Urban Wire What Federal and State Governments Can Learn from Cities
Kim S. Rueben
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As the discussion around federal budget reform gets more heated and political and thoughtful action seems harder to enact, could federal policymakers take a page from cities on how to make tough decisions and put the nation on a better fiscal path?  This idea struck me while attending a meeting sponsored by the German Marshall Fund and the Urban Land Institute that kicked off at the Cannon House Office Building just as the President was announcing his jobs plan to a Joint Session of Congress.  While federal officials seemed to be talking past each other and rolling their eyes, city officials talked about how they passed budgets that balanced and took tradeoffs between current spending, future obligations, and future growth into account.  The conference “Local Leadership and Innovation during the Financial Crisis” featured frank discussions of actions taken on both the revenue and expenditure side of the balance sheet.

For example, Atlanta mayor Kasim Reed talked about cutting services and focusing on the city’s primary responsibilities – police, fire, trash, and basic services.  Atlanta has laid-off workers and taken steps to shore up its budget balance, which is predicted to go from a $48 million shortfall last year to a $70 million surplus in two years.  But the city is also cooperating with other regional local governments to invest in new infrastructure to help ensure future regional growth.

Mayor Reed spent much of this year and his political capital working on public-employee benefit reform. Facing a $1.5 billion difference between system assets and benefits, he convinced both workers and the City Council to act now to stave off future insolvency. Here’s how the unanimously passed compromise worked out: current employees in the pension plan contribute an extra 5 percent of their compensation to keep current pension benefits. New personnel (including fire and police personnel) enroll in a hybrid plan requiring more employee contributions, a smaller multiplier for the defined benefit plan, and a 401- K plan that includes mandatory employee contributions and an employer match.  Retirement ages for new employees go up.

Like other cities and states that expanded benefits in recent years, Atlanta had a problem. Pension upgrades in 2001 and 2005 led funding ratios there to drop from over 90 percent funded to slightly over 60 percent funded.  While union representatives and workers aren’t thrilled to have to contribute more to their retirement fund, the mayor argued compellingly that there was no other way to make sure the funds stayed solvent.   The mayor had wanted new employees to be in a defined benefit plan but was willing to compromise with the adoption of the hybrid plan and added employee contributions.

Officials in other cities also swapped stories of launching program reforms involving both budget cuts and tax increases.  Akron’s mayor talked about having to sell a tax increase to voters. So did city managers from Virginia and North Carolina.  Voters and residents seemed willing to increase property tax rates (typically, to keep tax revenues at current levels despite falling property values). For example, the city manager of Hampton, VA recounted holding public meetings where residents could weigh in on budget issues and finding out that the public could understand the trade-offs between wants and needs and tax increases.  These budget meetings and posting the trade-offs on line for residents to view smoothed the actual budget process.

What really rang through the conference and prompted my proposal to have cities teach state and federal policymakers was a resounding emphasis on the need to inform and reach agreement among both political parties and among public officials, employees, and the public. That’s a vital and too often missing ingredient in federal and state budget policy-making.

Photo of Atlanta, Georgia. Shutterstock

Research Areas Taxes and budgets State and local finance
Tags State and local tax issues Federal budget and economy