The Social and Fiscal Consequences of Urban Decline

By Michael Manville (UCLA Luskin School of Public Affairs) and Daniel Kuhlmann (Cornell University)

Most big cities grow, but a handful of once-large American cities continuously shrink. Twenty-one of the 110 largest central cities in the US have lost population every decade since 1980. Once centers of wealth and industry, these places are shadows of their former selves. In 1950, 1.8 million people lived in Detroit; in 2013, 700,000 did. Since 1950 Buffalo, New York has lost 55 percent of its population. Cleveland, Ohio has lost 56 percent, and Youngstown, Ohio has lost 61 percent.

Americans are familiar with plight of the some of these cities. The nation watched as Detroit spiraled into bankruptcy. Buffalo’s struggles are well-known to New Yorkers; the state recently pledged over a billion dollars in yet another effort to revive the city. TV shows like Treme and The Wire have delivered vivid images of the vacant and boarded-up buildings that pockmark Baltimore and New Orleans. Many people understand, on some level, that decline can result in impoverished cities, insolvent governments, and blighted built environments.

Curiously, however, the specific process by which  decline occurs has been understudied. Researchers have studied why cities decline, and how policymakers should respond, but paid less attention to the process of decline itself—how it unfolds, and how it creates problems.

This was the question that motivated our recent article in UAR. Specifically, we tested a fairly old idea in local public finance: that long-term population loss would trigger a chain of events that eroded urban fiscal health. The gist of this idea is that as people leave, property loses value and other sources of tax revenue decline, which reduces the city’s fiscal capacity—its potential to raise revenue on its own.  At the same time, the city’s poverty rate rises, because poor people are both less likely to leave, and—drawn by cheap housing—more likely to arrive. Poverty and its related socioeconomic distress puts pressure on municipal budgets. Thus problems increase while the resources to address them decrease. The resulting fiscal stress encourages more people to leave, and the cycle starts over.

Our goal was to document these associations between fiscal capacity, socioeconomic distress, and population loss, by looking at the fate of 110 large US cities from 1980-2010. Our big obstacle was that neither distress nor  capacity are easy to measure, and capacity in particular is hard to compare across cities.  Simply looking at revenues and expenditures is not reliable, because what local governments raise or spend is not always a good indicator of what they could raise or spend. To measure distress we built a composite index of distress that combined poverty, crime and vacancy rates. We measured fiscal capacity by directly measuring each city’s total potential tax base—the combined value of its property, retail sales, its income, and so on. Having built each of these measures, we then see how they vary over time as cities lose or gain population.

We have four main findings. First and perhaps unsurprisingly, capacity and distress vary inversely with each other. Cities with more social problems have fewer resources to solve them, and cities with fewer resources have more social problems. Second, the largest and clearest difference between growing and declining cities is in their levels of distress; population loss consistently predicts higher poverty and more crime, while population gain consistently predicts less. Even if declining cities had the same fiscal capacity as growing cities, they would struggle to provide services, because they have much more need.

Third, declining cities don’t have the same fiscal capacity as growing cities. This result, however, comes with an asterisk—it is much less consistent in our statistical analysis. This inconsistency seems to arise because the relationship between population change and fiscal capacity isn’t linear: cities that shrink have lower capacity, but so too do cities that grow very fast. Put another way, the cities that fare best fiscally are those where many people would like to live, but that slow the entry of people with high housing costs. These high-demand, slow-growth cities (think San Francisco or Boston) have large tax bases compared to both declining cities like Detroit and rapidly-growing cities like Las Vegas. Once we control for this nonlinearity, decline is associated with less fiscal capacity.

Fourth, both high distress and low capacity appear to predict further population loss, suggesting that declining cities may enter vicious cycles that perpetuate further decline.

Why does this matter? Our results speak to a longstanding debate in urban policy around the relative merits of “place-based” and “person-based” forms of urban development. Most efforts to revitalize cities are “place-based”: states help their cities by investing in the cities themselves (through tax incentives to lure private investment or other subsidized development). Critics of this approach argue that development should be person-based: rather than try to make declining places grow, higher levels of government should help residents who want to leave go to growing places with more opportunity. Don’t pour money into Detroit; cut its residents checks. Governments should not condition assistance to vulnerable people based on their staying in distressed places.

Our results don’t contradict this argument, but they do complicate it. Person-based policy lets people leave, and possibly find better lives elsewhere. But when people leave, the city declines further.  If this decline exacerbates social and fiscal problems, the city will struggle to provide essential services to those who stay—and those who stay are often among the least advantaged. Our results thus suggest a strong need for place-based intergovernmental aid to declining cities, not to restore them to their former size, but to help them provide basic public services as they shrink. Decline is a difficult cycle to break, and even if governments cannot reverse decline, they can and should cushion its impacts, ensuring that shrinking cities are safe places with decent schools and functioning services.

Read the article here.

Author Biographies

Michael Manville is Assistant Professor of Urban Planning at the UCLA Luskin School of Public Affairs.

Daniel Kuhlmann is a PhD Candidate in City and Regional Planning at Cornell University.


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