The future prospects for cities worldwide has a foundation in something that doesn't always get much talked about: municipal fiscal health. That was the message delivered by Lincoln Institute President George W. McCarthy in an appearance at the USC Price School of Public Policy earlier this month.
The basic covenant of funding local government for services and infrastructure has gone awry, he said, saddling cities with debt and plummeting some, most famously Detroit, into bankruptcy. “We have to ... rebuild the understanding in the general population of the role of local government and why it is necessary and good to pay taxes, or otherwise the provision of public goods would not happen,” McCarthy said.
Noting that from 1980 to 2010, there was an average of seven municipal Chapter 9 bankruptcy filings per year, McCarthy said that “very often insolvency today is the result of poor planning that was done 40 years ago." Cities must manage around unpredictable federal and state government mandates beyond their control -- for example changes made at the state level on how to redistribute sales tax money.
Fiscal problems are not unique to U.S. municipalities. In China, cities have issued $3.3 trillion in public debt since 2008 with permission of the national government, and they have few revenue sources to repay it. “Municipal fiscal health, if not managed correctly, can lead to cataclysmic problems nationally,” McCarthy said.
In the long term, public debt almost always accumulates in the under-maintenance of infrastructure, which has dire consequences. The United States already has an estimated $3.6 trillion demand for infrastructure maintenance, with global estimates at $17 to $40 trillion.
The urban growth seminar was covered by USC News, including a video of the presentation in full.