Are States Really The Solution To Urban Mismanagement?

(Kevyn Orr was the emergency manager called in by the Michigan government to reform Detroit / flickr)

Recently Stephen Eide, writing in City Journal, argued that states could run cities better than cities can run themselves, by offering an antidote to the mismanagement gripping many localities  (“Caesarism for Cities:, March 2016). In the process, he overlooked the nefarious nature of many state governments, and the way in which they already inhibit cities.

Eide begins his article with a litany of urban issues: excessive debt, unfunded pensions and political dysfunction.

“Local political apathy has enabled some cities to become dominated by one party or even one interest group, skewing the political process and often encouraging extensive corruption and mismanagement of finances…Fans of local autonomy are hard-pressed to explain these and other failures.”

This was a flimsy premise, since everything he wrote could be applied to states themselves. In fact, the very magazine he was writing for routinely publishes articles decrying and detailing the excessive spending, debt, political dysfunction and unfunded pension crises of states like California, Illinois, Rhode Island and New York. Yet it is unlikely that we will see a piece advocating for the federal government to rein in state spending.

“It makes more sense for state, not city, officials to do what’s right when faced with local fiscal distress instead of what’s politically convenient,” Eide wrote, offering no support for this faith in state officials. In fact, states have shown little willingness to engage in fiscal restraint.

The Texas Department of Transportation recently spent over a billion dollars to relieve congestion on the Katy Expressway near Houston by widening it, thus subsidizing sprawl and inducing further demand. California’s unfunded gold-plated pensions equal around $600 billion, according to Eide’s very own City Journal. Similar tales of irresponsible spending can be found in virtually every state.

It’s worth considering how urban fiscal problems are exacerbated by state interference. Many states grant only few taxing powers to cities. In the Northeast and on the Pacific Coast, it’s generally a property tax and maybe a rooms, meals and entertainments tax, and in the South it’s often a sales tax. Furthermore, in states like Massachusetts and California, the ability of cities and towns to increase the property tax rate is severely restricted. Property tax caps have arguably helped contribute to NIMBYism in both states, as there is now no risk of higher taxes from blocking new developments and thus cities are prevented from raising revenue through taxes or growth. At the same time, states have dumped costs onto cities with no way to help them pay.

Aligning with the federal government, states have spent billions eviscerating cities for highways and subsidizing driving with commuter tax deductions, subsidizing suburban home building with the mortgage interest deduction, and other ways. The result is that in every major city the daytime population swells with people from the outside who take advantage of urban agglomeration effects and city services, yet don’t pay for them. Not only do these non-residents cause congestion on city streets, but encourage parking construction, which can blight downtown areas.

Even in states where property taxes aren’t capped, cities must tread carefully. States not only tax cities equally or more severely than cities tax themselves, but redistribute that money to suburban and rural towns or spend it on more sprawl-enabling infrastructure. In other cases, many state administrations–namely Republican ones that dislike the Democratic establishments within urban areas–will withhold funding for inner-city schools, transit and other services. Not only do many states have taxes that duplicate local ones, but add other tax burdens, such as income and corporate taxes. In New York City, residents can pay up to three income taxes.

Autonomy, rather than state micromanagement, would be the best thing for U.S. cities. Elections in states like Illinois and California often reflect stark urban-rural divides, as well as Democratic and Republican ones.  Not only do Central Valley farmers have different beliefs from Silicon Valley entrepreneurs; they have different needs. For example, California recently passed a statewide minimum wage law. According to FiveThirtyEight, even liberal economists think it could disproportionately hurt the state’s less affluent areas.

Perhaps the greatest advantage of urban autonomy is that it would encourage responsibility and creativity for both cities and states. Cities would finally have to confront their land use and economic development policies, employee compensation and infrastructure management; while states would have to confront their redistribution of revenue to rural areas. While state emergency managers and receivers have turned financially struggling cities around, it’s not hard to think that they might be needed less if cities were free.