Enough of the Small Stuff! Toward a New Urban Agenda

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

June 1, 2000

If history is any guide, discussions of urban issues during this year’s presidential campaign will follow a predictable pattern. Both campaigns will issue policy briefs on small initiatives that will “empower” communities. The formal debates will contain one obligatory question on cities, the responses to which will be highly scripted. Vice President Gore will describe the administration’s efforts to spur private investment in “new markets.” Governor Bush will discuss his proposals to stimulate faith-based efforts in urban neighborhoods. Few reporters will focus on the state of the cities or the contrast between the candidates.

The poverty of the national debate on cities should come as no surprise. Over the past few decades, national “urban” policy has been reduced to a small set of micro initiatives and marginal investments. The buzz words?”empowerment zones,” “community renewal”?come and go but the end effect remains the same. While some good is accomplished, few initiatives fundamentally change the growth (or decline) trajectory of older places. No harm, (no real money), no foul.

The marginalization of urban policies is in part a response to the diminishing political influence of cities after decades of depopulation and suburban growth. Yet the lack of national interest has as much to do with policy perspective as with political calculation. National decisionmakers (and many urban advocates) have simply ceased to ask how major policy decisions affect different kinds of places and communities. Debates on tax and spending priorities, health care, child care, education, environmental protection, welfare, and transportation generally proceed without serious regard to what the spatial impact of policy reforms would or should be. Yet these larger policies are the ones of most critical importance to cities, given the demographic composition and market function of these places.

This essay is devoted to rethinking the core elements of a national urban agenda. Given what we know about cities, what should our presidential candidates be talking about? Why do cities matter to a suburban nation? Which government policies are harmful to cities and need to be overhauled? What new efforts need to be made? What policies will make a difference in places that have become fundamentally isolated from the mainstream economy? What is the political basis for major shifts in policy?

The Context for a National Urban Agenda

Many older cities are experiencing the first sustained renewal in decades. An array of social indicators?violent crime, unemployment, poverty, urban homeownership?is moving in the right direction. Cities like Chicago, Atlanta, Cleveland, and Boston that have lost people for decades are either showing slight increases or only minor declines in population.

Cities are also rediscovering their competitive assets. They are home to many of the nation’s leading universities and medical research centers. They offer the growing number of “empty nesters” an attractive lifestyle, with easy access to cultural amenities, health services, and other necessities of daily life. They are the cultural and entertainment magnets of their regions. As Edward Glaeser observes, the density of cities offers the perfect milieu for the driving forces of the new economy: idea fermentation and technological innovation.

Urban political leaders are also a different breed from their predecessors. Mayors in Chicago, Cleveland, Detroit, and elsewhere now control the school systems in their cities. Mayors in Boston and Oakland are spearheading new policing and community strategies to reduce crime. Mayors in Washington, D.C., and New Haven are exercising a creative blend of fiscal discipline and managerial reform. And mayors in Denver and Milwaukee are changing the physical landscape of their jurisdictions with ambitious efforts to expand parks, remake their downtowns, and reclaim vacant land for redevelopment.

Yet a fair assessment would have to conclude that cities continue to lose ground to their suburbs in the competition for jobs and middle-class households and the tax revenues that they represent. Setting a real urban agenda requires understanding the forces driving these decentralization trends and determining which are inexorable and which are subject to change. The hard fact of life is that cities confront five large challenges, rooted in macro demographic and market trends and federal and state policies, that they cannot solve on their own.

The Sprawling of America

Despite signs of urban renewal, the decentralization of economic and residential life continues apace. From 1980 to 1997, 23 of America’s 25 largest cities gained population more slowly than their metropolitan areas or lost population while the metropolitan area gained people. Even Sunbelt cities like Phoenix, Dallas, and Houston are growing more slowly than their suburbs. Cities have lost disproportionate numbers of middle- and upper-income households who form the backbone of economically strong communities. From 1989 to 1996, 7.4 million upper- and middle-income households left cities for suburbs while only 3.5 million moved from suburb to city. Median household incomes of cities and suburbs thus continue to diverge. In 1989 suburban median income was 58 percent higher than central-city median income. By 1996 the chasm had widened to 67 percent.

The suburbs also dominate employment growth. A study of 92 metropolitan areas found only 17 places where city job growth outpaced suburban job growth during the middle of the 1990s. The bulk of the cities did gain jobs but at a slower pace than their suburban neighbors. From 1994 to 1997, for example, the central business districts in Ohio’s seven major cities had a net increase of only 636 jobs. Their suburbs, by contrast, gained 186,410 new jobs.

The new economy is increasingly an “exit ramp” economy. The technology clusters in places like Washington, D.C., Austin, and Boston flourish in exurban campus-style settings rather than traditional downtowns. A recent Washington Post survey showed that less than 6 percent of the jobs in the Washington region’s largest technology firms are in the District of Columbia.

The impact of these decentralization trends, of course, extends well beyond cities. Sprawling development patterns are destabilizing many of the suburbs that surround America’s cities. Older suburbs are experiencing the same challenges as cities: failing schools, persistent crime, and the loss of jobs and businesses to other, further out suburbs. Even suburban areas that are developing rapidly are finding that explosive growth has its drawbacks, especially in the form of overcrowded schools, but also in long commutes and the inability of local governments to pay for new roads, sewers, and other infrastructure.

The Burdens of the Working Poor

In the wake of decentralizing economies, central cities remain the residence of “choice” for low- and moderate-income families. While poverty has declined in central cities, for example, urban poverty rates are still twice as high as suburban poverty rates, 18.8 percent as against 9.0 percent in 1997. Cities and older suburbs are also disproportionately home to families whose earnings are above the poverty level, but below median income (national median income is $37,000 a year, and 200 percent of the poverty level for a family of three is $27,000 a year).

The demographic composition of cities is important for several reasons. The incomes of the working poor and other low-income families have not kept pace with the rising costs of health care, housing, child care, transportation, and other necessities. Cities, therefore, are more likely to have residents who lack health insurance and struggle with the burdens of housing and child care. For example, slightly more than half of the households who have “worst-case housing needs” (that is, pay more than 50 percent of their income for rent or live in substandard housing) reside in central cities. Almost a quarter of the families who live in cities do not have health insurance, compared with 15 percent of suburban families.

Such poverty has a direct impact on municipal budgets and taxes. As researchers at the Wharton Real Estate Center have shown, cities find themselves left with heavy costs for schools, police, welfare, and social services, yet little means to pay for them as the tax base migrates with middle-class households and employers.

The Growing Concentration of Poverty

Cities are not just home to too many poor families; they are also home to neighborhoods where poverty is concentrated. From 1970 to 1990, the number of people living in neighborhoods of high poverty?where the poverty rate is 40 percent or more?nearly doubled from 4.1 million to 8 million. As Paul Jargowsky and others have shown, concentrated poverty is principally an urban (and racial) phenomenon.

The implications of concentrated poverty are severe. People in these neighborhoods often face a triple whammy: poor schools, weak job information networks, and scarce jobs. They are more likely to live in female-headed households and have less formal education than residents of other neighborhoods.

Welfare reform is where the challenges of decentralizing opportunities and concentrating poverty come together. Many of the jobs that welfare recipients need cannot be found in their neighborhoods or even in their own cities. Not surprisingly, cities have a rising share of the welfare caseloads in their states, even as welfare rolls drop. Philadelphia is now home to 12 percent of all Pennsylvanians, but 49 percent of Pennsylvanians on welfare. Baltimore has 58 percent of the state’s caseload and only 13 percent of the state’s residents.

The Realities of Urban Schools

Public school populations more or less mirror the populations of the neighborhoods in which the schools are located. In 1996, for example, 75 of the public schools in the Greater Washington, D.C., region had more than three-quarters of their students eligible for free or reduced-cost lunches. All but three of these schools were located in the poor neighborhoods of the central city.

There is a strong correlation between a school’s share of low-income students and poor performance by its students on standardized tests. In her studies of U.S. student performance, Diane Ravitch has found that fourth graders from high-poverty neighborhoods have dramatically lower scores on the National Assessment of Educational Progress than their suburban counterparts. Although nearly two-thirds of suburban children achieve “basic” levels in reading, less than a quarter of children from high-poverty neighborhoods do so. Only about a third achieve basic levels in math and science, half the fraction of suburban students.

Poor student performance, of course, is not just a product of concentrating poor students. As Ravitch has written, “[t]oo many big-city school systems have failed to use resources wisely, set clear academic standards, improve teacher recruitment and compensation, and, most important, increase achievement.”

Aging Infrastructure, Broken Bureaucracies

Cities are not different just because of who lives there. They are generally older than their suburbs and show signs of age. Many cities were once home to manufacturing industries that have decamped for the suburbs or other nations, leaving behind empty buildings and polluted lots. These lots either remain underused, creating a drag on tax rolls, property values, and general neighborhood morale or require expensive cleanup investments. The infrastructure?the roads, bridges, sewer lines, subway tunnels, school buildings, and the like?in cities is old and has all too often been undermined by years of deferred maintenance.

The existence of aging infrastructure is complicated by the dysfunction of urban governance. Many urban systems and bureaucracies have simply ceased to function in an efficient or streamlined fashion. As Mark Alan Hughes notes, Philadelphia has 15 separate bureaucracies with some responsibility for disposing of urban land. In other cities, similar horror stories abound with regard to school reconstruction, the delivery of basic services, and infrastructure repair. The hard fact of life is that newer suburbs are easier, cheaper, more predictable places to do business. In most places, doing business with or within a city is still a headache, which costs time and money.

The Limits of Federal Policy

The trends described above?sprawl, lagging incomes, concentrated poverty, failing schools, aging infrastructure?are generally treated separately by national leaders and policy experts. Yet all are inextricably linked and form an iron law of metropolitan growth that is hard to break. Poor neighborhoods with high costs, inadequate services, and low-performing schools push out families with resources, who move to the edges of the region. As these families leave, so do jobs, services, and businesses. This flight further weakens already struggling neighborhoods, accelerates the decentralization of the region’s economy, and puts more pressure on other fast-growing jurisdictions.

With notable exceptions like the Community Reinvestment Act, federal policies have been more a part of the urban problem than a part of the solution. First, federal policies help set the “rules of the development game” that facilitate the trends discussed above. Federal transportation policies support the expansion of road capacity at the fringe of metropolitan areas and beyond, enabling people and businesses to live miles from urban centers but still benefit from metropolitan life. Tax and regulatory policies have given added impetus to people’s choices to move further and further out. The deductibility under federal income taxes of mortgage interest and property taxes appears spatially neutral but in practice favors suburban communities, particularly those with higher-income residents. Major environmental policies have made the redevelopment of urban land prohibitively expensive and cumbersome, increasing the attraction of suburban land.

Other federal policies have concentrated poverty rather than enhanced access to opportunity. Devolving responsibility for work force and housing voucher programs to thousands of local public housing authorities and work force investment boards has made it difficult for low-income families to know about suburban housing vacancies or job openings. Until recently, federal public housing catered almost exclusively to the very poor by housing them in special units concentrated in isolated neighborhoods. More than half of public housing residents still live in high-poverty neighborhoods; only 7 percent live in low-poverty neighborhoods, where fewer than 10 percent of residents are poor.

Second, national policies have failed to deal with the challenges faced by families whose earnings are above the poverty level, but below median income. These families are in the national policy blind spot. They do not qualify for programs such as Medicaid, which are aimed at people at or just above poverty or on or just off welfare. They also do not receive, partly because they do not itemize their tax deductions, the various subsidies for middle-class life, such as the home mortgage interest deduction, tax-deductible retirement accounts, or the $500-per-child tax credit nearly as much as wealthier families. Making work pay is a national responsibility; local efforts require higher taxes, making cities even less attractive to business and residents.

Finally, federal programs aimed at revitalizing neighborhoods and improving schools are too specialized and prescriptive and prevent localities from tailoring resources to diverse market realities. Related programs are governed by different sets of rules that discourage collaborative effort and are administered by a crazy quilt of bureaucracies that have overlapping and disjointed administrative geographies.

For local leaders trying to stimulate business investment, create livable neighborhoods, or support working families, this fragmentation and rigidity presents a maddening obstacle to sensible solutions. Even such touted efforts as the federal empowerment zones provide a one-size-fits-all set of tax credits that constrains cities in their efforts to exploit their own diverse competitive advantages. Federal wage credits, for example, might make sense for a city trying to lure additional large employers like hotels, but they may not be the right tax incentives to help small businesses expand or to assist in the acquisition and cleanup of vacant land.

Toward a New Urban Agenda

After decades of counterproductive policies and marginal efforts, it is time to define a new urban agenda. The time is particularly propitious. The excesses of suburban sprawl are creating new, powerful political coalitions that advocate reinvestment in cities as an essential element of smart growth. The plight of the working poor is as much a suburban as an urban problem, given the spatial distribution of these families. The national budget surplus means that there are resources to invest in areas of domestic policy (such as health care, children, infrastructure) that have long been neglected. There is a national appetite for policies that subject municipal bureaucracies (like schools) to competition. And the rise of innovative local leaders means that there are capable people who can be partners with the federal government.

The critical step toward a new urban agenda is to think big?not only in terms of new investments, but in terms of policies that can help alter the environment in which cities operate and interact with their surrounding suburbs.

This essay recommends that national policy focus on five objectives, each of which mirrors one of the challenges described above.

Promote Smart Growth and Urban Reinvestment

First, a national urban agenda needs to level the playing field between old and new communities. The propensity of federal programs to subsidize the development of new communities should be ended in favor of policies that reinvest in existing communities, both cities and suburbs.

Federal transportation funds should be used in metropolitan areas almost exclusively to repair and maintain existing highways and to expand alternative transportation strategies that relieve congestion and promote more balanced growth patterns. Federal funds should be used to build new highways in metropolitan and adjoining areas only in exceptional circumstances and only when linked to the expansion of affordable housing.

Retargeting transportation resources will serve double duty. It will weed the subsidy out of sprawl and compel exurban retail and commercial and residential projects to stand on their own merits. It will also make it possible to finance major infrastructure repair projects in cities and older suburbs. As Andrew Haughwout argues, investment in urban projects is more likely than traditional road expansion to boost productivity in a metropolitan area and benefit both urban and suburban residents.

Federal tax incentives should be expanded to boost homeownership in places where homeownership rates are exceedingly low. Incentives could include a tax credit that goes directly to first time homebuyers (as in Washington, D.C.) and a tax benefit that entices developers to construct or renovate affordable homes (like the existing tax credit for rental housing). Such incentives would enhance the ability of working families to accumulate wealth and contribute to the stability of neighborhoods by lowering the costs of homeownership.

Finally, the federal government should support the assembly, cleanup, and reclamation of urban land. Because of depopulation, many American cities contain vast swaths of vacant land that are ripe for redevelopment. These areas, particularly those close to airports and highways, continue to have a significant economic and social purpose. Yet the cost of reclaiming this land for productive use cannot be borne by the private sector. The federal government should give older communities the flexible resources, regulatory incentives, and operational support necessary to transform the urban landscape.

Invest in Working Poor Families

Second, a national urban agenda needs to invest in working families and their children. People who work and play by the rules should have access to quality health care, affordable child care, and affordable housing. They should be given the same incentives as middle-class families to save for retirement or important family purchases. Their children should receive the lifelong benefits of early childhood education.

The federal government could achieve these goals through several means. It could expand direct supports for families like housing vouchers and the earned income tax credit. It could create new incentives, like the administration’s proposed “USA Accounts,” to help working families accumulate wealth and link to the financial mainstream. Where direct supports are not sufficient, Washington could invest in proven neighborhood institutions that meet pressing needs, like community health centers, Head Start facilities, and community development corporations.

Whatever path is chosen, the unifying theme is to invest in people and, through people, in the places where they live. These investments will not be cheap; but they are a necessary element of the post-welfare world, where work has become the organizing principle for social policy.

Enhance Access to Opportunity

Third, a new national urban agenda needs to give central-city residents greater access to housing, employment, and educational opportunities no matter where they are. In the new decentralizing, metropolitan economy, solutions to urban problems cannot stop at city borders if they are to reflect the realities of the marketplace.

To this end, cities may need (ironically) to lessen their control over certain federal programs. Governance of the housing voucher program, for example, should be shifted to the metropolitan level. The monopoly of public housing agencies should be ended and the program should be administered by those entities?public, for-profit, or nonprofit?who can best do the job.

In the work force arena, federal and state policies need to build and support a network of intermediaries (faith-based and secular) to improve the skills of low-income workers and link them to metropolitan employment opportunities. Federal help could enable nonprofit organizations, community groups, and churches to play the critical brokering role between businesses, neighborhoods, bureaucracies, and low-income people.

Fix Urban Schools

Fourth, a new national urban agenda needs to place substantial emphasis on fixing urban schools. Yet urban schools can be fixed only if we think beyond the narrow confines of education policy. Expanding the supply of affordable housing in the suburbs and expanding housing choice for low-income families in the metropolitan marketplace are education strategies. Creating stable, mixed-income neighborhoods will lead to a more diverse mix of students in many elementary and secondary schools. National school reformers would be wise to make those linkages explicitly as they struggle with reforming systems that have been tasked with educating an overwhelming proportion of the poor children in a region.

With regard to education policy, the federal government has enormous opportunity to use its relatively small investment in schools to leverage serious change in urban school systems. Federal investments could increase the supply of qualified teachers, modernize dilapidated schools, enhance local flexibility, and promote choice, competition, and accountability. Yet, as Paul Hill notes, one missing piece of the conversation is the lack of capacity in many jurisdictions to design, implement, and sustain reform efforts. In Hill’s view, the federal government needs to use all its powers?resources, waiver authority, technical expertise, the convening role?to move long-term education change in individual cities.

Promote Greater Devolution and Local Reform

Finally, a national urban agenda needs to give local leaders greater say in how to design and implement federal programs and policies. As Franklin Raines demonstrates, urban markets are highly diverse and call for distinct solutions. Cities should be allowed to tailor federal resources to their own market realities and local priorities.

High-performing cities should be permitted to dedicate some portion of their federal grants for priorities set by local leaders. Such cities should also be allowed to structure targeted tax incentives in a way that leverages local market opportunities. In cities facing gentrification, emphasis might be placed on ensuring housing affordability for poor working families. In cities facing a massive exodus of people and jobs, emphasis might be placed on restoring neighborhood markets or assembling land to attract business investment. The trade-off for more responsibility would be more accountability. Cities would be allowed to exercise these options only after local leaders agree to be held to high standards and performance benchmarks. In all cases, maximum flexibility should go to places that demonstrate working partnerships among political, corporate, and community leaders as well as close collaboration between cities and their suburbs.

Not all cities, of course, are ready to be effective partners with the federal government. In these places, additional federal investment is currently used to compensate for rather than fix broken systems. Yet federal resources should be used to leverage reform, not conceal inefficiency. Troubled public housing authorities need to be taken over and broken up. Resources for land reclamation should be provided only to places that streamline the process for assembling and disposing of urban land. For the most distressed cities, Edward Hill and Jeremy Nowak propose a radical experiment to slash local taxes, reform broken bureaucracies, and restore the fundamentals of market competition.

Thinking Big

For American cities to have the kind of national agenda that they deserve and need, some fundamental change is necessary. Local and national leaders alike must think about urban policy in new ways?not as an ad hoc collection of marginal investments but as a powerful integration of how the nation approaches many of our most serious challenges. Health care reform and education reform?both key elements of the campaigns of Vice President Gore and Governor Bush?should be understood and discussed from the perspective of cities, where they will have their greatest impacts.

Local and national leaders must also think about the politics of urban policy in new ways?not as the cheapest way to mollify a particular constituency but as a way to find common ground between cities and their suburbs. In the decentralizing economy, the term “urban” now applies to a broad range of jurisdictions that are experiencing similar challenges and require similar solutions.

The time is long past due for our leaders to go back to first principles, reexamine basic trends, and reinvent national urban policy to match the real challenges of cities, in scale and form. Only then will American cities realize their potential as vital centers of our nation’s economic, social, and cultural life.