NCPA - National Center for Policy Analysis


May 19, 2009

Reuters recently reported serious talk about creating a "powerful" new federal agency to "bail out dozens of floundering U.S. cities."  But cities should not view massive federal stimulus intervention with glee.  The strings attached to federal aid commit cities to spending that can't be maintained by the local tax base.  The only real way to achieve sustainable local fiscal policy is to reject federal bailouts and to embrace fiscal responsibility.  The Goldwater Institute's report, "A New Charter for American Cities" shows how, says economist Nick Dranias.

First, cities must acknowledge their spending problem:

  • Between 1998 and 2006, the local governmental payroll in Arizona grew by 90 percent--outpacing growth in the federal government's payroll.
  • This massive increase in public employees also massively increased pension and health benefit obligations.
  • And now, fulfilling those obligations could require Arizona cities to contribute more money to their benefit plans; that's simply impossible with plummeting tax revenues.

Second, cities need to recognize that their fiscal crisis cannot be solved by the feds:

  • Cities need only tighten their belts intelligently.
  • Cities should focus only on core functions -- law enforcement and essential public infrastructure; eliminating frivolous projects like golf courses, festivals, water parks, dog parks and stadiums.

Next, cities should commit to a wide-open competitive bidding process for remaining municipal service:

  • A more narrow policy focusing on things like garbage collection and maintenance alone saved Indianapolis $400 million over ten years during the 1990s.
  • By applying the same policy on a wider scale, there is every reason to believe that Arizona's cities could achieve savings on an even more massive scale and thereby avoid the entrapment of federal bailouts.

Source: Nick Dranias, "Cities: Bail Out Thyself," Goldwater Institute, May 12, 2009.


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