Local Government and Economic Growth: Three Choices, None Simple

There can be no question about the transformative power of today’s metropolitan economy.  Major cities around the country hope to ride the wave of the growing financial, research-based, and digital business sectors.  City leaders are doing what they can to make the place attractive to exploding numbers of higher-income young professionals these firms employ as well as the upper-income suburban baby boomers now seeking the convenience and vitality of urban life.   Working within market trends requires skill but has the advantage of moving with the economic current.  In contrast, urban leaders who wish to expand the benefits of economic growth to the entire population have a more limited and challenging set of options.

Of course, city leaders have much more limited influence over their municipal economy than they like to profess.  For all that Massachusetts lauds its tradition of local self-government, from the direct democracy of small town meetings to city’s home rule petitions, most municipalities are realms of very limited autonomy not just politically but also fiscally, with the straightjacket of Prop. 2½ further reducing their choices. It’s possible for local leaders to attract particular commercial developments by offering tax breaks – bringing new jobs and indirect benefits at the cost of losing the tax revenues that are the fiscal reason for growth in the first place.  But this mortgage-the-future strategy can only go so far.  This truth brings municipal officials up against the painful reality that local economic development is generally at the mercy of larger trends shaped by higher levels of government and non-local corporations.  Prop. 2½ reinforces the attraction of going with the market’s flow, capping annual property tax rate increases at 2.5% leaving only two routes for meeting the escalating costs of medical care, education, police/fire, social services, snow removal, road construction, and other city programs:  letting the market valuation of property rise and encouraging new construction.  Of course, the bigger the city and the more prominent it’s inherent assets the stronger its position.  But even Boston (big) and Cambridge (home of both Harvard and MIT) are not fully masters of their own prosperity – and most towns are even more vulnerable.

Compounding the problem is that the larger market forces energizing the regional and therefore local economy have built-in tendencies that destroy existing communities as much as they create new wealth.  It’s not so much the gentrification, the arrival of higher income families, as the many types of displacement that their large-scale arrival triggers:  the ripple effect of luxury housing that raises the price that can be charged for everything else; the replacement of traditional stores serving working families with more profitable boutiques serving the new residents; the hollowing out of the job market leaving only relatively high-end professional and bottom-hugging service jobs; the growing need to respond to the desires of “new economy” and “creative class” constituencies over working and poor families in city-hall and business decision-making.



Running a city is expensive.  Municipal leaders are trapped between their citizenry’s expectation (and requirement) for increased responsiveness to public needs and their desire to protect their income by stabilizing property taxes – the regressive but only significant source of local revenue municipalities are allowed.  And even that is limited to a 2.5% annual rate increase.  This is particularly challenging when the cost of providing services is rising faster than the growth in revenue provided by increasing local property values.    A small amount of progressive redistribution is possible through differential commercial and residential tax rates, capping taxes for the elderly and low-income with “circuit-breakers,” and other methods.  But primarily, town and city governments rely on new development to create additional taxable properties that provide the new money needed to keep up with rising costs and expand the scope of services.

The up-side is that new development can revive economically stagnating neighborhoods, add vitality to city life, and attract new investment that creates both jobs and revenue.  The down-side is that the process of gaining that revenue can further marginalize the people who need the services that the revenue is supposed to pay for – from better schools to better playgrounds, from social services to police, from job training to affordable housing.

As a result, local politicians who care about serving the entire population – including working, poor, non-white, and immigrant families – have three general options for dealing with the rapidly evolving economy of today’s metropolitan areas:  strategies that are relationship-based, negotiation focused, or policy-driven.  Each is incomplete.  Each has risks.  Each is easy to misuse.


Traditionally, local politics was about personal relationships with and among established business, religious, and community leaders.  It was a back-scratching strategy, making personal deals for “favors” in both directions without any intention of rocking the boat.  It was, in part, about providing a specific benefit to a specific person.  The old ethnic patronage machines were the embodiment of this approach – a key tool in immigrants’ efforts to push their way on to some rung of the American economic ladder, to start fighting for entry into the mainstream.   Today’s version of that strategy, while a far cry from the old James Michael Curley shake-down politics, has a similar acceptance of surrounding hierarchies and market forces combined with a similar focus on private deals.   It’s a backroom, quiet strategy that is capable of providing immediate help to someone who needs it.   While this approach is usually very respectful of established community organizations and cultural norms – and gains a lot of loyalty because of those relationships – it does little to protect them or their members from the larger market forces.   While there are lots of individual politicians still practicing this time-honored approach, and every elected official has to do it to some extent, it is no longer the dominant style or force it used to be.


The second option uses the limited tools at a city’s disposal, mostly zoning and permitting, to improve the city’s negotiating power with developers.  It then uses some of what is gained to protect traditional residents or otherwise modify the excesses of profit-seeking commercial pressures.  There is a general acceptance of the larger implications of market dynamics but an aggressive effort to cut the best deal.  When combined with a traditional set of relationships with established community organizations, this is an attractively pragmatic political middle ground.   But given the assumptions of city leaders within this camp about the ultimate supremacy of the market’s general direction, there is a limit to how hard feel they can push.  At some point, the conservativeness of this approach outweighs the assertiveness of its rhetoric.  In fear of “killing the golden goose,” they cease maximizing their yield of golden eggs.   At some point, they stop utilizing their unique assets powerfully enough and the deals they can negotiate are not significant enough to meet their constituents’ needs or to keep their city from being transformed.


The third option starts with a vision of how the city “should” be – a master plan with demographic and employment as well as architectural implications.  The progressive version of this strategy focuses on preserving the racial, language, and income diversity of the community – partly as a ethical-democratic imperative and partly because engaging the entire population’s creativity and effort will lead to an equally robust but more equally distributed prosperity.  Adherents then embed that vision into the city’s planning and permission processes to bend the market towards the desired future.  This is a bold but risky strategy, a kind of swimming upstream against the market current.  It counts on investors continuing to come even when the price (in effort and dollars) is high – something only likely to happen if the regional economy is booming and the benefits of locating within city limits are enormously unique and significant.  Ironically, because it is an oppositional strategy – usually publically defined by its fights against market-driven development and small-benefit deals – it sometimes comes across as insensitive to people’s current needs and disrespectful of the community’s traditional relationships.

There will be municipal elections next fall in cities around the metropolitan area – here and across the nation.  One of the things citizens need to ask candidates about is how they intend to deal with the pressures of the surrounding economy and – no matter if their strategy is relationship-based, negotiation focused or policy-driven – how and why they think they will succeed.


Thanks to Larry Rosenberg, Arthur MacEwan, and Rich Parr for comments on earlier versions.  All remaining mistakes and opinions are, of course, my responsibility.

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