Citiwire.net

For Release Sunday, December 5, 2010
© 2010 Washington Post Writers Group

WASHINGTON — Cities’ revenues will plunge sharply as property taxes, in their first year of recession-impacted reassessments, get set to decline deeply in 2011. Local government fiscal shortfalls may total $83 billion, which the League of Cities estimates may force up to 500,000 staff reductions. Basic city services will shrink. Infrastructure projects will get cancelled or postponed.

These are hard times for America’s local governments. Economists may declare the Great Recession is “over,” but localities see a different picture. The federal stimulus monies that helped so many of them balance their budgets runs out December 31. So does Washington’s two-year old “Build America” bond program, which has made local infrastructure borrowing more affordable.

Plus, as yet another season of compounded budget cuts dawns, cities must also struggle with unrelenting increases in health care costs. Many also face a fearsome debt overhang of heavy pension obligations.

Will “higher” governments help out? Not likely right now. Washington will be focused on deficit trimming. States have their own budget nightmares. And then there’s raw partisanship. Republicans made net gains of six governorships and some 680 legislative seats in the mid-elections; even if commiserate with cities, they’ll fear Tea Party retribution if they lift a finger to help.

If there’s any good news, says Chris Hoene, the National League of Cities’ fiscal guru, it’s that actual city bankruptcies remain rare, that over 90 percent of localities are balancing their budgets — so far. And that while some mayors see massive layoffs coming, others say they’re using this moment to clean up inefficient bureaucracies.

This would be an ideal time for states to let local governments diversify their tax bases. But exactly the reverse seems to be occurring. Missouri seemed in an almost vengeful anti-urban mood, for example, when a state initiative passed last month explicitly denied cities the right to add income taxes on local workers. Only St. Louis and Kansas City, it turns out, currently have such taxes, and they depend on them massively –for 30 percent and 36 percent of their respective general funds.  Now they’ll lose those monies, possibly skirt with bankruptcy, unless they can persuade their voters to re-approve the levies every five years, as the new initiative requires.

A bigger and even gloomier long-term picture — not just for cities but all levels of America’s federalism system — emerged at a panel discussion of the National Academy of Public Administration in Washington last week.

Danger No. 1: Demography. As the baby boom generation ages, the share of our population in the 24-to-60 working age, income-producing group will decline dramatically. That shift will seriously depress growth in U.S. economic productivity, noted Mark Pisano, co-chair of the National Committee for America 2050 and former executive director of the Southern California Association of Governments. Indeed, Pisano notes, just as foreign competition stiffens dramatically, we’ll be losing the talents of “the best-educated population cohort in history.”

Incredibly, we’re letting disputes over national immigration policy choke off the flow of students and skilled foreigners seeking entry into the country. Immigrants, disproportionately, start new companies and help our economy grow.

Danger No. 2: Ballooning and seemingly uncontrollable health expenditures. In 1978 health outlays were just 12 percent of state and local expenditures. Today, driven especially by Medicare, they’re 20 percent — and rising inexorably. Prisons, schools and welfare outlays are also up sharply, when gauged against personal income. In 1978, the General Accountability Office found, 21 percent of federal grants to states were for health; today they’re 58 percent — “crowding out everything else, including welfare, education, transportation and revenue sharing,” the GAO’s Michelle Sager told the National Academy panel.

The net result, according to GAO simulations based on current spending trends: State and local shortfalls will rise inexorably for decades, until they reach “an inevitable tipping point” of sheer impossibility to finance.

The clear need: not just huge health cost restraints and reforms, but ways to gin up national and state economic productivity. A nation that thinks there’s salvation in increased consumer spending — “Black Friday” shopping sprees and the like — misses the point. So does deluding ourselves to think cuts alone will somehow magically make everything work right.

To compete globally, to have any chance of curing our oncoming deficit tsunami, we’ll need remade and stronger systems of education, energy, infrastructure and environmental safeguards. Also imperative will be inventive cures for our gaping income inequities, together with deliberate policies to exploit the talent and finance pools focused in our metro regions.

With luck, official Washington will pay very serious attention to the recommendations of the bipartisan commissions that have been devising pathways to curbing the nation’s gargantuan federal deficits. But unless we also find ways to bolster our national economic productivity, and rethink how all levels of the federal system interrelate and can work together, we’ll never get maximum results — or a secure future.

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