Local governments can find sources of revenue through innovative leveraging of public assets.
City finances have long been under pressure, but the Great Recession and steady attacks on federal and state spending have compounded local financial difficulties. The National League of Cities’ annual research brief, City Fiscal Conditions, documents rapid deterioration. Reported revenue declines of 2.5 percent in 2009 and 3.2 percent in 2010 were unprecedented in severity in the 25-year history of the survey. In 2010, 79 percent of cities reported cutting personnel, 44 percent cut services, 25 percent cut public safety spending, and 17 percent cut current employees’ health benefits. Expectations going forward are even more downbeat.
Hard times call for new thinking. We are going through a systemic crisis, not simply a political crisis, and the assumptions of the last three decades about the relationship among politics, social and economic programs, and the economy are now obsolete. Cities everywhere can find surprising answers to fiscal difficulties by looking to scores of little-known innovative strategies under way in diverse communities across the nation.
The economic crisis has, for instance, produced widespread interest in the Bank of North Dakota, a highly successful state-owned bank founded in 1919. Over the past 14 years, the bank has returned $340 million in profits to the state, with broad support in many cities from the business community as well as progressive activists. Elsewhere, cities from Lowell, Mass., to Berkeley, Calif., have discovered they can make better use of the millions of dollars that temporarily sit in bank accounts by choosing where to place deposits based on banks’ willingness to re-lend those dollars to meet local community development goals. This strategy can stimulate local economic development without placing new burdens on taxpayers.
Another promising direction is generating revenue through direct city ownership of land and businesses. What might once have been called “city socialism” is now commonly dubbed “the enterprising city,” with Republican and Democratic mayors alike involved in efforts ranging from land development to Internet and wi-fi services. In many cities, profits from municipally owned electric utilities also help finance other services and thus reduce the tax burden. In Los Angeles, for example, the Department of Power and Water contributes about $190 million per year to the city’s revenues. Read the rest of this entry →