When Uncle Sam cuts a city's allowance

America's cities are finding themselves at a crucial turning point because of the new economic policies now flowing out of Washington. The important, but admittedly difficult, objectives for all US taxpayers -- and not just municipal residents -- will be to ensure that the right mix of private and government policies maintain the fiscal integrity of cities while helping them to attract new industry and enlarged economic growth.

The Reagan budget and tax policies, by themselves, portend a significant redirection for many cities.The administration seeks to turn jurisdiction over a broad roster of federal social programs back to state and local government. This landmark policy shift, moreover, comes at the end of a decade that has seen a huge movement of population and industry away from the older cities of the Northeast and Midwest to the sunbelt cities of the Southwest and West.

Now, a new study just released by congressional Joint Economic Committee finds that fiscal uncertainty -- and the threat of bankruptcy or economic crisis -- may be more widespread throughout urban American than hitherto realized.

According to the report, which was based on a survey of some 275 cities, over half of all US cities of 10,000 or more people are actually spending more than they are taking in through tax revenues or other collections. "Because of the magnitude of the proposed federal cuts and the abruptness with which they are likely to be implemented," the report maintains, "many economic development initatives will be reversed; the population of many cities will be forced to forgo certain services and to pay more for others, and an increasing number of cities will find themselves on the brink of fiscal collapse."

Certainly, the grim prognosis of the JEC need not come to pass -- given tough-minded and careful planning at all levels of government. While this is not the occasion to go into a detailed analysis of the reasons why many cities are finding themselves in tight economic circumtances, a few points are in order. Inefficiency, waste, patronage, cronyism and, on occasion, corruption have not been foreign to local programs. In some communities militant public employee unions have demanded and won excessive salaries. Now, with a reduction in revenues, many cities are finding themselves in the unhappy dilemma of either cutting services, and that means laying off policemen, sanitary workers, firemen , etc., or sharply hiking property and users taxes, resulting in a further flight of industry and taxpayers to the suburbs.

For this reason, federal cutbacks may not be unsalutary for cities if officials are forced to more judiciously account for expenditures.

Beyond that, however, the administration and Congress have an obligation, in the words of the JEC report, to "develop a policy for dealing with municipal default on other than an ad hoc basis" as was the case in dealing with the fiscal crisis in New York in the 1970s. New York had time to put its fiscal house in order, even as federal aid continued. Other US cities may not have that luxury.

Lawmakers should take a hard look at a broad range of programs to aid cities, perhaps beginning with the plan to create urban "enterprise zones" advocated by Congressmen Robert Garcia and Jack Kemp. There are imaginative tax incentive programs for cities pushed by regional congressional coalitions. Nor should lawmakers overlook the comprehensive plan put forward by investment banker Felix Rohatyn, who was the driving force behind New York's Municipal Assistance Corporation (MAC). Mr. Rohatyn is urging nothing less than a new, federally-capitalized investment bank along the lines of the old Reconstruction Finance Corporation (RFC) that could issue bonds and lend out reconstruction capital to hard pressed cities.

A broad range of proposals already exists to aid cities. The administration and Congress should begin sorting out those alternatives --and ensure that America's cities face not default and loss of essential services but new growth and enlarged v itality.

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