American Cities: Federal Neglect Imperils Their Rise

Bruce Katz
Bruce Katz Founding Director of the Nowak Metro Finance Lab - Drexel University

January 9, 2003

For those who haven’t been watching, the new year marks a troubled passage for the nation’s cities.

New York City just raised property taxes 18 percent as it struggled to contend with sagging tax revenues. Los Angeles is out $70 million it poured into protecting transportation and shipping hubs from terrorism. And stalled budget bills keep billions of federal dollars for cities in limbo, including needed funding for homeland security.

Granted, cities’ return to fiscal stability will depend mostly on the wider economic recovery. Yet federal choices, on fiscal matters as well as major programs such as homeland security and welfare, will massively impact localities, regardless of national trends.

For that reason, Congress and the Bush administration need to realign national and local interests in three major areas:

First, follow the money. Cities depend on their states, and right now the states face a collective deficit of $60 billion or more, in part because of the year’s weak tax collections. As a result, governors face nearly impossible choices between cutting Medicaid and cutting child care, slashing revenue sharing and slashing education. The upshot: America’s cities will absorb the brunt of the cuts.

Which raises an urgent question: Can cities and states prevail on Washington to participate in managing the crisis?

In this regard, good ideas for helping states (and their cities) abound, and range from a plan by Democratic Sen. John Edwards of North Carolina to temporarily increase Medicaid payments to states to a proposal by Democratic Sen. Max Baucus of Montana to give $75 billion in block grants to cash-strapped state governments.

Washington should not stand by while states and localities contend with the worst budget crises they’ve seen in a generation.

Without action, the massive spending cuts and tax increases that states will soon initiate will undercut any economic recovery and weaken the nation’s safety net of social programs.

Second, America’s cities start the year utterly uncertain about what support they can rely on from Washington to help them meet the nation’s security challenges.

No more than $500 million of the $3.5 billion designated by President Bush’s initial plan for supporting “first responders”—local police, fire and emergency medical crews—has yet materialized. But Boston Mayor Thomas Menino recently estimated that cities have spent some $2.6 billion since 9/11 on new security measures.

Huge local costs have been incurred to protect the nation’s 429 commercial airports and coordinate responses to terrorist threats. More than half of the nation’s large cities recently claimed that providing homeland security has made it harder to perform their normal public safety responsibilities. In Baltimore, funding for basic city services has been frozen to compensate for increased spending on police.

So will Washington pitch in as a true partner of the cities? Or will it leave the financial burden of homeland security to others as a new unfunded mandate?

Finally, cities have an inordinate interest in debates over federal programs addressing poverty and the working poor.

In the late 1990s, urban areas used the flexible welfare reform law of 1996 to move hundreds of thousands of clients into the workforce. Simultaneously, cities realized substantial gains as millions of their residents used the Earned Income Tax Credit (EITC) to build assets that in turn boosted whole neighborhoods.

Yet now both of those advances are threatened because of federal meddling rather than inaction.

In the case of welfare, Congress seems poised to impose costly new work requirements that will restrict state and local ability to tailor programs to local labor-market realities. There also is talk of complicating access to the EITC, and even of increasing the tax burden of the working poor. In each case, Congress appears likely to tamper with programs that have well served the nation’s cities.

Given the concentration of poorer families in cities, welfare and work policy is urban policy. National leaders need to take account of the special challenges facing cities when designing social policies.

In the end, the new year finds Washington strangely absent from urban affairs, where it should be present and engaged.

So here are two resolutions for 2003:

First, Washington should end its inattention to critical issues of state and local fiscal health.

Second, it should reconsider its current drift toward unfunded security mandates and the micromanagement of welfare and work programs.

Surely a true federal-state-local partnership that really works isn’t too much to wish for in hard times.