The Earned Income Tax Credit (EITC) is now the primary anti-poverty program in the U.S., but it has not kept up with wage stagnation. Berkeley faculty recently proposed an increase in the federal EITC, California has adopted an expansion of its own state EITC, and Congress passed a tax bill that fails to help EITC recipients.
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Detroit is the urban question America has been asking itself for decades. Over the past century, the city has symbolized American prosperity and the power of unions; the stark gap between Black and white urban experience; the fiscal and economic failure of the postindustrial city; and now the dystopia of large-scale urban abandonment. The Detroit that Kimberly Kinder describes in DIY Detroit is a city in which vast spaces are ungoverned by functional property markets and unserved by city workers or infrastructure.
Hinkley, S. (2018). DIY Detroit: making do in a city without services. Urban Research & Practice, 11 (2), 284-287. April 2018.
#MeToo and #TimesUp protests about the treatment of women in the workplace have brought renewed attention to gender pay equity. This brief looks at three legislative solutions that aim to close the gap by increasing pay transparency and pushing employers to set salaries to the position, not the history of the person doing the job.
Across the world’s most industrialized economies, the financial crisis of 2007 caused a contraction of state budgets and stimulated attempts to reform debt-burdened governments. In the United States, a system of fiscal federalism meant this turn towards austerity took a uniquely fragmented and geographically diverse form. Drawing on case studies of recent urban restructuring, Cities under Austerity challenges dominant understandings of austerity as a distinctly national condition and develops a conceptualization of the new US urban condition that reveals its emerging political and social fault lines.
The contributors empirically detail the restructuring that is taking place across the United States, its underlying logics, its local impacts and the ongoing processes of challenge and resistance that influences how it is shaping the lives of citizens. The new American political economy, it is argued, needs to be understood as composed of a mosaic of urban experiences that both build upon a differentiated foundation and creates new divergences.
As state reforms continue to interact with this diverse urban political economy of the United States, this collection provides a state-of-the-art survey on how postcrisis convergences and divergences in urban economies and urban politics have laid the foundations for the new political geography of the United States.
Hinkley, Sara. “Austerity as the New Normal: The Fiscal Politics of Retrenchment in San Jose, California.” In M. Davidson & K. Ward (Eds.), Cities under Austerity: Restructuring the US Metropolis. Albany, NY: SUNY Press. 2018.
The Great Recession unleashed a wave of fiscal stress in the USA, with austerity measures such as spending cuts, service reductions and privatisation predictably taking centre stage. Decades of federal withdrawal from urban policy and funding, combined with state retrenchment, have contributed to a landscape of urban fiscal stress exacerbated by the prolonged effects of the post-2007 recession. This article examines the experience of fiscal crisis in four US cities (Detroit, Dallas, Philadelphia, and San Jose), focusing on the narratives used by city and state government leadership to publicly describe local crises. Shared elements of the framing of urban fiscal crisis in this diverse set of cities provide insight into the unfolding of austerity in local politics. Blame for the crisis has centred less on social spending than in previous crises, and more on local governance failures, public pension commitments, and ongoing global economic precarity. Crisis governance has become widespread, even in fiscally resilient cities, driven by a vision of lean government in a ‘new normal’. While retrenchment effectively shrinks the state through spending cuts and privatisation, the governing power of cities is also being diminished by the narrative of fiscal responsibility reflected in the national move toward public pension restructuring and expanded state interventionism.
Hinkley, Sara. “Structurally adjusting: Narratives of fiscal crisis in four US cities.” Urban Studies, 54(9): 2123-2138. July 2017.
The Participatory Budgeting Project has a guide for communities that want to participate in decisions about the use of funds from Tax Increment Financing districts. The governance structure associated with Tax Increment Financing varies by state (and not all states have TIF), but there are potentially significant amounts of funding at stake. TIF districts capture the increased property tax increment in a set geographic area and use it to finance private or public projects. They use of funds often lacks transparency, and is often predetermined when the district itself is created.
I’ve been following the move to participatory budgeting for a while, and this is an important acknowledgement by PBP that a lot of public money is outside even the difficult-to-engage standard budgeting process.
Download their guide here: PB with Tax Increment Finance Funds
We are enduring one of the slowest economic recoveries in recent history, and the pace can be entirely explained by the fiscal austerity imposed by Republican members of Congress and also legislators and governors at the state level.
EPI’s Josh Bivens examines the reasons beyond our slow economic recovery (one that has progressively slowed with each recession).
Given the degree of damage inflicted by the Great Recession and the restricted ability of monetary policy to aid recovery, historically expansionary fiscal policy was required to return the U.S. economy to full health. But this government spending not only failed to rise fast enough to spur a rapid recovery, it outright contracted, and this policy choice fully explains why the economy is only partially recovered from the Great Recession a full seven years after its official end.
The question of why the economic recovery has been so tepid is a vital part of the presidential election discourse. Clinton says she will increase employment through a public investment program. Trump says he will cut taxes to spark employment growth (and further limit spending).
Bivens argues that it’s federal policymakers who are most to blame, since structurally only the federal government can maintain spending levels in the face of revenue declines (through monetary policy and debt increases). State and local governments lack these tools (with some caveats around borrowing). But I think this lets state and local officials off too easily; many of them also embraced austerity as reason for pushing through tax cuts that will be almost impossible to reverse. And state lawmakers (which control the revenue options available to cities) lacked the courage to grapple with structural fiscal issues that each recession has made progressively stark.
A new report by Sylvia Allegretto at IRLE and Lawrence Mishell at EPI finds that in 2015, public school teachers’ weekly wages were 17% lower than those of comparable workers (a gap that has widened from 1.8% in 1994).
There are many reasons for the pay gap between public school teachers and similarly-educated workers, including the same gender pay gap that affects workers throughout the public and private sectors. But there’s no doubt that the widening gap between teachers and other college educated workers is a direct consequence of our rapid disinvestment in public services, which has hit school districts harder than any other segment of the public workforce. I’d be interested to see a similar study of other public workers and their similarly-situated private counterparts.
The Great Recession officially ended in the United States in 2009, but the implications for city governments continue to unfold. Austerity measures implemented by cities well into 2013 left a legacy of service reductions and a backlog of infrastructure needs, a lurking national liability that has drawn attention to cities’ precarious fiscal situation.
The long-term effects of the recession on city governance have been particularly severe. Two policy responses in particular—expanded state control over city finances and efforts to “reform” public pension systems—have reverberated well beyond the initial impacts of the recession. In my study of US city responses to fiscal crisis, I found that these two themes persisted in widely different fiscal and economic circumstances. I don’t think we learn much by simply attributing the persistent focus on pensions to a widespread and ongoing neoliberal push for austerity. If we pay close attention to the financial and intergovernmental politics involved, we see that each city reveals something specific about the ongoing problematic of municipal fiscal power in a framework of federalism.
Fiscal crises in the US constitute histories of negotiation between city and state power, with states claiming additional oversight powers of city governance in each crisis (Sbragia’s Debt Wish presents a great history of this process). The dramatic revelation in 2015 that residents of Flint, Michigan, had been drinking lead-contaminated water for several months brought unusual scrutiny to such powers, in the form of Michigan’s emergency manager law, under which an appointed executive switched Flint’s water source to save money.
Michigan’s emergency manager law is the most far-reaching in the country; even before Detroit was taken over by an emergency manager (to the acclaim of credit ratings agencies), five cities and three school districts (including Flint) had been taken over. In late 2012, just months before Detroit’s bankruptcy, Michigan voters had repealed the emergency manager law by popular referendum, only to have a nearly identical version quickly passed by the state’s Republican legislature. Despite widespread critique in the wake of Flint’s disaster, the law remains in place.
The erosion of local democracy and fiscal autonomy at the hands of state governments in the US has been one ongoing consequence of the Great Recession. State governments in the US already exert significant control over city finances: they regulate access to municipal credit, control cities’ ability to raise revenues, and define the options for responding to economic downturns (including access to bankruptcy or state receivership). Since 2007, states have broadened powers of fiscal monitoring (North Carolina, New York), emergency takeover (Michigan, Rhode Island), and control over municipal bankruptcy (Pennsylvania, California).
The justification given by state legislatures for this increased control is twofold: that city governments lack the political will to make necessary cuts, and that city fiscal distress can be contagious. Expanded state powers have been praised by financial ratings agencies, who are especially keen on keeping cities out of federal bankruptcy, where a judge may value the claims of pensioners over those of bondholders and other creditors (as happened in Detroit).
This city-state struggle for autonomy and control can also be seen as a move to concentrate power by state governments that are more politically and socially conservative, more (and perhaps disproportionately) influenced by rural and suburban political interests. The combination of this move for state intervention and the ongoing project of federal devolution has, by and large, left American cities to falter in the face of economic downturns. Blame for that faltering has been displaced, in recent years, onto the shoulders of public employees.
The second legacy of the recession has been a national consensus that public pension plans have dragged down city and state budgets below the point of sustainability. Public pension reforms have been largely framed as a victimless policy shift that simply aligns public workers’ benefits with their private counterparts, and as a long-overdue correction to excessive commitments made by local governments to public workers. Financial analysts have described the structural threat posed by pension and health care costs as “unsustainable” and “ridiculous” (see Chappatta’s numerous articles). The funds have been described as chronically underfunded, threatening to hobble cities and states if measures are not taken to cut benefits.
The narrative of a national public pension crisis is simplistic on (at least) two counts. First: the “health” of any pension plan is based on many moving pieces: the projected rate of return on plan assets, the value of the assets at a given moment in time, and estimates of future liability (i.e. pension payments). During the financial crisis, these pieces were significantly reshaped.
In November 2008, Moody’s reported that retirement systems’ stock investments had fallen by 35 percent. Rates of return that seemed reasonable in 2007 (and which were widely used by the private sector) were cut significantly (ratings agencies and cities continue to differ in the rates of return used to estimate future assets). These market declines escalated a key measure of pension plan health: unfunded actuarial accrued liability (UAAL). Because the actuarial required contribution (ARC), which cities must pay from operating expenses, is based in part on estimations of future returns, cities abruptly faced a significant operational cost increase, just as their revenues contracted.
Some plans went into the recession already underfunded, in part because of how city pension funding fits into a strategy of fiscal mitigation that reflects the instability of city fiscal structures. In some cases, cities’ discretion over how much of the ARC must be paid out of the operating budget each year represents a significant share of the discretion available in the budget. Both the formula for calculating a city’s ARC and the degree to which it must comply with that calculation are subject to local and state policies.
In 2011, the Government Accounting Standards Board (GASB), followed in short order by all three major credit ratings agencies, began to account for government pension liabilities as equivalent to debt; Moody’s and the other ratings agencies took the additional step of increasing the weight given to debt in a government’s overall rating evaluation. Thus the emergence of a pension “crisis” has been a product of both the politics of city fiscal management and its monitoring.
As pressure from state officials and creditors pushes cities to focus on restructuring pension plans as a short-term fix for operating deficits, there has been little conversation about how cities can increase long-term stability before the next economic crisis erupts. While something must be done to shore up public pension plans (whose beneficiaries often can’t fall back on social security), we shouldn’t kid ourselves that this debate is moving cities toward fiscal sustainability.
This article is based on the paper, ‘Structurally adjusting: Narratives of fiscal crisis in four US cities’ in Urban Studies. Originally published on the LSE USCentre daily blog on American Politics and Policy.
Featured image credit: Ann Millspaugh (Creative Commons: BY-SA 2.0)
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