Capital Thinking Magazine

CITIES: THE VIEW FROM CITY HALL

The View from City Hall: Mayors get creative to keep their towns afloat

By Gary Stern

Big cities are no strangers to tough economic times, but several years of swelling deficits are forcing the nation's City Fathers to look for new ways to keep their economies rumbling—or at least prevent them from stalling.

Many cities are streamlining spending, renegotiating with unions, revamping pension systems and promoting new forms of federal financing for big-ticket projects, says Marek Gootman, a Patton Boggs partner who has represented about half of the country's 15 largest cities and is currently the director of strategic partnerships for the Brookings Institution.

"You see local governments doing transformational restructuring," he says. "Everyone understands that the next few years will be pretty painful. There will have to be additional scaling back, more innovative approaches. But governments are looking at everything they can do to maintain revenues and services without increasing taxes."

Cities are more concerned about their fiscal health than at any point in the past 25 years, according to a study by the National League of Cities. Four years of falling tax revenues, combined with rising costs for employee health care and pensions, point to a municipal downturn that will be "several years in length," the study predicts.

Tax increases may not be a reliable option, Gootman says, noting that San Diego voters rejected a half-cent sales tax increase last fall that could have staved off numerous spending cuts. San Diego went into the spring with a $57 million deficit and a call from its mayor for private companies to compete with city departments over basic services like street sweeping. "If voters won't accept tax increases, the question is how far they will go in accepting service reductions," Gootman says.

Mayors are exploring new strategies like creating "industry clusters" of interconnected businesses, helping local businesses to increase exports, and taking a fresh look at private-public partnerships. Additionally, several mayors and federal legislators recently called for federal loans, secured by future sales tax revenues, to fund major transportation projects. "These kinds of loan guarantees can move up big projects with a huge impact on the economy," Gootman says.

The city of Jacksonville, Florida, was forced to start cutting back a few years before the recession because of a property-tax cap, says Kerri Stewart, the city's chief administrative officer. Jacksonville tried several strategies that are paying off today, including creating low-level fees for services, building significant reserves and privatizing areas like human resources. The city also cut about 700 jobs and cut most salaries by 2 percent.

Jacksonville is looking at public-private partnerships with a new eye. It plans to split the costs of a new traffic light with an insurance company and expects more such offers. "There is simply no more money to do these projects, so we have to be more open to these opportunities for partnerships," Stewart says.

Mayors, city employees and taxpayers are being forced to adjust together to changing times, says Victoria Cram, a Patton Boggs policy advisor on government affairs and public policy. "The city of Las Vegas has gone to a four-day work week," she notes. "City Hall closes every Friday." The once-booming gambling capital has fallen on hard times, but the city is reshaping itself. "Cities have had to tighten their belts first, no doubt," Cram says. "Las Vegas has renegotiated union contracts, laid off and furloughed employees, cut fat wherever they can. All indicators show the economy is in recovery, but it's going to take a while to reach the cities."