Introduction

This chapter is not about public policies directed at poverty alleviation: it is about re-establishing the competitive viability of distressed central cities. It discusses public policies that reconnect fiscally distressed cities to their regional economies through the fundamentals of economic development: land, labour and capital. The reason for this focus is that cities can help relieve the poverty of their residents only if they foster economic opportunity. The problem with too many central cities and fiscally distressed older (formerly) industrial and residential suburbs in the United States is that they have institutional structures, redistributive practices and political cultures that are more appropriate to the market positions they had in the 1940s and 1950s when most business transactions had to be completed within their municipal boundaries (Peterson 1981). Evidence is presented in other chapters of this volume that British cities are also subject to the accumulation of these economic sclerotic features (see: Bailey, Docherty and Turok, and Begg, Moore and Altunbas).

Outdated institutional structures, practices and cultures of fiscally distressed cities, combined with changes in transportation and telecommunications technologies, have eroded central cities’ competitive positions. Distressed cities must become competitive in terms of tax costs and the bundle of services they offer to residents and business in order to regain their historic role as generators of opportunity, income, and wealth – these are the foundation of a competitive future. If changes are not made, city governments will continue to be managers of decline as their cities’ competitive position continues to erode, and connections to their regional economies remain tenuous.

In this chapter we explore the financial difficulties of extremely distressed American cities. The particulars of the intergovernmental system of taxation in the US differs from those of other nations in regard to local governments’ authority to assess taxes on business, the relatively low level of participation that the national government has in financing the operations of local government, and the relatively large role local governmental authorities have in paying for services to low and moderate income families. Despite these differences our findings about what is required to regenerate distressed cities in the US are applicable to any local government; the specifics about how they can be implemented will differ.