There is no easy, single answer to explain why Detroit or San Bernardino or Jefferson County and other local governments have resorted to bankruptcy in recent years. While the immediate cause of bankruptcy may be related to unfunded pension obligations or debt, the long term causes are usually more complicated and involve a combination of economic, fiscal and management issues that have played out over years if not decades.
That was certainly the case in New York City's near bankruptcy 40 years ago, where a combination of labor, fiscal and management policies combined with depopulation and economic decline almost forced the nation's largest city off of a fiscal cliff. To avoid bankruptcy, the city undertook a series of steps to right-size city government, reformed its borrowing and other budget policies and sought and obtained the cooperation of labor unions. Ultimately, the city's ability to restore its fiscal health went hand in hand with an economic revival as well.
New York State was an essential partner in this effort and - after initial reluctance - so was the federal government, through federal loan guarantees.
Today, there is little appetite - either in state legislatures or in Washington - to provide bailouts or other relief for bankrupt local governments. But it is reasonable to ask what the federal government can do to prevent more local governments from going bankrupt or, more generally, how federal resources can be used to help local governments better overcome fiscal and economic challenges so that bankruptcy is never an option.
Steps by the Obama Administration over the last three years suggest a new federal response focused on prevention, realizing that it is wiser - and more palatable politically - to put a guard rail at the top of the fiscal cliff for cities than it is to merely provide an ambulance below.
First, the administration has launched a series of pilot efforts designed to address underlying economic challenges. In most cities facing fiscal stress, concentrations of high poverty are a major part of the problem. Neighborhoods with high poverty rates - and often large numbers of vacant properties - provide less in revenue for local government and demand more in city services. Moreover, high concentrations of poverty due to limited education attainment for local residents limit a city's overall economic competitiveness.
Two programs launched by the Obama Administration - Promise Neighborhoods and Choice Neighborhoods - represented cross-cutting efforts to improve education attainment in high poverty neighborhoods and provide for the overall revitalization of these neighborhoods. Building on these efforts, President Obama recently announced the first five of 20 federal Promise Zones where the federal government will partner with local government and assist in accessing resources.
The administration's efforts in post-bankruptcy Detroit are a good example of how this type of partnership can pay real dividends. There, federal agencies worked with the city and foundations to move $300 million in aid to Detroit - most from existing federal programs.
Second, in 2011, the administration announced the Strong Cities Strong Communities initiative with a focus on helping cities strengthen local capacity and sparking economic growth while ensuring that government funds are used wisely. As part of SC2, the administration assigned teams of federal officials to work in direct partnership with local mayors on the mayors' priorities. After two-year engagements with seven pilot cities, the administration last week announced a second round of SC2 teams for Brownsville, Texas; Flint, Mich.; Gary, Ind.; Macon, Ga.; Rockford, Ill.; Rocky Mount, N.C.; and St. Louis, Mo.
The nexus between economic challenges and fiscal stress was clear in the first round of SC2 pilot cities. In Memphis, as the city worked to develop a five-year financial plan, the SC2 team worked with Mayor AC Wharton on efforts to make waterfront revitalization an anchor for new economic development. In New Orleans, as the city continued to implement the best practice of budgeting for outcomes, the SC2 team worked with Mayor Mitch Landrieu to implement a violence reduction initiative that recognized that public safety was critical to prosperity. And, in Youngstown, Ohio, the city undertook an operational efficiency study as the SC2 team worked to encourage downtown redevelopment.
SC2 pilot cities also benefitted from the placement of mid-career fellows, many of whom worked more directly on operational reforms. In Memphis and Youngstown, SC2 Fellows worked to develop and implement performance measurement and management initiatives.
In the coming weeks, the SC2 initiative will expand its reach to more communities through a National Resource Network designed to provide cross-cutting technical assistance to help cities meet fiscal and economic challenges, from pension reform to economic development to community revitalization.
Taken together, these efforts point toward a new and different partnership between local governments and the federal government. Bailouts may not be on the horizon, but federal support for economic competitiveness and assistance in addressing tough fiscal problems should offer hope to struggling cities and a signal that the federal government can and will work to prevent future Detroits.
