Emerging Issues: A Unique Time in Municipal Finance: Not for Hunkering Down

March 29, 2011

by Bill Barnes

Michael Pagano says that we are in a "unique time in the history of public finance," a time when leaders and citizens can and should broach fundamental issues.

Pagano knows a thing or two about finance - the "lifeblood of municipalities." He speaks from more than a quarter century of widely respected scholarly and practical work in this field and from amidst his own budgetary turmoil as a dean at the University of Illinois at Chicago.

In recent presentations to an NLC Staff Seminar and to workshops at the NLC Congress of Cities in Denver, Pagano said that the recession and financial fiasco and the political responses to them have combined with, exacerbated, and highlighted long-term trends in the basic "architecture of public finance." The result is a combustible and excruciating situation that will linger for at least several more years.

He predicts that, to cope responsibly, communities will have to negotiate "new social compacts" upon which city finances can be re-constructed.

This will not be easy, especially in the current, nasty environment. Responding to the horrible shootings in Tucson, NLC President James E. Mitchell Jr., councilmember, Charlotte, N.C., said that "we cannot let fear limit the openness of public discourse" because "the open exchange of ideas in public settings ... is, in fact, at the heart of our democratic system."

A New Play Book

Similarly, Ronald O. Loveridge, mayor of Riverside, Calif., and now immediate past president of NLC, told delegates at the NLC conference that this is "not the time to hunker down or to withdraw within our city limits." He called instead for "a new play book" for municipal strategies.

He also cited author Richard Florida's claim, in "The Great Reset," that we are in midst of one of the nation's "broad and fundamental transformations of the economic and social order." City governments will need to understand what that means for them - what their new normal can be and will be - and then adapt and lead accordingly.

Elsewhere, URBACT, a consortium of cities and researchers in the European Union, observes that, because EU member states are financially debilitated, "The downturn has empowered local communities." Moreover, the situation "pushes on habits and overcomes taboos"; it "is raising questions that, by habit, we have not asked in a long time."

Fundamental dollars and cents challenges lead directly to fundamental governance challenges, including questions that may not be part of the normal budgetary discussions. However diverse the focus in the variety of localities, the underlying commonality is that these are wicked policy/political matters, not easily subject to technical/administrative standards. 

Questions

What kinds of questions are at issue here?

By way of example, Pagano mentioned the fairness of revenue systems; the pro-cyclical nature of local budget practice; accumulated long-term liabilities (pensions and infrastructure); definition of "core services:" pricing infrastructure and services; and partnerships in service delivery.

That's a daunting list and thoughtful officials will formulate more items. What, indeed, are "core municipal functions?" If "public safety" and "economic development" and "strengthening families" are among them, what do we really mean by those concepts?

Loveridge suggested that the 21st century will be "the century of regions." Are there steps cities can take that are useful in the budget crisis and that also build a capacity for inter-local collaboration and shared services?

President Obama has called for fundamental federal tax reform (not just tax cuts.) Is it also time for fundamental municipal tax reform (not just tax cuts)?

Are tax exemptions for non-profits, especially the big institutional ones, appropriate? Some cities are already grappling with this.

Are we yet past the "do more with less" mantra? What will it mean to do less with less or to do differently with different?

And what about the even deeper issues, questions of purpose and values? What will be the mix in city budgets of investment versus current consumption? Who will pay and who will benefit? Will budgets facilitate economic growth? Stable neighborhoods?

Whether or not these and other questions are posed publicly and explicitly, the process will willy-nilly result in answers. And the effects will re-shape the future.

Public Deliberation

So, leaders may as well frame and pose such questions and try to debate the answers thoughtfully and in public. Does the government have a relationship with the residents and stakeholders of the community that will allow for and support such discussions? Do all the potential participants have the skills to take part effectively?

The view that government is per se bad is "not a useful place to start," such public discussions, says Pete Peterson, Director of the Davenport Institute at Pepperdine University.

It's important for officials to accept that "everything we're doing now is the right thing" is also not a useful place to start.

"The key question facing city leaders," observes Christopher Hoene, who analyzes public finance conditions as NLC's director of research and innovation, "is when do they move from managing cutbacks to rethinking the work of cities?"

The answers that evolve to such underlying questions will constitute a new normal or a new social compact. More prosaically, they will be new rules of the game about how the community is going to solve its problems and seize its opportunities.

Bill Barnes is the director for emerging issues at NLC. Comments about his column, which appears regularly in Nation's Cities Weekly, and ideas about "emerging issue" topics can be sent to him atbarnes@nlc.org. Previous columns are collected at the Emerging Issues webpage.