Cities Need to Hunker Down for Fiscal Storms

photo: Jay Daverth

An earlier posting described the long, complex chain of events leading up to municipal bankruptcy. “The cycle of municipal decline looks the same in a lot of places. People and businesses leave, which causes tax revenues and quality of place to degrade. That, in turn, leads to tax increases and service cuts, which makes more people and businesses leave,” Aaron Renn wrote in a recent Governing article. “This repeats in an endless cycle as a city slowly dies,” he added.

Given this continuous exodus pattern, cities should be able to forecast fiscal storm clouds and batten down the hatches before the storm hits. Instead, “most cities seem to be in a perpetual state of budget crisis,” Renn wrote, a condition that makes residents and business owners anxious and uncertain, causing many to leave for places where taxes and services are stable and predictable.

How can cities reduce uncertainty and make things more predictable, thereby reducing the “endless stream of crisis management?” By taking a “realistic forward look at their civic trajectory—medium-term revenue forecasting, . . . capital asset replacement cycles, and so on—and restructure the services delivered and revenues raised in order to create a sustainable baseline that can be defended over at least the medium term.”

Can cities pull this off? Renn seems skeptical. Restructuring “involves choices and leadership we don’t see a lot in politics: a willingness to face financial problems boldly instead of deferring them; transparency; and a public dialogue about the tough choices that are needed to bring fiscal sustainability.”