Detroit’s decline was obvious for decades. So why wasn’t tough medicine applied earlier? It’s easy to criticize Detroit, but the cold reality is that many cities have been caught in a similar decline cycle for a long time without taking forceful action.
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. This repeats in an endless cycle as a city slowly dies.
What sends a city into this cycle varies. Sometimes it is an external shock, such as deindustrialization. Other times, it can be simple life cycle effects from civic aging, or just plain bad decisions. But once caught in this cycle, it seems to be very difficult to get out.
Part of the problem is that growth and decline are both positive feedback processes. That is, they feed on themselves. Once people begin to believe there will be decline, they make decisions against investment and growth that perpetuate the cycle. After all, why move to or invest in a place that is perceived to be declining with no end in sight? As people and businesses leave, a city government’s fixed costs, such as pension deficits and aging infrastructure, have to be spread across fewer and fewer taxpayers, making unit costs soar, which drives more people away.
How do you stop the cycle? The first step is to agree on what’s considered “rock bottom,” so public leaders can realistically know when they’ve stopped the cycle, or at least can credibly predict where it will end. From there you can start rebuilding.
University of California, Berkeley economist Enrico Moretti took a look at various ways people have attempted to do this in his book The New Geography of Jobs, and the results weren’t encouraging. The only real item he thought was a winner was a so-called “big push” in which several large efforts were made and simultaneously backed up with huge expenditures. His signature example of a big push success was the Tennessee Valley Authority, which was created in the 1930s by the federal government to provide a massive boost of economic development to a Southern region hit particularly hard by the Depression. The big push strategy is what many cities have been attempting in their downtowns. And although it has had some success, it has been modest, localized and achieved at such great expense that it isn’t feasible to replicate outside of the fairly compact downtown area. What’s more, given the current fiscal climate, the chance of a big push anywhere is close to nil.
One possible approach that has received far less attention than it deserves is restructuring government to get ahead of the decline cycle. Most cities seem to be in a perpetual state of budget crisis. Each year brings drama, service cuts and possible tax increases to close the gap. However, this seldom puts cities on a sustainable footing over the longer term. Few cities even seem to forecast their revenues and expenses more than a year or so into the future. And the fiscal machinery of government tends to be opaque in any case.
Rather than an endless stream of crisis management, cities should instead take a realistic forward look at their civic trajectory—medium-term revenue forecasting, demographic and economic 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. This would enable cities to provide some degree of predictability to current and prospective residents and businesses about what their tax bills and services received will be. That right there will improve the business climate by reducing uncertainty and the, often correct, belief that most cities just don’t have a handle on their problems.
This 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. That might be unpleasant, but it can’t be that much worse than the endless drama over reduced library hours, deciding which firehouses to close, raising taxes and so on every year, with nothing but the prospect of more of the same for the foreseeable future.