Some of our largest cities are caught in a paradox. As the federal government is paralyzed by partisanship and limited by budgetary realities, cities and metropolitan areas are taking more responsibility for policy innovation and economic revitalization. Chicago Mayor Rahm Emanuel has said he “will not tie this city’s future to the dysfunction in Washington and Springfield.”
Bruce Katz and I have called this shift in mindset and action The Metropolitan Revolution.
To be sure, many (though not most) city governments’ budgetary crises are due to unfunded pension and health care liabilities. The problem is real and well-known in Chicago and Philadelphia; Detroit’s pension underfunding precipitated the city’s bankruptcy; even New York, according to Mayor Michael Bloomberg, is only a few steps away from a pension precipice. How can cities and metropolitan areas be the best hope for economic and political renewal if many struggle to pay their own bills?
City governments are finding new ways to pay for big projects that will have a transformative effect on infrastructure and the broader economy. Yes, one path is raising taxes. Voters hate taxes in the abstract, but they will tax themselves if they believe the investment has merit, the delivery system is sound, and the returns are likely to be real and large.
In the greater Denver region, for example, voters agreed to 0.4 percent higher sales taxes in exchange for a huge light rail and rapid bus transit system expansion. In Los Angeles County, at the height of the Great Recession, voters agreed to a 30-year half-cent sales tax increase to finance major transportation projects and improvements.
Those are just two of many examples. In the past 15 years, a number of metropolitan areas have sought or approved ballot referenda to build, extend, or operate major public transit systems. More recently, citizens voted for higher taxes to make investments in people, not just roads and rails. San Antonio residents agreed to a small sales tax hike to fund all-day pre-kindergarten classes for eligible four-year-olds.
Cities are also using old financing tools, like bonds, in new ways, or being more creative about stretching existing funds. Houston voters recently agreed to $1.89 billion in new bonds to refurbish public schools and build new facilities to support STEM education at Houston Community College campuses. Toledo/Lucas County Port Authority raised money through a bond issue to make energy efficiency improvements in the port.
The list of new ways to maximize public dollars or use them for new, forward-thinking purposes is long and varied. Chicago has its own infrastructure bank to pay for energy retrofits and other infrastructure projects. Philadelphia decided not to spend $9 billion on traditional stormwater management improvements such as tunnels and underground tanks, and instead is putting just $2 billion towards projects to manage storm water runoff and make the city cleaner and greener.
This raises two important points. First, not all these financial innovations or ballot meaures result in faultless projects or flawless outcomes. The handful of high-profile bad deals (often around public stadiums that don’t meet projections) should make city leaders and taxpayers cautious, but should not completely squelch new finance endeavors. Second, the more cities use bonds or other financing in non-traditional ways, the more likely the private sector is to step in and help standardize the process. Creating uniform metrics for deals is the key to unlocking new sources of private capital: tax increment financing—a public funding tool that targets public infrastructure investment—is a great example.
Finally, it’s important to look for funds outside of a city’s balance sheet. Detroit’s government is in bankruptcy proceedings, but there is still an abundance of investment happening within the city, from the private sector (billionaire businessman Dan Gilbert), philanthropy (the Kresge Foundation and the New Economy Initiative), and the federal government (U.S. Department of Transportation and Small Business Administration grants and loans). As Bruce Katz has described, this money has supported the revival of two neighborhoods, Midtown and Downtown, that have the potential to lead a revival in the rest of the city. In Northeast Ohio, philanthropies based in greater Cleveland, Akron, Youngstown, and Canton have pooled money into the Fund for Our Economic Future. Over nine years the Fund has given more than $60 million to regional economic development organizations. In turn, grantees have helped add 10,500 jobs, $333 million in payroll, and $1.9 billion in investments to the multi-metro region.
Cities and metros are, for many reasons, the best hope for innovation, social integration, and economic strength. Mayors and networks of city leaders from the public, private, philanthropic, university, and civic sectors may be even more motivated to jumpstart local economies because they know that fatter tax rolls and revenues will make future pension and healthcare obligations less daunting. Urban fiscal challenges are real, but there is much more to the story of today’s cities.
Jennifer Bradley is a fellow and senior advisor at the Brookings Institution. She is the co-author, with Bruce Katz, of “The Metropolitan Revolution: How Cities and Metros Are Fixing Our Broken Politics and Fragile Economy.” She will speak about urban evolution and the sharing economy at the Techonomy 2013 conference, Nov. 11-13. Follow conversations about the event @Techonomy and #Techonomy13.