Rust Belt Cities and Their Burden of Legacy Costs

Rust Belt cities have long been trying to respond to social and economic decline. Some officials continue to pursue a revival of manufacturing. Academics and, to a lesser extent, policymakers have tried to develop “shrinking city” agendas that start by recognizing that postindustrial cities are not likely to return soon to postwar economic health. But political necessity forces most city officials to focus more on revitalization than on how to manage decline.

Any policy designed to revive the Rust Belt must come to terms with the deep fiscal challenges faced by these city governments. Despite steadily weakening tax bases, Rust Belt local officials have continued to increase debt and retirement-benefit burdens. The result is tremendous strain on city budgets.

Municipal fiscal distress in the Rust Belt is pervasive and structural. Rust Belt cities’ fiscal challenges are exacerbated by recessions; but they persist during economic expansions, too. Whatever else “urban revitalization” may mean, it must mean solvency. A city that cannot balance its budget and fund its debt and liabilities cannot provide police and fire protection or maintain its infrastructure. The ability of cities to deliver such services is increasingly in question during the current era of diminished municipal self-sufficiency due to increased legacy burdens and weakened tax bases.

As bad as other times, such as the 1970s, have been for Rust Belt cities, the threat to insolvency is greater now. Many Rust Belt state governments are active, and have been for decades, in dealing with fiscal distress in various ways. But further adjustments to the traditional relationship between state and local governments may be necessary. State governments are the only entities in a position to ensure that cities remain solvent and that basic services are delivered.

READ FULL REPORT

______________________

Stephen Eide is a senior fellow at the Manhattan Institute.