In the 1930s, America underwent its grinding, years-long Great Depression. Now, at a minimum, we have the Great Recession. It’s the most severe downturn in 70 years. And without a fiscal lifeline to struggling cities, it could conceivably get worse.
This is the alarming conclusion of last month’s joint study and conference of the Brookings Institution and the National League of Cities (NLC), including a panel of mayors from across the nation.
It’s true, many economists now say our recessionary downward spiral has stopped. But, warned the NLC’s Christopher Hoene, past recessions show “the low point for cities,” in terms of their revenue and expenditure numbers, “typically comes 18 months to 24 months after the low point of the recession” — a particularly disturbing fact because, economists tell us, the current recession’s low point has just been hit.
The delayed impact occurs because property tax collections, the revenue mainstay for most cities, don’t decline until after an entire cycle of reduced assessments to reflect declining house values.
Even before that, cities and towns are finding themselves engulfed in a daunting, widespread fiscal crisis. Deep workforce cuts, sharply reduced services and canceled infrastructure projects are reported across the country. Each cut, as it occurs, reduces economic activity and intensifies the recession.
Most attention has gone to the fiscal woes of state governments. But the states at least had a chance to trim their deficits with a major infusion of cash through last winter’s $787 billion American Recovery and Reinvestment Act (ARRA).
But the act, written for “shovel-ready” speeds, sent the lion’s share of its aid to states, leaving scraps — relatively — for local governments. Cities are benefitting a bit from ARRA’s special energy conservation grants and a temporary uptick in Community Development Block Grant funds. And the act has reportedly saved 350,000 jobs in schools. But its funds scarcely helped cities’ core budgets.
The result of still-worsening city fiscal fortunes, report Hoene and Mark Muro of the Brookings Institution, could be “a deepening local government fiscal crisis that hobbles the nation’s incipient recovery with several years of layoffs, canceled contracts with vendors, and reduced services.”
One factor darkening cities’ recovery hopes is the long-term decline of federal assistance. In the 1970s, notes NLC executive director Don Borut, federal programs financed about 17 percent of city budgets. Today, the figure is about 5 percent. Borut sees “an unraveling of the intergovernmental system and inattention to and a disregard of the fundamental interdependence of local, state and federal government.”
Cities, of course, have their own critics. They’re faulted for adding too many workers in good economic times, and — to avoid immediate wage hikes — offering unwise pension concessions to workers. But the cities can hardly be faulted for escalating health care costs that now are gnawing away at their bottom lines. Or state laws that sometimes force them into expensive agreements with police and fire unions.
The fact (as the mayors like to note) is that city and metropolitan economies generate over 80 percent of the nation’s economic activity. “If we’re going to pump the economy, create jobs” to offset the forces of recession, suggests San Jose Mayor Chuck Reed, federal assistance should go to cities and regions because that’s where economic potential — the country’s “greatest, long-term return on our investment” — is concentrated.
Philadelphia Mayor Michael Nutter, who’s been forced to go through a series of massive budget cutbacks, believes that “quietly,” many federal officials would “admit” they erred by running the bulk of ARRA money through the states.
Nutter says the nation’s cities and their metro regions have “obligations and responsibilities that are far greater, and at least as important, as anything that’s going on in terms of business and industry. We provide desperately needed services and drive the economic engines in our cities and metropolitan areas unlike any other industry in the United States.”
No question about it, this is unusually bold assertiveness from urban America. And it’s likely to become more strident as the cities’ finances worsen with the delayed property tax hit. The Obama administration must check where the votes are — and our economic future lies — and change its tune.
