“An Investment in Knowledge Always Pays the Best Interest” Winter 2009 Report to the Trustees

Mark A. Nordenberg

Here in Pittsburgh, we just completed a yearlong celebration of the region’s 250th birthday. The history of Pittsburgh is mainly a story of triumph and of impact. In certain key respects, including the transformation of regional economic drivers, the story of Pittsburgh also is a story of change.

When the British took possession of the Point in November of 1758, they were driven by the strategic military importance of controlling the confluence of our three rivers. And principally because of those rivers, Pittsburgh did become the country’s first “Gateway to the West.”

But even in those very early days, at least one person saw a different, much grander, future for this wilderness outpost. Hugh Henry Brackenridge—whose founding of our University in 1787 will be celebrated at our Honors Convocation this afternoon—came west, across the Alleghenies, to make his fortune.

In commenting on his adopted home, Mr. Brackenridge made two prophetic statements.

The first was that
This town must in future time be a place of great manufactory. Indeed, the greatest on the continent, or perhaps in the world.

And the second was that
The situation in the town of Pittsburgh is greatly to be chosen for a seat of learning . . . I do not know that the legislature could do a more acceptable service to the commonwealth than by endowing a school at this place . . . We well know the strength of a state greatly consists in the superior mental powers of the inhabitants.

Both of those “Pittsburgh prophecies”—made in the mid-1780s—came true generations later. But even Mr. Brackenridge could not have foreseen the position that higher education would occupy in the economy of 21st-century Pittsburgh. Today, of course, higher education not only serves as an important aid to other industries, such as manufacturing, but is a dominant economic force in its own right.

In a very real sense, that regional transformation began in Oakland, roughly a century ago. In fact, as many of you have seen from the street banners we have hung, Pitt now is celebrating 100 years in Oakland. I want to spend some time this morning, then, talking not only about Pitt but also about Oakland and its impact on the social vitality and economic strength of the larger region.

Oakland’s emergence as the cultural, educational and medical capital of Western Pennsylvania began near the turn of the 20th century. Consider some of the highlights from that period:

• In 1893, Henry Phipps built the conservatory that still bears his name;

• In 1895, Andrew Carnegie built his museum, library, and concert hall. Presbyterian Hospital was founded, and Eye and Ear Hospital was chartered;

•  In 1898, the Schenley Hotel opened, and in 1901, it was the site of a dinner called “the meal of millionaires”—a banquet celebrating the formation of the United States Steel Corporation, this country’s first billion-dollar company;

• In 1905, construction began on buildings to house the Carnegie Technical Schools, which ultimately would become Carnegie Mellon University;

• In 1906, St. Paul’s Cathedral was consecrated and the University Club purchased property in Oakland to build its new home;

• In 1908, the Western University of Pennsylvania was re-chartered as the University of Pittsburgh and construction began on State Hall, its first Oakland building;

• In 1909, Forbes Field was dedicated and Montefiore Hospital was founded;

• In 1910, the Soldiers & Sailors Memorial was dedicated;

• In 1912, the Syria Mosque was dedicated; and

• In 1914, the cornerstone was laid for the Masonic Temple.

That incredibly rich collection of well-targeted investments dramatically transformed and elevated this one very special section of the city within a very compressed period of time.

For Pitt, of course, the construction of the Cathedral of Learning, which began in 1926 and was completed in 1937, made the clearest statement that Oakland would be our home. And both Heinz Chapel and the Stephen Foster Memorial were opened at that same time.

Much, obviously, has changed since the Cathedral of Learning was dedicated, and part of that change has been physical:

• Some of the facilities that I mentioned—Forbes Field and the Syria Mosque—no longer exist;

• Some of the facilities that I mentioned have been renovated and converted to other uses. The Schenley Hotel now is our William Pitt Student Union, and the Masonic Temple now is our Alumni Hall, for example. And the University Club, having been completely renovated, soon will reopen as a true University facility;

• And, of course, new construction has continued to reshape Oakland. Key recent additions by Pitt—among more than $1 billion in capital projects just in the past decade—include the Petersen Events Center (the world’s best place to watch two of the country’s best basketball teams) and our third Biomedical Science Tower (the world’s best place to do biomedical research).

Of course, the true impact of Oakland is tied most directly to the people and programs of the community of Oakland institutions—most particularly Pitt, UPMC, and Carnegie Mellon University—with health and education now being the region’s top employment sector and the only sector of the regional economy that has added jobs in every year since 1995.

For the three institutions that I specifically mentioned— Pitt, UPMC, and CMU—regional impact can be measured in many ways. They include the people that we employ, the students we attract, the patients that we treat, the regional reputation we have built, the technologies that we develop, and the companies that we have helped create.

To pick up on that last point, most people tend to think of university-related, technology-driven economic development as a very modern thing. But let me give you two very relevant regional examples from the 1960s:

• Jerry McGinnis, a young man from Illinois, came to Pitt to do graduate work in engineering. Having completed his studies, he stayed, worked for a period of time at Westinghouse, and ultimately founded Respironics—which remains one of this region’s biggest commercial biotechnology success stories, a major regional employer and a global force in its areas of specialty; and

• At roughly the same time, John Swanson, a young man from upstate New York, came to Pitt to do graduate work in engineering. Having completed his studies, he stayed, worked for a period of time at Westinghouse, and ultimately founded ANSYS, which remains one of this region’s biggest software success stories—a major regional employer and a global force in its areas of specialty.

And to return to my “neighborhoods theme,” the impact of key Oakland institutions also can be clearly seen in patterns of physical growth beyond Oakland’s own boundaries. Consider:

• the almost unbelievable pace of recent development along the river across the Hot Metal Bridge, where early anchors included the UPMC Sports Performance Complex and the headquarters building for Pitt’s McGowan Institute for Regenerative Medicine;

• the transforma-tional impact, still under way, of the Hillman Cancer Center, which is half UPMC clinical and half Pitt research, on the Baum Boulevard/Centre Avenue corridor; and

• the promise for Lawrenceville of the new Children’s Hospital of UPMC, which also will include a new research tower.

Perhaps the most telling symbol of the impact of Oakland institutions on the broader economy, though, may be the fact that the city’s two most famous “skyscrapers” now are occupied by the University of Pittsburgh, which remains in the Cathedral of Learning, and the University of Pittsburgh Medical Center, which has moved its executive offices, and much more, to the

U. S. Steel Tower.

Our ability to sustain this “towering momentum” is critical not only for our own people and programs but for the economic health of the entire region. As I pointed out in a column published in the Pittsburgh Post-Gazette this month, analysts from throughout the country are looking with envy at Pittsburgh’s economic stability. And, in virtually every case, they have concluded that this region’s single most significant economic asset is its companion strengths in higher education and health care. (See reprint of article in Feb. 23, 2009, Pitt Chronicle, http://www.chronicle.pitt.edu/?p=2201)

A favorable, front-page article in The New York Times described Pittsburgh’s positive passage to an economy grounded in university-based research. A Miami Herald column enviously identified research as the foundation for Pittsburgh’s transformation into a “Knowledge City.” And the Cleveland Plain Dealer analyzed lessons from “Pittsburgh’s renaissance” that might be applied there.

In the Plain Dealer article, David Bergholz, a Cleveland-based foundation executive who earlier had been a respected civic leader here, described a “growing gulf” between Cleveland and Pittsburgh in higher education. After referring to the unique partnership between Pitt and Carnegie Mellon, the presence of nearby West Virginia University as a third research center, and the position of UPMC as the area’s largest employer, he noted even more specifically, “You don’t have an equivalent of Pitt in Cleveland. It’s a big engine, both regionally and nationally.”

In a December Post-Gazette column, Harold Miller, a highly respected analyst of regional economic trends, confirmed that our region is doing better than most and said that a major reason is that fully “one-fifth of the jobs in the Pittsburgh region...are in the two most recession-resistant sectors: health care and higher education.” Even more recently released state-wide employment data support his assessment. According to a Jan. 22 report by the state Department of Labor & Industry, Pennsylvania lost more than 27,000 jobs in December. The single bright spots were the education and health services sectors, which added 1,500 jobs and set a record-high job count that month.

Dr. Miller also went on to ask what might be viewed as the “bottom-line” question: “How long can Pittsburgh retain this competitive advantage?” My own answer—offered in my op-ed and again today—is that “it depends”—and that it depends, most directly, on the level of priority assigned to public investments in Pennsylvania’s public research universities, which do now compete on an uneven playing field.

From a university perspective, the news now emerging from Washington can be viewed as a beacon of hope in troubled times. Actions taken in response to the recession reflect a continuing commitment to the age-old belief that education is the key to the American dream. They also reflect the more modern, but widely shared, recognition that investments in research are among the most effective generators of economic growth, both in the short term and in the long term.

In his prime-time address on Tuesday evening [Feb. 24], President Obama, taking the 222-year-old message of Hugh Henry Brackenridge into a current context, declared that “[i]n a global economy where the most valuable skill you can sell is your knowledge, a good education is no longer just a pathway to opportunity—it is a prerequisite.” And the recently enacted American Recovery and Reinvestment Act, supported by the President and passed with a big boost from Pennsylvania’s senior senator, Arlen Specter, provides the funding necessary to increase Pell Grant awards, to expand the federal work-study program, and to create a larger, more flexible and more expansive form of tax credit for the families of college students.

In that same speech, the President described the federal stimulus package as supporting “the largest investment in basic research funding in American history—an investment that will not only spur new discoveries in energy, but breakthroughs in medicine, science, and technology.” The act authorizes $16 billion in new funding for research—including more than $10 billion for the National Institutes of Health, $3 billion for the National Science Foundation, and $2 billion for the Department of Energy. Additional funding for research also has been built into the omnibus funding package now moving forward in Washington. From our past performance, it is clear that Pitt is particularly well positioned to bring a sizeable share of those dollars into this region.

The first steps taken to create a new Commonwealth budget were grounded in a very different approach—one placing Pennsylvania’s public research universities in a “least favored” status among the broader community of the state’s higher education institutions. In terms of annual appropriations, to begin with the most basic example, it was recommended that the state’s community colleges receive a 2 percent increase to their appropriations and that the institutions of the State System of Higher Education receive “flat funding”— support equal to what had been authorized for the current fiscal year. In sharp contrast, the state-related universities—which include our public research universities—were recommended to receive appropriations that are 6 percent less than what had been authorized for the current fiscal year. [The week following the Trustees’ meeting, the Governor announced that he would be able to use federal stimulus funds to restore cuts that had been planned to the appropriations of the state-related universities in the next fiscal year. This obviously was a very welcome development, for which the University is grateful.]

Even more troubling is the fact that the proposed Tuition Relief Act would NOT extend to the families of Pennsylvania students enrolled in the state-related universities. Instead, the benefits of that act would be limited to students enrolled in the State System or in a community college.

Ironically, it is the state-related universities that have become the universities-of-choice for many of Pennsylvania’s most committed and talented high school students, and access to state-related universities helps keep those students in Pennsylvania. To a considerable extent, it also is the public research universities within that group that most effectively leverage the state’s investments in them and that are generating, through their research efforts, many of the “jobs of the future” that will require a college education. More than any other sector, it also is students from the state-related universities that have been disadvantaged by funding levels that lag well behind the support provided to peer universities in other states and that have played a major role in driving up tuition.

In fairness, those recommendations were crafted before the passage of the federal stimulus package. Pennsylvania is expected to receive $1.6 billion in federal payments through the State Fiscal Stabilization Fund that was created by the stimulus act. Among other things, those monies are intended to help restore funding for public universities. Those funds, then, should position Pennsylvania to be more supportive of its state-related universities and their students.

As the state’s budget-building process moves forward, Pitt recognizes that these are troubling times, and we stand ready to do our part. What that means, on the one hand, is that we are prepared to share in the sacrifices that may be required—as we have done, without complaint, in absorbing recent midyear cuts to our state appropriation. But, as we work to build a better future, doing our part also means continuing to provide the highest-quality higher education programs, which will be in even greater demand as people seek to effectively position themselves for life in the postrecession economy. And doing our part means continuing to compete effectively for the expanding pool of research dollars, which now represent such a major force within our regional economy.

President Obama is from Illinois and typically traces his political ancestry to Abraham Lincoln. However, his economic priorities also clearly reflect the wisdom of Benjamin Franklin who, back in the days of our founder, Hugh Henry Brackenridge, said, “An investment in knowledge always pays the best interest.” Our shared interest will be well served if Mr. Franklin’s wisdom also shapes the work of Harrisburg’s budget builders in the weeks and months ahead.