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posted: 1/4/2013 2:48 PM

Municipalities need more flexibility

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Missing from the national conversation on "the fiscal cliff" is the other cliff: the one facing city governments. Estimates of infrastructure, pension and health care costs have risen to trillions. Metropolitan regions -- the engines of larger economies -- strain to deliver municipal services, which are critical to private-sector growth, capital formation, workforce training and long-term economic growth. Urban areas house some 80 percent of Americans and create 85 percent of GNP. Cities will determine America's future.

We need a new fiscal architecture that allows cities to meet their obligations without unfairly burdening residents and businesses, a New Deal based on:

• States giving cities flexibility and autonomy. This means removing onerous tax and expenditure limits and allowing cities to raise revenues in ways that make sense for their local economies.

• Cities emphasizing efficiency, equity and regional collaboration. This means restructuring property taxes so that large property owners can't escape paying for services they receive; exploring commuter and other taxes from currently non-taxed users of city services; and local governments collaborating to share service costs. governments, not by single departments.

• Cities rethinking the power of markets in pricing services. From infrastructure to pensions to subsidies for sports facilities, cities need to weigh the full, long-term costs of today's decisions and charge service users for service consumption.

Federal aid should not fund new infrastructure. It should target repair and renewal of infrastructure. New infrastructure should be supported by new residents, not subsidized by current residents or federal coffers. The result would be more compact development, more vibrant neighborhoods and lower energy use. When cities have the flexibility to meet most Americans' basic needs while supporting economic growth, the fiscal cliff can be avoided.

Michael A. Pagano

Dean, College of Urban Planning and Public Affairs

University of Illinois at Chicago

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