Stephen Goldsmith is deputy mayor of operations for the City of New York.

Even in the best of times, cities feel undervalued by their state legislatures. As states struggle with their own budget gaps and adjust to the loss of federal stimulus money, cities can expect still fewer resources. Today's tough times could exacerbate already historically contentious city-state relationships.

In the 1990s, I served as the Republican mayor of Indianapolis when Indiana's governor was a Democrat. At the time, mayors of other large U.S. cities were predominantly Democrats dealing with Republican governors. In every case, the mayors felt aggrieved by the statehouse, irrespective of whether they personally got along with the governor or not.

In the current period of shared pain, it's time to fundamentally rethink the relationship between large cities and their state capitols. If states are going to send fewer resources, they should also enact reforms that allow cities to operate more efficiently.

Cities' authority derives from state law, and while some cities have a version of home rule, even then the extent of home rule is tightly controlled by state interests. This makes cities feel undervalued by state officials. To oversimplify, large cities see themselves as sending income and sales tax revenues to the state, which then returns a fraction of those dollars to the city -- certainly less than 100 percent -- along with a whole slew of restrictions that generally ensure those dollars are spent inefficiently.

The coming budget shortfalls provide an opportunity for fundamental change. A new bargain should be struck. States should grant greater authority to cities in return for accountability and performance. In broad terms, the state could require maximum transparency so both state officials and citizens can judge results and ensure integrity. The state could require localities to have adequate procedures in place to ensure due process, fairness, transparency and equity. In return, the state could free local officials to operate with fewer restrictions. This bargain would include the following:

  1. Allow mayors the authority over hiring, promotion, and compensation. New Yorkers expect Mayor Michael Bloomberg to produce high-quality results. But the state Legislature and administrative agencies will not allow him local control over personnel, and even prevents him from creating important new jobs. All of these controls are layered on what is already at the city level a very complex set of collective bargaining and civil service procedures. States should allow their local chief executives to execute.
  2. Allow mayors authority over terminations and layoffs. It is nearly impossible under state law to terminate a municipal employee. How can the state expect local leaders to deliver responsive services to residents if underperforming employees can't be promptly disciplined? States have set up procedures for discipline that involve so much time, so many years and so much expense that they simply cannot be utilized. Terminations for cause in New York City amount to less than 0.3 percent of the workforce annually. These state laws that protect chronic underperformers penalize the many good employees who must pick up the slack. When cities face the pain of downsizing, isn't it fairer to citizens and employees to lay off those employees who have documented performance issues? State law in New York and elsewhere forces city managers to lay off exclusively by seniority, irrespective of performance.
  3. Trade prescriptive contracting restrictions for transparency. States restrict how cities purchase, contract and structure public-private partnerships. These restrictions emanate from an older paper-based age now replaced in many large cities with online purchasing where citizen bloggers can act as watchdogs. Ironically, current state-mandated headaches create obstacles to finding new and creative providers and create particularly tough barriers for small and minority-owned companies seeking to do business with municipalities.
  4. Get pensions under control. State legislators determine pension costs and set the rules for retirement. It is the cities who pay. It is time to change this practice, whereby one level of government imposes costs on another irrespective of the latter's ability to pay.
  5. Respect local environmental professionalism. Rather than setting standards and encouraging local governments to obtain them, state environmental agencies too often measure their success not by the quality of the air or water but rather by how many individuals get fined or how many projects get stopped. Environmental stewardship can be congruent with economic progress, but state agencies do not enable such win-win approaches.
  6. Roll back the mandates. States force cities in dozens of ways to take all sorts of actions that don't produce taxpayer value. From requiring paper filing of documents, to dictating how many continuances a traffic offender must get, to mandating the number of repetitive activities departments must undertake, too many state rules simply burn a hole in the taxpayer's pocket.

No one can change the fact that states will have to reduce aid to cities. What state legislators can and should change, however, are statutes that hobble cities' ability to make the most of these scarce resources. Less money should come with fewer rules.