Promoting Municipal Fiscal Health

   The Lincoln Institute of Land Policy today launched a multi-year campaign to promote Municipal Fiscal Health in the U.S. and worldwide, to help cities confront an epidemic of insolvency and restore the capacity for local governments to provide basic services and plan for the future.
     “We need a fresh start that recognizes the structural elements of the fiscal stress we see in cities in the U.S. and all around the world, from Puerto Rico to China and throughout the burgeoning metropolitan areas in the developing world,” said George W. “Mac” McCarthy, president of the Lincoln Institute. 
     “Our roads, sewers and levees are crumbling under the weight of fiscal stress and underinvestment,” said former Transportation Secretary Ray LaHood, co-chair of Building America’s Future and a Lincoln Institute board member. “Putting cities on strong financial footing is critical for protecting the basic public goods and services many citizens take for granted.”
     As part of the Municipal Fiscal Health campaign, the Lincoln Institute will share public policy ideas, conduct research, provide education and training, foster regional and international dialogue and help equip policymakers with tools to address their communities’ unique fiscal challenges. These are just some of the activities in the mix:
     -- A kickoff congressional briefing September 10 in Washington D.C. featuring a keynote address by Kevyn D. Orr, former Emergency Manager for the City of Detroit, emphasizing the need to align policies at all levels of government—local, state, and national—and the importance of national policies, like unfunded mandates or competitive funding programs, in hampering or supporting local efforts to maintain fiscal health.
     -- Engagement in the UN-HABITAT global summit Habitat III in Quito, Ecuador in October 2016, to ensure that that financing is a critical pillar in creating a more balanced and equitable future for the world’s cities.
     -- Mobilization of new research, culminating in a major conference next year, on the fiscal impacts of historical planning decisions, alternative land-based fiscal instruments that support infrastructure investment, dynamic efforts to measure fiscal health, and the impacts of austerity measures and appropriate regional and national government interventions.
     -- The appointment of Lourdes Germán as a fellow at the Lincoln Institute to help build the intellectual enterprise around the municipal fiscal health initiative, and develop a scorecard that lends transparency to government fiscal discipline. She is director of the Civic Innovation Project, a government innovation and research platform, and has held past roles that included creating the municipal finance division at Fidelity Investments, developing and teaching a municipal finance curriculum at Northeastern University, counseling governments as a public finance attorney, and serving on various government civic boards.
     -- Expansion of the Fiscally Standardized Cities database from 112 to 150 of the largest U.S. cities, including two from each state in the U.S., and additional information on the status of public pensions in each city. The continually updated database makes it possible to compare local government finances across more than 120 categories of revenues, expenditures, debt, and assets.
     Whether measured in infrastructure gaps -- $1.6 trillion in the U.S. by some accounts -- or precarious financial instruments -- $3.3 trillion underfunded municipal debt in China -- the fiscal challenges facing the world’s municipalities are deeply troubling. In addition to the challenges of meeting existing infrastructure needs, growing urban populations and a changing climate require local governments to make additional, preemptive investments for the future of their communities, to plan and prepare for growth and sustainability.
     At the same time that cities face such historic needs, numerous municipal bankruptcies, most notably Detroit in 2013, have highlighted the problems of chronically meager or diminishing revenues, increasing costs of providing public goods and services, mounting historical obligations, and expanding responsibilities imposed both by higher-level governments and local citizens. While the housing crisis and Great Recession of 2008 exacerbated the problem, the roots of cities’ fiscal problems go back many decades.
     The foundation of the Municipal Fiscal Health campaign is to provide cities with the fiscal tools and strategies necessary to support their vital role in society, grounded in these six key areas:
     Intersection of Planning and Public Finance In many cities, planning for growth and major infrastructure projects is conducted separately from budgeting and finance. Coordinating these functions is critical for navigating the ups and downs of revenue cycles and preparing for the costs of maintaining projects over time.
     Land-Based Municipal Revenues Land-based revenue models, including the property tax and land-value increment tax, which captures the increase in property valuesresulting from public actions and investments, can play a significant role in municipal fiscal health. Communities lacking the basic tools or land ownership patterns to use these tools will require innovative ways to leverage land-based revenues.
     Multi-Level Governance Decisions by state, provincial, federal or central governments can have serious impacts on local government finances, and poor higher-level decisions helped catalyse the decline of Detroit and other cities in the United States.  Coordinating efforts to monitor local fiscal health and intervene in instances of local fiscal stress, as well as improving the allocation of state and federal funding, is critical to creating a legislative and political environment conducive to Municipal Fiscal Health.
     Monitoring Fiscal Health and Local Transparency Sound fiscal monitoring and transparency provide the opportunity for intervention before municipal fiscal stress degrades public services, endangers the integrity of infrastructure, or devolves into municipal bankruptcy.  The Lincoln Institute is developing a community scorecard to help communities and lawmakers track the fiscal health of their local governments.
     Capital Accounts and Infrastructure Investment Fiscal stress can have a serious impact on capital accounts, and is a factor in the chronic underinvestment in infrastructure -- $1.6 trillion in the U.S. and up to $40 trillion globally. Failure to maintain infrastructure has been responsible for catastrophes such as the collapse of an interstate highway into the Mississippi River, the explosion of buildings in Harlem due to leaks in century-old gas lines, and the failure of levees during Hurricane Katrina.
     Unfunded Obligations Unfunded obligations such as debt and public pensions, and forgone revenue such as tax abatements and concessions contribute to fiscal stress. For example, Chinese cities have amassed $3.3 trillion in debt in less than a decade without a clear path to repayment, Puerto Rico’s recent bond default threatens to cascade into the largest municipal credit default in history and unfunded retirement benefits hamper the post-recession recovery of many U.S. cities.
     Watch this space for more updates.

Comments

[Cynthia Goytia]

This is a valuable initiative for many Latin American countries too. Argentina is not an exception when considering municipalities need for achieving fiscal health

[Sandra]

Fiscal health programs should be implemented to many municipalities worldwide. Especially in the developing countries where corrupt mayors spent public money for limousines or fireworks.

[Alexis John]

Actually, it's backwards... we shouldn't be surprised if a) under performing assets are dis-invested in, or, b) if we rob peter (from productive assets) to pay paul (build shiny new things).