While no municipal government is worse off than Philadelphia. cities throughout the Northeast are in tough economic straits. Declining tax revenues spawned by a regional recession, coupled with a spiraling demand for services, are forcing city halls to make desperate moves. New York, facing its worst crisis since it nearly went bust in 1975, announced last week that it may lay off 10,000 workers next year to close a projected budget gap of $1.6 billion. Washington, D.C., nearly missed city payrolls in August and September. The Northeast has been hit hardest by a torpid economy, but other urban governments are not immune. A survey of 576 communities nationwide by the National League of Cities earlier this year found that two thirds were less able to meet their financial needs than they were a year ago.
Many of the troubles flow from conditions beyond the cities’ control. Despite all the talk of urban gentrification, city dwellers continue to move to the suburbs, eroding tax bases. Reagan-era cutbacks have cost cities $20 billion in federal funding since 1981, according to the U.S. Conference of Mayors. Philadelphia’s losses in federal dollars come to $200 million a year–nearly the amount of the city’s current deficit. Cities and states have been forced to hike taxes to pay the tab for a wave of drug-fueled crime, homelessness and AIDS. While booming real-estate markets in the go-go ’80s helped blunt some of the budgetary pain, that cushion is gone. The problems are as much managerial as fiscal. Patronage, flabby bureaucracies and labor agreements designed to buy votes have hindered long-range solutions.
Philadelphia’s crisis has been incubating for years. The city has lost 400,000 residents and 200,000 jobs since 1970. A building boom revitalized downtown in the 1980s, but generous property-tax abatements to developers limited the city’s ability to cash in. Banks, insurance companies and other state-regulated businesses also enjoy exemptions, forcing residents and commuters to pay hefty wage taxes.
The shaky financial structure began to unravel last June. After an unexpected downward spike in tax revenues left the city short of cash, Moody’s Investors Service lowered the city’s credit rating to junk-bond status. Shunned by Wall Street and local banks, the city has beer. unable to sell $450 million in short-term notes to cover its $10 million in weekly expenses until new tax payments come in early next year. Cutting the work force will be difficult; union contracts bar layoffs for at least the next two years. Mayor Wilson Goode and state officials are proposing a bailout funded by $125 million in new taxes and the sale of notes backed in part by the state treasury and city pension funds. But political support for the plan remains uncertain, and the clock continues to tick.
New York is unlikely to reprise its 1975 near miss with bankruptcy, but its situation is still grim. The coalition of local, state and union leadership that came to the last rescue will be difficult to resurrect. With no local economic turnaround expected before mid-1992, Mayor David Dinkins faces an agonizing round of belt tightening. It won’t be easy. The city has added 50,000 employees to the payroll since 1983. Many were added to meet pressing needs in the city’s schools, jails and social-service agencies; but few experts believe the city is functioning efficiently–or logically. In five days last month, Dinkins awarded city teachers a 5.5 percent raise, announced plans to hire 6,000 new cops–and then said 15,000 layoffs might be needed. Dinkins’s flip-flops “give the impression no one’s at the wheel,” says James Hughes, a professor of urban planning at Rutgers University.
In Washington, which faces a $200 million budget deficit, the question is whether the wheel has been stolen. Last month the city council, concerned that outgoing Mayor Marion Barry was using his final weeks in office to grant favors to cronies, required that he submit all contracts over $1 million for approval. Barry responded by vetoing the measure. Mayor-elect Sharon Pratt Dixon, who promised to fire 2,000 bureaucrats, learned that the task will be more difficult than she assumed. More than half of Barry’s top political appointees may be protected by the civil-service system, making them virtually pink-slip-proof.
New sources of local revenue will be hard to come by in the troubled Northeastern cities. Their residents are already among the most heavily taxed in the nation. New York investment banker Felix Rohatyn, outgoing chairman of the state watchdog agency established during the 1975 crisis–and sharply critical of Dinkins’s policies during the current crunch–says the solution will require a fundamental change in national priorities. The recent federal-budget debate was dominated by “rhetoric about taxing the rich or protecting Medicare, but you never heard a word about the fundamental problems of the country,” he says. “Those problems are down here in the cities and states. That’s where the rubber meets the road.” For now, if that road is in Philadelphia, New York or Washington, it’s likely to be full of potholes.
