The Lifeblood of a City

July 2016
By Mark Funkhouser  |  Former Publisher
Former publisher of Governing and former mayor of Kansas City

This issue’s feature by Liz Farmer on Chicago’s city treasurer asks an important question: Is Kurt Summers Chicago’s future? He may be more than that; he may be emblematic of what the future holds for many of our struggling cities.

Summers is a young African-American from a poor neighborhood on the city’s South Side who, before being tapped by Mayor Rahm Emanuel for the treasurer’s job, had built for himself a strong background in finance, earning an MBA from Harvard and working as an investment banker and management consultant. Chicago certainly needs all the financial expertise it can muster, but while that city is the most prominent current example of municipal fiscal distress, it is hardly alone.

I think that in finance terms there are only two types of cities in this country: the distressed and the vulnerable. The headwinds against cities are strong for at least three reasons.

First, cities are creatures of their states, subject to unfunded mandates, cuts in state aid, restrictions on locally supported taxes and preemption of local authority.

Second is the issue of structurally balanced budgets. For a budget to be structurally balanced, current revenues should equal current expenses; annual pension and retiree health-care contributions should be paid in full; projected revenue growth in outyears should be equal to or greater than projected expenditure growth; an adequate reserve fund should be maintained; and capital maintenance expenditures must not be deferred. Very few cities meet all of these criteria, or even most of them.

And finally, all too often the response to a fiscal crisis is a perverted sort of austerity in which public officials simply refuse to pay the bills and ignore costs that have already been incurred. Failing to maintain a road once it has been built or to fund pension obligations ultimately increases costs. Imposing additional cuts to correct a fiscal imbalance strikes me as a lot like a 17th-century doctor’s treatment of the ill by bleeding them. It’s pretty easy to start a cycle in which spending cuts produce declines in services and community conditions. People and businesses leave, further eroding the tax base.

Finance underlies everything. It is the lifeblood of a city, and Kurt Summers is a remarkable young man who seems to understand finance very well. If the future is going to be good for cities, then every mayor needs to have someone like him as part of the inner circle.