pittsburgh proper, nostalgia for what steel production means, and in particular what U.S. Steel means, has long exceeded its reality in southwestern Pennsylvania.

Steel is not entirely gone from Pittsburgh, but what remains of that industrial heritage is a shadow of its former scope. U.S. Steel Tower has long since been sold to real estate investors. The city and region has been forced to shape a future that doesn’t rely on heavy industry, making U.S. Steel’s final demise a symbolic epilogue to a longer story of decline.

Following the sale, a trace of steel production will likely remain in close proximity to Pittsburgh, at least for now. Nippon Steel has announced that U.S. Steel will continue to exist as a wholly owned subsidiary, presumably still based in Pittsburgh. The few U.S. Steel plants still in operation in Western Pennsylvania — the coke works at Clairton, and production facilities in Braddock and West Mifflin — will likely continue operating, for the time being.

But an important — and perhaps irreplaceable — piece of the region’s identity will be gone.

No future industry will remain as fixed in place as long as steel remained in Southwestern Pennsylvania. Arguably, steel existed in Pittsburgh longer than any new industry may ever remain concentrated in any one region ever again. Successful regions in the future will have to adapt and change much faster than before, and be willing to move beyond their pasts before reality undercuts identity.

Christopher Briem is a regional economist with the Urban & Regional Analysis program at the University of Pittsburgh’s University Center for Social and Urban Research [UCSUR]. He can be reached at cbriem@pitt.edu.

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Unbalanced
How property tax assessments create winners and losers

The accuracy and fairness of property assessments in Allegheny County are again being challenged in court. The legal wrangling is far from new. Current cases are just the latest iteration of property owners seeking judicial intervention because the county lacks any schedule to routinely reassess property values for tax purposes. 

Today the county’s use of decade-old assessments to tax much of its property makes it an outlier. But there was a time when the county was almost in the vanguard of property tax sophistication — if only because judges compelled it to change.

Property assessments done by the county affect the taxes paid by owners to the county, municipalities and school districts. 

Courts have had a direct role in managing assessments in the county at least since Green Tree sued over assessment practices in 1970. The lawsuit was just one manifestation of growing anger at the time over the accuracy and administration of property assessments in the county. In 1974, while the case lingered, the county commissioners appointed a committee to study the state of property assessments. Headed by county Solicitor Alex Jaffurs, the committee produced as comprehensive an evaluation of the county’s property assessment practices as has ever been written.

At the time, the county reassessed each property every three years, unlike today’s practice of base-year values altered by appeals. The committee report, though, identified a lack of uniformity in assessment practices. Individual assessors used their own methods and relied in part upon outdated Depression-era line drawings of properties.

In 1977, Wilkinsburg filed a lawsuit, which was consolidated with the lingering case brought by Green Tree and went before Court of Common Pleas Judge Nicholas Papadakos. He directed the end of the triennial assessment system in 1978 and then took the unprecedented step of certifying a consent decree that placed him in direct control of the county assessor’s office.

At the time, computer-assisted mass appraisal [CAMA] software was just beginning to emerge nationally. The Lincoln Institute of Land Policy, a Cambridge, Massachusetts, think tank, produced one of the first software packages for real estate assessment. That eventually resulted in software called SOLIR (Small On-Line Research), which ran on a common Radio Shack TRS-80 computer to assist property assessors.

Based on the recommendations of the Jaffurs committee report, Allegheny County issued a request for proposals [RFP] to find the best computer models to set property values. The county in 1978 gave seven firms a dataset with information on the characteristics of 3,500 recently sold properties, and the actual sales prices for only 2,800 of the transactions. The firms were evaluated on how accurately they estimated the sales prices of the remaining 700 properties.

The team that outperformed all others – including many long-established real estate firms – was made up of two local researchers who had developed a new computer model to predict property values. The team included Richard Longini, a professor of electrical engineering at Carnegie Mellon University with a secondary appointment at CMU’s School of Urban Affairs. 

Longini had a Ph.D. in physics and a 28-year career in industrial electronic research before joining the faculty of Carnegie Tech — later CMU — in 1962. His previous research focused on quantum mechanics and the solid-state physics of transistors – the science that underlies all things digital in the modern world. 

Longini’s curiosity over his home’s assessed value led him to expand his research portfolio far outside his background. I had the chance to meet with him in the 1990s, and he explained that he was not upset, but more confused by the valuation his Squirrel Hill home was given by county property assessors.

Longini and former CMU graduate student Robert Carbone, along with local real estate broker Ed Ivory, formed a software firm to apply the novel software to property assessments in Allegheny County.

The software they used was developed out of Carbone’s 1975 dissertation research. Carbone had queried the county on their assessment methodology. Unsurprisingly, the county’s response was unfulfilling and likely came nowhere near the rigor he applied in his engineering research.

How did Longini and Carbone outperform competitors in predicting sales values in the county? Early computer models used to set market values, such as the Lincoln Institute’s SOLIR, relied mostly on what is called multiple regression analysis. Regression is a standard statistical technique that can be used to break down individual property values into how much total value can be attributable to individual parcel characteristics including total size, the number of rooms and overall condition.

Longini and Carbone proposed a more sophisticated statistical technique using an adaptive estimation procedure [AEP] to predict real estate prices. Also called feedback models, AEP uses an algorithm that not only looks at the most recent sales data but evaluates historic data and errors in previous estimates to determine current real estate values. The technique was developed decades earlier but became more widely used after World War II in early rocketry and orbital mechanics, where it helped to track the movement of satellites and ballistic launch vehicles. 

For Allegheny County, the software developed by Longini and Carbone proved faster and at least as accurate as the techniques used by other competitors in the 1978 RFP.

The county purchased the software Longini and Carbone had devised, but it would remain minimally used. Decades later, Longini told me that there was tremendous pushback from the staff of roughly 70 county assessors because of the threat it posed to their jobs. What need would there be for the services of so many assessors if a computer could quickly and presumably more consistently set assessment values?

New computer software was just one part of the modernization planned for the county assessment system. Though the county purchased the software implementing the feedback model, a full CAMA-based reassessment was not possible until core data was compiled for the roughly 580,000 individual property parcels, a huge task given that most data would need to be compiled from scratch. At the end of the 1970s, the county did not even maintain a common record card of information on individual parcels for use by its assessors.

Building the required database would be an enormous and costly task, and the bulk of the costs would have come due just as economic shocks were growing larger. The first of two back-to-back economic recessions began in January 1980 and had disproportionate impacts in Southwestern Pennsylvania, putting unprecedented stresses on public finances.

Due to the scale of the anticipated costs, pushback from county assessors or other reasons, the county never completed or consistently maintained a comprehensive database of real estate. Efforts at reforming assessments went into semi-permanent stasis once Judge Papadakos formally ended his oversight of the bureaucracy in 1982, before he was elected to the state Supreme Court in 1983.

Instead, Allegheny County mostly continued past assessment practices. Properties continued to be assessed by individual assessors, often with incomplete or out-of-date data. New lawsuits against the county were filed after newly elected county commissioners Larry Dunn and Bob Cranmer froze assessments and laid off all of the assessors in 1996. The cases were consolidated under Court of Common Pleas Judge Stanton Wettick. 

Wettick ordered county assessments to restart, and a contract was awarded to Sabre Systems, an Ohio-based firm, to manage the system. Ironically, Sabre Systems was one of the firms evaluated by the county in the 1970s, only to lose the work to Longini and Carbone’s novel software. In 1998, Wettick went further and ordered the county to prepare to conduct its first comprehensive mass reassessment since the triennial system was in place decades earlier.

The county awarded a $24 million contract to Sabre Systems to complete the CAMA-based reassessment. Sabre managed the process of collecting data and building a database needed for CAMA models. It subcontracted the actual modeling of property values to EDA Feedback Inc., the firm that Richard Longini, Robert Carbone and Ed Ivory originally formed to implement CAMA modeling for Allegheny County in the 1970s. In effect, the county was paying for software it already owned.

When completed, new assessment values made public in 2000 were a shock to many property owners and were immediately challenged in court by new plaintiffs. Wettick directed that CONSAD, a local consulting firm based in East Liberty, evaluate the results of the reassessment and oversee a new mass reassessment to be completed for the following year. CONSAD’s report said the feedback model worked correctly but that Sabre Systems made several errors in applying the model.

One problem: The county had been divided up into too few subregions to properly calibrate the computer models. 

CONSAD noted almost in passing what may have been a far more impactful decision by Sabre Systems. In calibrating its computer models, Sabre Systems did not use data on any property sales in which the transaction value was recorded as $10,000 or less. 

Why was that decision fateful? One challenge in CAMA-based property assessment is determining what real estate transactions truly represent market values. In most markets, extremely low-valued real estate transfers are often not “arms-length” transactions, instead representing transfers between family members or other interested parties. But many local communities across Southwestern Pennsylvania had not experienced significant real estate appreciation in decades. As a result, many $10,000-or-under transactions in Allegheny County did indeed represent market values.

The blanket elimination of all sales values under $10,000 had a predictable result. Low-valued properties were systematically overassessed while high-valued properties were underassessed. Sabre Systems would not be retained for a follow-on reassessment that was completed by its competitor, CLT Systems.

The follow-on assessment of 2002 was completed for use with 2003 tax bills, but plans for a new reassessment every three years were later abandoned. More litigation emerged later in the decade, and the cases would again be consolidated before Wettick. His 2009 order forced the county to conduct a new mass reassessment. When finally completed in 2012, the county announced it would retain the 2012 values as its “base year” for assessments indefinitely into the future.  

Which brings Allegheny County back to a familiar place. A full decade has passed since the most recent mass reassessment of property values and again, lawsuits are emerging challenging the accuracy and fairness of tax bills and the ongoing appeals process. What also remains the same is that the prospect of new property assessments remains a third rail of local politics, something to be avoided at all costs. 

In a county with some history of regular re-evaluation of property tax values, which even spurred the development of industry-leading technology, there seems little prospect of systematic countywide assessment, something that is a common practice outside of Pennsylvania.

 Christopher Briem is a regional economist with the Urban & Regional Analysis program at the University of Pittsburgh’s University Center for Social and Urban Research (UCSUR). He can be reached at cbriem@pitt.edu. This essay is an abridged version of a longer history of property assessment in Allegheny County available at briem.medium.com.

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