Institute for Domestic & International Affairs, Inc.
Senate Committee on Banking, Housing, and Urban Affairs Urban Finance Director: Martha Guarnieri
Š 2010 Institute for Domestic & International Affairs, Inc. (IDIA) This document is solely for use in preparation for Rutgers Model United Nations 2010. Use for other purposes is not permitted without the express written consent of IDIA. For more information, please write us at idiainfo@idia.net
Policy Dilemma ______________________________________________________________ 1 Chronology__________________________________________________________________ 3 1930s-1960s: The Emergence of the Suburbs ___________________________________________ 3 1949-1974: Urban Revitalization Programs ____________________________________________ 4 1974: Housing and Community Development Act _______________________________________ 5 1980s: Reagan Administration and Market-based Finance Programs ______________________ 6 2009: The Financial Crisis __________________________________________________________ 7
Actors and Interests ___________________________________________________________ 8 Business _________________________________________________________________________ 8 The Creative Class _______________________________________________________________ 10 U.S. Department of Housing and Urban Development __________________________________ 12
Possible Causes _____________________________________________________________ 13 Gentrification____________________________________________________________________ 13 Lack of Jobs for City Dwellers______________________________________________________ 14 Political Corruption ______________________________________________________________ 16 Comparison of Causes ____________________________________________________________ 17
Projections and Implications ___________________________________________________ 18 Conclusion _________________________________________________________________ 19 Bibliography________________________________________________________________ 21 For Further Reading ______________________________________________________________ 21 Works Cited _____________________________________________________________________ 22 Works Referenced ________________________________________________________________ 25
Rutgers Model Congress
1
Policy Dilemma Financing urban centers has always been of concern for America’s cities. The close proximity of housing, businesses, hospitals, transportation, and many other institutions within cities creates a need for constant redevelopment and economic stimulation. Additionally, cities need to continuously raise money in order to provide the services to their growing populations. Currently, cities are financed through a variety of avenues, from tax collection of residents and businesses to grants from the federal and state governments. After World War II, when many middle class Americans fled cities for the suburbs, the average income of many city residents dropped, and the number of renters within city limits rose. This pattern caused property taxes in cities to fall; and as jobs and investors moved out, it became difficult for cities to maintain the basic social services to their residents. That, as well as the devolution of power and funding from the federal government caused many of America’s urban areas to decline, and poverty to rise. Programs like Community Development Block Grants (CDBG) have attempted to solve issues of poverty by providing large blocks of money to local governments to solve the problems. Little accountability for the use of these funds caused urban advocacy groups to reject the program and question is success. In 2005, though, the federal budget included a large cut to these programs, consolidating the grants with seventeen other programs that gave financial assistance to urban areas. Mayors, businesses, and counties expressed that without these grants, which U.S. Conference of Mayors President and Acron Mayor Don Plusquellic called the “foundation of our nation’s communities,” community development in many cities will be severely curbed.1
1
“Mayors, County Officials and Business Leaders Denounce Elimination of Community Development Block Grants,” American Society for Public Administration, May 2005.
Rutgers Model Congress
2
However, in 2010, the federal deficit has reached $1.3 trillion2, and President Obama has proposed a freeze on government spending in the year 2011 for three years.3 While they have not released details as to which domestic programs will be cut, there is a serious possibility that cities will see larger cuts on block grants from the federal government. Therefore, cities and Congress will have to look at other forms of funding, and create innovative ways of stimulating local economy. Currently, cities get funding for programs through other means. Taxes on residents as well as businesses provide revenue for various projects, though some argue that taxes are not distributed as well as they could be.4 Tax abatements and incentives also create an interesting situation for cities. The tax abatement program, originally intended to stimulate economic growth in blighted or slum areas by giving tax incentives to businesses that build there, has been used very differently in many cities. In a case study on Jersey City, New Jersey, Naomi Mueller Bressler and Carolyn Topp of the New Jersey Policy Perspective explain that Jersey City and many cities throughout the state use the state’s tax abatement law to attract investors to areas that may not need it. The Jersey City waterfront area, which underwent vigorous redevelopment in the past ten years, now hosts multiple high-rise, high-end apartment buildings and businesses, many of which are excused from paying taxes. This use was not the original intention of tax abatements, nor does it stimulate the economy, create jobs in low-income areas of cities, or work on eradicating poverty.5 If cities intend to continue to serve residents, by providing adequate transportation to adequate jobs, healthcare, trash pickup, and other things, there needs to be a change in the way funding comes to cities.
Mismanagement of funds, tax abatements and
incentives, as well as a financial crisis has worsened the financial state of the American 2
“The Budget and Economic Outlook: Fiscal Years 2010 and 2020, Summary,” Congressional Budget Office. <http://www.cbo.gov/ftpdocs/108xx/doc10871/Summary.shtml#1045449> 3 Henry, Ed, “Obama wants to freeze discretionary spending for three years,” CNN Politics, January 26, 2010. <http://www.cnn.com/2010/POLITICS/01/25/obama.spending.freeze/index.html> 4 Inman, Robert P., “Financing Cities,” National Bureau of Economic Research, March 2005. 5 Bressler, Naomi Mueller and Carolyn Topp, “All that glitters is not gold: Property Tax Abatements in Jersey City,” New Jersey Policy Perspective, July 2009.
Rutgers Model Congress
city.
3
More homes are entering foreclosure, and public construction projects are
abandoned half-finished. Congress must work with cities and HUD to create sustainable policies and programs in order to really revive American cities.
Chronology 1930s-1960s: The Emergence of the Suburbs The suburbs emerged as a widespread social phenomenon after World War II. There are many reasons why families flocked to the suburbs in large numbers after the war. The Great Depression immobilized many families, and the economic stimulus and raise in the family income after the war allowed more families to have flexibility when deciding where to live. The federal government provided incentives for builders to build homes outside of the city, as well as subsidies for middle class residents to move out. Part of the benefits that veterans of the war received upon returning home lowered the down payments and monthly payments veterans had to make on houses through federal insurance, making even more incentives for homeownership for middle class families.6 The rise of the auto industry also affected the suburbanization of the country. As the number of automobile owners went from four in 1894 to nearly twenty-seven million in 1930, more families were able to move further away from where they work.7 Additionally, many cities experienced “white flight” during this time. White flight refers to the relocation of white middle-class residents from urban centers to suburbs. Racial reasons, which point to racist fear of the emerging civil rights movement within the white community, explain one possible reason for this flight from urban areas. Additionally, already declining economic and ecological reasons may account for white flight after the war.8
6
Ames, David L., “Interpreting Post-World War II Suburban Landscapes as Historic Resources,” 2. Ibid. 8 Frey, William H. “Central City White Flight: Racial and Nonracial Causes,” American Sociological Review, 1979, 425-448 7
Rutgers Model Congress
4
Regardless of the reason for white flight, it resulted in an early decline in the financial health of cities. Not only did increased suburbanization make the conditions of the cities for minorities decline, it created a financial crisis for many local governments plagued by low property taxes and increased renting. Since the movement of wealthy residents out of the city in the 1930s through 60s, city governments have been scrambling to bring money into the cities.
1949-1974: Urban Revitalization Programs Federal urban revitalization programs began with the passage of Title I of the Housing Act of 1949. Title I provided federal funding for slum clearance and urban revitalization programs, and had widespread support. Advocates of public housing saw this as a way to improve living conditions, city governments saw it as a way to increase tax revenue, and businesses saw it as a way to increase property taxes.9 The federal subsidies went specifically to projects that revitalized residential, not commercial, properties. This set the standard for how the federal government would put money into the cities – through housing infrastructure. However, throughout the 1950s, various pieces of federal legislation allowed more revitalization funds to go for commercial projects, as well as schools, universities, and hospitals.10 Many of these funds were funneled to private developers, who were thought to be better able to handle the projects. By the 1960s, social welfare and housing advocates began to reject the federal urban revitalization programs, which they said functioned as a means for low-income residents of cities to be displaced as their homes were replaced by commercial and middle-high income housing units.11 Therefore, while the projects did suit business interests of raising property taxes and tax revenue, they did not actually solve problems of poverty in cities.
9
Teaford, Jon C., “Urban Renewal and It’s Aftermath,” Housing Policy Debate, 11:2. 2000. P 444 Ibid, 445. 11 Ibid. 10
Rutgers Model Congress
5
Additionally, the distribution of revitalization funds among cities was disproportionate. Some cities, which may have lacked the skills or experience in grant writing, received little funds, while other cities received more funds. Jon Teaford explains how the city of New Haven, Connecticut, received three times the federal funding that other cities did in 1966. It received nearly $750 per person in funds, and was able to revitalize many areas effectively. However, this was not typical.12
1974: Housing and Community Development Act The Housing and Community Development Act in 1974 dramatically altered the way that funding came to cities.
Instead of distributing federal funds for specific
projects, such as slum clearance, funds were given annually in chunks, or blocks, to cities based on a certain formula. This process was thought to be more effective, as local officials would be able to determine what the most pressing development need is. The Community Development Block Grants (CDBG) program is currently the largest program run by the U.S. Department of Housing and Urban Development (HUD). By giving large grants to cities based on how well they meet certain criteria, HUD allows cities discretion in distributing funds to developers to build housing, create jobs, expand homeownership, and stimulate the economy in areas that have a high need. This program, though, effectively devolved the power to solve urban problems to local governments. The program was intended to “eliminate blight and conserve and renew older urban areas and to provide decent housing and a suitable living environment, principally for persons of low- and moderate-income.”13
A study appearing in the
Housing Policy Debate examined the results of these grants on the community, and found that in many cases, grants are not effective ways of battling poverty in cities. In many
12
Teaford, 451 Galster, George, Christopher Walker, Christopher Hayes, Patrick Boxall, and Jennifer Johnson. “Measuring the Impact of Community Development Block Grant Spending in Urban Areas,” Housing Policy Debate 15:4. 2004. P 904 13
Rutgers Model Congress
6
cases, the grants neither created jobs, nor improved the condition for poor residents. 14 The article suggests that this may be due to the programs’ focus on grants for the improvement of neighborhood and social conditions, rather than to help specific lowincome individuals.15
1980s: Reagan Administration and Market-based Finance Programs When Ronald Reagan became president in 1981, he changed the climate of federal funding to urban centers forever. Reagan sought to reform economics by relying on market-oriented approaches, which he thought would decentralize responsibility from government. This approach also removed most federal assistance to cities.16 In line with a Republican view of reducing federal spending, Reagan cut programs that funded cities as he consolidated seventy-seven block grant programs into nine.17 According to an article in Newsday, Reagan cut federal assistance to local governments by sixty per cent. “In 1980, federal dollars accounted for 22 per cent of big-city budgets, but when he left office, it was down to 6 per cent.”18 This cut in funding greatly reduced the support that cities had from the federal government, and made many look to the state for funding. The state, however, also experienced a cut in funding. While there was a small increase in state funding to cities through grants in 1981, many were temporary.
By 1984, state aid in city budgets
matched that of local own-sourced revenue.19 14
Ibid, 911. Ibid, 904. 16 Cohen, Neal M. “The Reagan Administration’s Urban Policy,” The Town Planning Review, 54:3. 1983. P 304 17 Finegold, Kenneth, Laura Wherry, and Stephanie Schardin. “Block Grants: Historical Overview and Lessons Learned,” Urban Institute. April 21, 2004. <http://www.urban.org/publications/310991.html> 18 Drier, Peter. “Urban Suffering grew under Reagan,” Newsday, June 10, 2004. <http://www.commondreams.org/views04/0610-01.htm> 19 Yinger, John. “States to the Rescue? Aid to Central Cities under the New Federalism,” Public Budgeting & Finance. 1990. P 31 15
Rutgers Model Congress
7
2009: The Financial Crisis The financial crisis of 2009 hit cities hard. As cities faced a decline in revenue and operating budgets became smaller, many had to increase municipal fees, lay off workers, and delay public works projects.20 Additionally, many residents of cities experienced foreclosure, and the unemployment rates in cities, especially in communities of color, soared. The Bureau of Labor Statistics reported that between December of 2008 and December of 2009, the unemployment rate of African Americans rose from 11.7% to 16.2%. For white residents, the rate rose from 6.5% to 9%.21 One of the most visible effects of the financial crisis in cities is in half-finished development projects. In New Brunswick, NJ, a collaborative project between the city government and the School Development Authority (SDA), a state entity, was undertaken to redevelop city schools, which suffered from declining conditions. The results of a lawsuit, Abbott v. Burke, mandated the state to redevelop schools found to be “unconstitutionally substandard” in many low-income urban areas. The state agreed to fund the rebuilding of a few schools in the city of New Brunswick, namely A.C. Redshaw Middle School, located in the center of town. The SDA knocked down the old Redshaw School in 2006 with plans to rebuild the school with a $44 million budget. A warehouse, or “swing space” on the edge of town was built for children to attend classes temporarily during construction. In 2007, the state canceled the project because of a lack of funds. In 2008, the state borrowed money to rebuild Redshaw School and other schools across the state. However, construction has still not happened, children are still attending school in the warehouse, and a large desolate lot remains in the middle of town where the school
20
Cohen, Ariella. “US Cities are in crisis but new solutions are taking hold,” Next American City. http://www.citymayors.com/economics/us-cities-crisis.html 21
“Employment status of the civilian population by race, sex, and age,” Bureau of Labor Statistics. http://www.bls.gov/news.release/empsit.t02.htm
Rutgers Model Congress
8
should be. The Superintendent of schools says that the state has a “moral duty to replace the school,” but the state is not making any moves to rebuild.22 Stories like this exist in cities across the country due to the financial crisis. In order to continue construction, which can create jobs and increase the quality of life in urban areas, cities must be able to receive funding from sources other than the state, which are equally as strapped.
Actors and Interests Business Business interests play a large role in how cities are financed. Developers and investors, who may determine the fate of city landscape, are often at the table when discussions about financing urban centers take place. The recent trend of providing tax incentives and tax breaks to businesses who build in economically desolate areas has surely benefited business, though it is unclear whether it has actually benefitted the urban poor. Some state economic development agencies, such as the New Jersey Economic Development Agency, give loans to finance small and medium sized businesses if they build in urban areas.23 Before being able to the agenda of businesses when it comes to urban economic development, it is necessary to understand the power that they have when negotiating any aspect of the market. In his article “The Privileged Position of Business,” Charles Lindbolm explains that in a private enterprise system, like in the United States, many aspects that are of public consequence are left to the discretion of businesspersons. For example, businesses get to decide “industrial technology, the pattern of work organization, location of industry, market structure, resource allocation, and, of course, executive compensation and status.”24 Lindbolm says that because businesspersons 22
“New Brunswick Should Take Command of the Redshaw Project,” Home News Tribune. January 24, 2010. http://www.mycentraljersey.com/article/20100124/OPINION01/1240314/New-Brunswick-should-take-commandof-Redshaw-project 23 “Finanancing and Incentives: Small and Medium Sized Businesses,” New Jersey Economic Development Authority. < http://www.njeda.com/web/Aspx_pg/Templates/Pic_Text.aspx?Doc_Id=91&topid=718&midid=1417> 24 Lindbolm, Charles. “The Privileged Position of Business”, p 171
Rutgers Model Congress
9
control all of these things, but are not elected, they assume a privileged position on all discussions of the market. Lindbolm says that the degree to which government aids business fluctuates. Governments are and should be concerned with stimulating growth, and if businesspersons say that in order to do that, they need this amount of tax incentives to attract investors, government will provide them. In many cases, businesspersons are given veto power as to the appointments of government committees dealing with the market.25 In other cases, formal government authorities are commonly consulted with business councils, in which virtually businesspersons act as unpaid government officials.26 All of this is relevant only to understand that businesses, driven almost exclusively by their desire to create a profit for their business, are coming to the table with a similar power to government. Whether this power is morally correct is irrelevant. Business interests in urban areas have gotten more and more responsibility as more cities have gentrified quickly. In her article “Gentrification: Culture and Capital in the Urban Core,” Sharon Zukin explains: Gentrification, the conversion of socially marginal and working-class areas of the central city to middle-class residential use, reflects a movement, that began in the 1960s, of private-market investment capital into downtown districts of major urban centers.27
This movement of private market investment capital into urban centers has allowed many businesses and developers to invest more heavily in cities than before. Zukin explains that strategic moves of the state and federal government in support of gentrification have come in times of raising inflation rates, fuel costs, and construction costs, creating economically viable alternatives for many business interests.28 Gentrification is thought by many to be a way of raising property taxes, and creating a 25
Ibid, 174. Ibid, 185. 27 Zukin, Sharon. “Gentrification: Culture and Capital in the Urban Core,” Annual Sociology Review, 13:129-47, p 129 28 Zukin 132 26
Rutgers Model Congress
10
better city environment. Zukin explains, however, that property taxes are not really raised, but that highly gentrified parts of cities can eventually increase the value of the surrounding area, but that it does not do much to actually help solve the problems that those areas are having.29
The Creative Class Theories of the “creative class” as a main motivation for economic prosperity in cities has emerged with the work of Richard Florida, a former Carnegie Mellon professor. Florida says that economic success in cities has been determined by factors that are no longer relevant, such as the city’s proximity to transportation, natural resources, or the jobs that are available there. Because of this focus, many cities have been working desperately to attract businesses by creating tax incentives and attractions for businesses to build and operate in their city. Florida proposes a new formula for economic success in cities, explaining that cities that attract members of the creative class are more likely to prosper. Florida defines the creative class as having a core, which includes: Scientists and engineers, university professors, poets and novelists, artists, entertainers, actors, designers, architects, as well as the “thought leaders” of modern society: nonfiction writers, editors, cultural figures, think-tank researchers, analysts, and other opinion makers.30
This creative class also includes “creative professionals” who work in a slew of professions, such as financial sectors, business management, etc. In his article written in 2003, Florida says that this creative class made up about 30% of workers in the United States, and has the potential to include many more.31 Because the creative class is educated, they are no longer choosing where to settle based on where they can get a job, but are moving to cities that have a good culture. Business, in turn, will move to the areas where these workers are.
29
Zukin 136 Florida, Richard. “Cities and the Creative Class,” p 8 31 Ibid. 30
Rutgers Model Congress
11
Florida says that cities should strive to possess the three qualities that attract the creative class, and in turn, create economic success: tolerance, talent, and technology.32 Tolerance refers to the openness of firms and the city institutions to include diversity. Namely, he talks about the gay community, and its affect on cities.
Since gay
communities have been routinely excluded from the mainstream, companies that cater to gays (e.g. providing benefits for same-sex couples) attract a host of creative individuals, who think of the company as being “cool.” Talent refers to the amount of people in an area who have high levels of education, and technology refers to the amount of high technological resources in a city. He says that these three qualities are connected, and must be employed in unison if the creative class is to be attracted to the city. Florida used the “bohemian index” and “gay index” to determine that cities with high levels of these groups saw economic growth. This theory of the creative class has affected many cities, which have brought Florida in for consultations on how to make their city more attractive to creative individuals.
Cities like Cleveland, Toledo, Baltimore, Rochester, Green Bay, Des
Moines, and Elmira, New York have worked with Florida to establish “poetry posts” and launch “cool cities” initiatives.33 While the success of these programs has yet to be seen, there is significant proof that cities which are welcoming to creative individuals may attract business, and in turn stimulate economic growth. There appears to be potential for this approach to economic development, but it has not been seen in federal and state policy, which still uses tax incentives and job creation as tools for economic growth. In an editorial on Rustwire.com, a quote from a leader of CreateDetroit, a citizen’s organization working on stimulating the local economy, said that I believe Richard has a real strong pulse on a certain segment of the population that can move freely around … but I’m staying. I’m not going. He keeps missing one of the most fundamental
32
Ibid, 10. “Richard Florida: Your city is hopes, That will be $35,00,” RustWire.Com, http://rustwire.com/2010/01/21/richard-florida-your-city-is-hopeless-that-will-be-35000/ 33
Rutgers Model Congress
12
points, which is that there is a remnant of people who aren’t going to leave — and it’s because of the struggle that we’re going to stay.34
U.S. Department of Housing and Urban Development The United States Department of Housing and Urban Development (HUD) has been the main federal actor in solving urban problems. As has been discussed earlier, HUD has generally cut funding to cities, focused on housing issues, and given block grants to cities to solve their problems. In 2008, Senator Barack Obama ran for President and promised to revitalize the role that federal government plays in solving urban issues. As is described in a report from the Penn Institute for Urban Research, Obama’s promise must extend to rethinking the way that federal programs and policies address housing needs, as well as economic and social needs within cities and metropolitan areas.35 Among other recommendations, the report encourages HUD to take a leading role in urban revitalization, and to put the “UD” in “HUD” by not only focusing on affordable housing issues, but by “helping to shape the development of our cities and metropolitan areas through strategic investments and approaches that encourage regional thinking and action.”36 Since this report, there have been some steps made by HUD to alter its role in urban finance. In February of 2010, HUD Secretary Shaun Donovan announced a HUD Office on Sustainable Housing and Communities (OSHC).
This office would be
responsible for helping “build stronger, more sustainable communities by connecting housing to jobs, fostering local innovation and building a clean energy economy.”37 OSHC will be working with the Department of Transportation, the Environmental Protection Agency, and other federal agencies to create sustainable, green housing and development in urban areas. This collaboration has never happened before, and has been 34
Ibid. Brophy, Paul C. and Rachel D. Godsil. “Retooling HUD for a Catalytic Federal Government: A Report to Secretary Shaun Donovan,” Penn Institute for Urban Research, February 2009. P 7 36 Ibid 8 37 “HUD Secretary Donovan Announces New Office of Sustainable Housing and Communities,” U.S. Department on Housing and Urban Development <http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-028> 35
Rutgers Model Congress
13
portrayed by HUD as the first step toward changing the scope of the federal government’s role in development. Senate granted $150 million for the initiative, and $100 million of that will be given out in regional block grants to non-profits, states, municipalities, and development agencies. A press release from the HUD’s Secretary explained the purpose of the grants. These grants will be designed to encourage regions to build their capacity to integrate economic development, land use, transportation, and water infrastructure investments, and to integrate workforce development with transit-oriented development.38
While HUD is focusing on uniting many forces behind urban initiatives, there are still many programs that view incentives and block grants as the key to economic success, like empowerment zones and programs aimed to revitalize “brownfields,” or “environmentally contaminated industrial and commercial sites.”39
This “hands-off”
approach to economic stimulation has long been the norm for federal involvement in urban revitalization, as power has devolved to the more local scale.
Possible Causes Gentrification Gentrification is the process of class change in urban areas. This class change is marked by the redeveloping of decaying urban areas, usually by the building and fixing of old, run down housing and stores, or through the construction of new buildings and condominiums. Because housing is hard to maintain, and in many urban areas, property taxes are low, owners of buildings do not have much motivation for upkeeping homes. However, after the 1960s, the United States began a period of gentrification, or the revitalization of these decaying areas of cities. Cities usually use internally generated funds and grants to bid out projects to private developers. When cities, typically center cities, are gentrified, the property taxes around the area are raised, and many low-income 38
Ibid “Economic Development Programs,” U.S. Department of Housing and Urban Affairs. <http://www.hud.gov/offices/cpd/economicdevelopment/programs/> 39
Rutgers Model Congress
14
renters are unable to maintain their rents, and move out. While rent control exists in most cities, this practice of displacement is as an effect of the gentrification process.40 An economist might see gentrification, which often is simultaneous with the arrival of the creative class to an area, as a great way to stimulate growth and wealth within a city. However, as the economy worsened, and the real estate industry crashed, cities were left trying to make up for the effects of gentrification. An article in The American Prospect proposes that New York City is suffering from a “gentrification hangover,” as investors have deserted large luxury buildings intended to stimulate the economy because city residents could not afford the high rent in them. The article tells the story of an old mint factory in the city, which had previously been subsidized housing for artists. The owner of the building sold it to a private-equity firm, which went to court to force the eviction of the tenants. The building was flipped and sold along with the nearby lot, to a condominium developer with the help of the American Investment Group – AIG. The renovated apartments did not sell, and the building is now empty and boarded up.41
Because this horror story is common in many cities throughout the
country, there are logical reasons why many see gentrification as an insufficient solution to solve cities’ economic problems.
Lack of Jobs for City Dwellers The lack of jobs for city dwellers has acted as both a cause of and a result of the economic downturn of cities. Unemployment rates in urban areas are often significantly higher than those in rural or suburban areas. Unemployment rates from October of 2007 to October of 2008 increased in 361 of the 369 urban areas in the United States.42 While some studies show that unemployment in cities is in fact declining, others show that unemployed residents are only becoming more geographically concentrated in urban 40
Wetzel, Tom. “What is Gentrification?” http://www.uncanny.net/~wetzel/gentry.htm Katz, Alyssa. “Gentrification Hangover: Can a new era of affordable housing be created from the wreckage of failed luxury real estate?” The American Prospect, January 2010. P1 42 “Metropolitan Area Employment and Unemployment: October 2008,” Bureau of Labor Statistics. December 2, 2008. 41
Rutgers Model Congress
15
neighborhoods.43 These neighborhoods are often segregated not only on class lines, but also on race lines. In 2007, the number of unemployed white city dwellers was 3.5 per cent less than blacks, and 2 percent lower than Hispanic residents. There are many reasons for high unemployment rates in urban areas. Fundamentally, it is difficult to motivate investors to invest in cities with poor economic climate. Businesses, which may provide jobs to residents, are equally as cautious about building in poor neighborhoods. HUD’s Empowerment Zone program has been one of the primary ways that the federal government has tried to tackle the problem, by providing tax incentives to businesses that hire local residents. This program should be desirable to cities, as those residents will presumably spend that money in the city on rent and other things. However, there are few empowerment zones, and their results are questionable. A report from the National Housing Institute in 2000 cited Maggie DeSantis, Executive Director of a Detroit Community Development Corporation saying that the program was playing out by allowing large corporations to renovate old buildings, and hire local people to do so. "Anyone who wanted to call this [the EZ/EC initiative] urban policy was nuts, though," she adds. "Its tax breaks for businesses. What we need is a whole range of incentives to change the behavior of corporations, make them accountable to the neighborhoods."44 Another major reason for high unemployment in urban areas is inefficient transportation infrastructure. In an article on the suburbanization of work, Michelle J. White analyzes why certain types of industries may choose to build in the city or in the suburbs. She concludes that there are clear benefits for many companies to move to the suburbs, most clearly that they can pay workers less because they are not paying the commute into the city. In addition, property is cheaper in the suburbs. However, many “specialized industries” may prefer to stay in cities so they can “observe their competitors 43
“Neighborhood-Level Unemployment Trends,” Monthly Labor Review, Bureau of Labor Statistics. April 2007. Pitcoff, Winton, “EZ’er Said than Done,” National Housing Institute, July/August 2000. <http://www.nhi.org/online/issues/112/EZEC.html> 44
Rutgers Model Congress
16
and have face-to-face meetings with suppliers or customers in any direction.”45 Therefore, specialized jobs that typically require higher education levels are remaining in the cities, while manufacturing jobs, typically occupied by low-wage, unskilled workers, are moving to the suburbs, where they become inaccessible to city dwellers.
Political Corruption Many local and state politicians across the country have been able to use the power granted to them from the federal government for their own personal use. As has been discussed thus far, local and state governments receive grants for development initiatives. All governments must typically follow a bidding process to give the contract for the project to the most competent developer. However, federal law allows local governments to appeal this process and ask for a no-bid contract on the basis of time – either because the project is time sensitive, or the grant is about to expire.46 By appealing for no-bid contracts, local politicians can pay back the financers of their campaign, virtually bribing them for support. This oftentimes results in wealthy firms getting contracts that could have gone to firms who would have done the job better. Additionally, it makes the cost of getting in the game of politics much less accessible for regular people, who have to compete with large corporations in funding.47 In New Jersey, citizen groups have been pushing for “pay to play” reform that would restrict contractors and developers from donating to political campaigns. Almost all Democratic senators in the New Jersey State Senate rejected this reform in January of 2007. In July 2009, forty-four people were arrested in a large corruption scandal in the state. An Associated Press article recounted:
45
White, Michelle, “Urban Areas with Decentralized Employment: Theory and Empirical work,” Handbook of Regional Economics, 2990. P 1384. 46 “Subpart 6.3 – Other than Full and Open Competition,” Acquisition Central, https://www.acquisition.gov/far/current/html/Subpart%206_3.html 47 “State Pay-to-Play in the new,” New Jersey Common Cause, http://www.commoncause.org/site/pp.asp?c=dkLNK1MQIwG&b=1538987#PAY_TO_PLAY_RULES___Good_ne ws__bad_news
Rutgers Model Congress
17
Among the 44 people arrested were the mayors of Hoboken, Ridgefield and Secaucus, Jersey City's deputy mayor, and two state assemblymen. A member of the governor's cabinet resigned after agents searched his home, though he was not arrested. All but one of the officeholders are Democrats.48
This scandal made an FBI official call corruption a “cancer that is destroying the core values of the state.”49 One of the elected officials charged was Assemblyman and former Jersey City Mayor L. Harvey Smith, who was charged of “taking $15,000 in bribes to help get approvals from high-level state agency officials for building projects.”50 Some municipalities in the state are now adopting pay-to-play laws, as a comprehensive reform did not pass. Because of these stories of corruption and others, Congress should rethink its role in revitalizing cities, as those who are in charge of administering programs may not be able to be trusted.
Comparison of Causes Corruption, lack of jobs for city dwellers, and gentrification can all be cited as real reasons for the failing economic health of cities. Each of these is connected to the devolving federal power over urban policy to the state and local governments over the past forty years.
Clearly, there are problems with the discretion given to local
governments and agencies to decide with whom to contract their building projects to.51 Since local governments spend so much time focusing on this aspect of economic development, many residents of cities remain unemployed and unable to access jobs. Additionally, large condominium construction in cities, while it may seem promising for economic health, may not actually prove to be safe investments for local and state governments.
48
“44 arrested in N.J. corruption probe,” Associated Press. July 23, 2009. http://www.msnbc.msn.com/id/32103250/ns/us_news-crime_and_courts/ 49 Ibid 50 Ibid 51 Kettl, Donald F. “The Transformation of Governance: Globalization, Devolution, and the Role of Government,” Public Administration Review 60:6. P 494.
Rutgers Model Congress
18
Projections and Implications If the federal government is unable to take a lead in creating sustainable city finance, American cities will continue in a downward spiral.
Public and private
construction projects will remain unoccupied, abandoned, or half-completed.
City
residents will increasingly be forced to leave their homes as gentrification drives the price of rent up for many low-income tenants. As they leave their homes, many will be forced to settle in cheaper areas, which may have even less access to well-paying jobs . The creative class poses an interesting projection as the key to economic success of areas, though results of this theory remain to be seen. As the federal government becomes more and more strapped for cash, so does every American. It is the job of coalitions of governments, business, and citizens to find creative solutions to attract smart growth to cities, while maintaining that the residents of the cities are taken care of. Cities must work to sustain not only environmental aspects of construction, but culture, education, and general well being of their communities. It is possible for government to take an active role in facilitating this transition to sustainability and bringing the change that cities need, if they approach finance dynamically.
Rutgers Model Congress
19
Conclusion City finance is complicated.
Cities provide resourced to residents through a
combination of internally generated revenue and loans and grants from federal and state governments.
Contracts, given out to private companies with private investors, are
currently the primary vehicle toward revitalization of many urban areas. Revitalization, though, may not be as reliable as it once was seemed, and may not benefit a majority of the residents of the city.
Federal government has mostly employed a â&#x20AC;&#x153;hands offâ&#x20AC;?
approach to cities, providing local and state governments with the power to decide on their own community development initiatives, typically in the form of tax abatements and breaks to developers. However, this hands-off approach has allowed corruption, and has not always brought the change that urban communities may need. Transparent initiatives that create sustainable economic systems are necessary if Americaâ&#x20AC;&#x2122;s urban areas are to truly revitalize.
Rutgers Model Congress
20
Discussion questions • What are some creative ways that cities could raise revenue, either internally or externally, that would reduce their reliance on big corporations or the federal government? • Look at the way that cities have spent their money in the past few years. Do you believe that cities are accurately allocating their resources? If not, how would you change this? • As a U.S. Senator, you may come from a state that has many large urban areas, or none at all. What responsibilities do you, as a representative from your particular state, have to making sure that the country’s urban residents enjoy a comfortable, poverty-free lifestyle?
Rutgers Model Congress
21
Bibliography For Further Reading Lindbolm, Charles. “The Privileged Position of Business,” Chapter 13 in Politics and Markets: The World’s Political Economic System. New York: Basic Books, 1978. This article in Charles’ Lindbolm’s book Politics and Markets clearly explains the power dynamics under which business negotiations occur with government. It explains why, in a political system that is pluralist and should allow all opinions to be voiced, business often enjoys a privileged position. Florida, Richard. “Cities and the Creative Class” This article laid the groundwork for much of Florida’s later works about the Creative Class. It lays out many initiatives which he says attract the creative class of thinkers, artists, engineers, etc. This class, in turn, has the potential to make the economic environment of a city better. Brophy, Paul C. and Rachel D. Godsil. “Retooling HUD for a Catalytic Federal Government: A Report to Secretary Shaun Donovan,” Penn Institute for Urban Research, February 2009. This article explains clearly how HUD works, and what it should do to really reverse the social and economic decay of many urban areas. It is written by urban scholars who are not directly inside of the HUD department, so it provides an objective view of their work.
Rutgers Model Congress
22
Works Cited “44 arrested in N.J. corruption probe,” Associated Press. July 23, 2009. http://www.msnbc.msn.com/id/32103250/ns/us_news-crime_and_courts/ Ames, David L. “Interpreting Post-World War II Suburban Landscapes as Historic Resources.” Bressler, Naomi Mueller and Carolyn Topp. “All that glitters is not gold: Property Tax Abatements in Jersey City,” New Jersey Policy Perspective, July 2009. Brophy, Paul C. and Rachel D. Godsil. “Retooling HUD for a Catalytic Federal Government: A Report to Secretary Shaun Donovan,” Penn Institute for Urban Research, February 2009. Cohen, Ariella. “US Cities are in crisis but new solutions are taking hold,” Next American City. http://www.citymayors.com/economics/us-cities-crisis.html Cohen, Neal M. “The Reagan Administration’s Urban Policy,” The Town Planning Review, 54:3. 1983. Drier, Peter. “Urban Suffering grew under Reagan,” Newsday, June 10, 2004. http://www.commondreams.org/views04/0610-01.htm “Economic Development Programs,” U.S. Department of Housing and Urban Affairs. http://www.hud.gov/offices/cpd/economicdevelopment/programs/ “Employment status of the civilian population by race, sex, and age,” Bureau of Labor Statistics. http://www.bls.gov/news.release/empsit.t02.htm “Financing and Incentives: Small and Medium Sized Businesses,” New Jersey Economic Development Authority. < http://www.njeda.com/web/Aspx_pg/Templates/Pic_Text.aspx?Doc_Id=91&topid =718&midid=1417> Finegold, Kenneth, Laura Wherry, and Stephanie Schardin. “Block Grants: Historical Overview and Lessons Learned,” Urban Institute. April 21, 2004. http://www.urban.org/publications/310991.html Florida, Richard. “Cities and the Creative Class,” City & Community, 2:1. March 2003.
Rutgers Model Congress
23
Frey, William H. “Central City White Flight: Racial and Nonracial Causes,” American Sociological Review. 1979. 425-448 Galster, George, Christopher Walker, Christopher Hayes, Patrick Boxall, and Jennifer Johnson. “Measuring the Impact of Community Development Block Grant Spending in Urban Areas,” Housing Policy Debate 15:4. 2004. Henry, Ed. “Obama wants to freeze discretionary spending for three years,” CNN Politics, January 26, 2010. http://www.cnn.com/2010/POLITICS/01/25/obama.spending.freeze/index.html “HUD Secretary Donovan Announces New Office of Sustainable Housing and Communities,” U.S. Department on Housing and Urban Development http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisori es/2010/HUDNo.10-028 Inman, Robert P. “Financing Cities,” National Bureau of Economic Research, March 2005. Katz, Alyssa. “Gentrification Hangover: Can a new era of affordable housing be created from the wreckage of failed luxury real estate?” The American Prospect, January 2010. Kettle, Donald F. “The Transformation of Governance: Globalization, Devolution, and the Role of Government,” Public Administration Review 60:6. Lindbolm, Charles. “The Privileged Position of Business,” 1977. “Mayors, County Officials and Business Leaders Denounce Elimination of Community Development Block Grants,” American Society for Public Administration, May 2005. “Metropolitan Area Employment and Unemployment: October 2008,” Bureau of Labor Statistics. December 2, 2008. “Neighborhood-Level Unemployment Trends,” Monthly Labor Review, Bureau of Labor Statistics. April 2007. “New Brunswick Should Take Command of the Redshaw Project,” Home News Tribune. January 24, 2010.
Rutgers Model Congress
24
http://www.mycentraljersey.com/article/20100124/OPINION01/1240314/NewBrunswick-should-take-command-of-Redshaw-project Pitcoff, Winton. “EZ’er Said than Done,” National Housing Institute, July/August 2000. http://www.nhi.org/online/issues/112/EZEC.html “Richard Florida: Your city is hopes, That will be $35,00,” RustWire.Com, http://rustwire.com/2010/01/21/richard-florida-your-city-is-hopeless-that-will-be35000/ “State Pay-to-Play in the new,” New Jersey Common Cause, http://www.commoncause.org/site/pp.asp?c=dkLNK1MQIwG&b=1538987#PAY _TO_PLAY_RULES___Good_news__bad_news “Subpart 6.3 – Other than Full and Open Competition,” Acquisition Central, https://www.acquisition.gov/far/current/html/Subpart%206_3.html Teaford, Jon C. “Urban Renewal and It’s Aftermath” Housing Policy Debate, 11:2. 2000. “The Budget and Economic Outlook: Fiscal Years 2010 and 2020, Summary,” Congressional Budget Office. http://www.cbo.gov/ftpdocs/108xx/doc10871/Summary.shtml#1045449 Wetzel, Tom. “What is Gentrification?” http://www.uncanny.net/~wetzel/gentry.htm White, Michelle. “Urban Areas with Decentralized Employment: Theory and Empirical work.” Handbook of Regional Economics, 1990. Yinger, John. “States to the Rescue? Aid to Central Cities under the New Federalism,” Public Budgeting & Finance. 1990. Zukin, Sharon. “Gentrification: Culture and Capital in the Urban Core,” Annual Sociology Review, 13:129-47.
Rutgers Model Congress
25
Works Referenced “44 arrested in N.J. corruption probe,” Associated Press. July 23, 2009. http://www.msnbc.msn.com/id/32103250/ns/us_news-crime_and_courts/ Ames, David L. “Interpreting Post-World War II Suburban Landscapes as Historic Resources.” Bressler, Naomi Mueller and Carolyn Topp. “All that glitters is not gold: Property Tax Abatements in Jersey City,” New Jersey Policy Perspective, July 2009. Brock, Ed. “Cities will continue to feel financial pain,” American City and County. October 2009. http://americancityandcounty.com/admin/finance/recession-2010effects-200910/ Brophy, Paul C. and Rachel D. Godsil. “Retooling HUD for a Catalytic Federal Government: A Report to Secretary Shaun Donovan,” Penn Institute for Urban Research, February 2009. Cohen, Ariella. “US Cities are in crisis but new solutions are taking hold,” Next American City. http://www.citymayors.com/economics/us-cities-crisis.html Cohen, Neal M. “The Reagan Administration’s Urban Policy,” The Town Planning Review, 54:3. 1983. Drier, Peter. “Urban Suffering grew under Reagan,” Newsday, June 10, 2004. http://www.commondreams.org/views04/0610-01.htm “Economic Development Programs,” U.S. Department of Housing and Urban Affairs. http://www.hud.gov/offices/cpd/economicdevelopment/programs/ “Employment status of the civilian population by race, sex, and age,” Bureau of Labor Statistics. http://www.bls.gov/news.release/empsit.t02.htm
Rutgers Model Congress
26
“Financing and Incentives: Small and Medium Sized Businesses,” New Jersey Economic Development Authority. < http://www.njeda.com/web/Aspx_pg/Templates/Pic_Text.aspx?Doc_Id=91&topid =718&midid=1417> Finegold, Kenneth, Laura Wherry, and Stephanie Schardin. “Block Grants: Historical Overview and Lessons Learned,” Urban Institute. April 21, 2004. http://www.urban.org/publications/310991.html Florida, Richard. “Cities and the Creative Class,” City & Community, 2:1. March 2003. Frey, William H. “Central City White Flight: Racial and Nonracial Causes,” American Sociological Review. 1979. 425-448 Galster, George, Christopher Walker, Christopher Hayes, Patrick Boxall, and Jennifer Johnson. “Measuring the Impact of Community Development Block Grant Spending in Urban Areas,” Housing Policy Debate 15:4. 2004. Gorenstein, Dan. “President Bush Proposes Cutting Block Grant Program,” New Hampshire Public Radio. http://nhpr.org/node/8210 Henry, Ed. “Obama wants to freeze discretionary spending for three years,” CNN Politics, January 26, 2010. http://www.cnn.com/2010/POLITICS/01/25/obama.spending.freeze/index.html “HUD Secretary Donovan Announces New Office of Sustainable Housing and Communities,” U.S. Department on Housing and Urban Development http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisori es/2010/HUDNo.10-028 Inman, Robert P. “Financing Cities,” National Bureau of Economic Research, March 2005. Katz, Alyssa. “Gentrification Hangover: Can a new era of affordable housing be created from the wreckage of failed luxury real estate?” The American Prospect, January 2010.
Rutgers Model Congress
27
Kettle, Donald F. “The Transformation of Governance: Globalization, Devolution, and the Role of Government,” Public Administration Review 60:6. Lindbolm, Charles. “The Privileged Position of Business,” 1977. “Mayors, County Officials and Business Leaders Denounce Elimination of Community Development Block Grants,” American Society for Public Administration, May 2005. “Metropolitan Area Employment and Unemployment: October 2008,” Bureau of Labor Statistics. December 2, 2008. “Neighborhood-Level Unemployment Trends,” Monthly Labor Review, Bureau of Labor Statistics. April 2007. “New Brunswick Should Take Command of the Redshaw Project,” Home News Tribune. January 24, 2010. http://www.mycentraljersey.com/article/20100124/OPINION01/1240314/NewBrunswick-should-take-command-of-Redshaw-project Pitcoff, Winton. “EZ’er Said than Done,” National Housing Institute, July/August 2000. http://www.nhi.org/online/issues/112/EZEC.html “Richard Florida: Your city is hopes, That will be $35,00,” RustWire.Com, http://rustwire.com/2010/01/21/richard-florida-your-city-is-hopeless-that-will-be35000/ “State Pay-to-Play in the new,” New Jersey Common Cause, http://www.commoncause.org/site/pp.asp?c=dkLNK1MQIwG&b=1538987#PAY _TO_PLAY_RULES___Good_news__bad_news Steif, Colin. “An Overview of the Suburbs,” About.com: Geography. http://geography.about.com/od/urbaneconomicgeography/a/suburbs.htm
Rutgers Model Congress
28
“Subpart 6.3 – Other than Full and Open Competition,” Acquisition Central, https://www.acquisition.gov/far/current/html/Subpart%206_3.html Teaford, Jon C. “Urban Renewal and It’s Aftermath” Housing Policy Debate, 11:2. 2000. “The Budget and Economic Outlook: Fiscal Years 2010 and 2020, Summary,” Congressional Budget Office. http://www.cbo.gov/ftpdocs/108xx/doc10871/Summary.shtml#1045449 Wetzel, Tom. “What is Gentrification?” http://www.uncanny.net/~wetzel/gentry.htm White, Michelle. “Urban Areas with Decentralized Employment: Theory and Empirical work.” Handbook of Regional Economics, 1990. Yinger, John. “States to the Rescue? Aid to Central Cities under the New Federalism,” Public Budgeting & Finance. 1990. Zukin, Sharon. “Gentrification: Culture and Capital in the Urban Core,” Annual Sociology Review, 13:129-47.