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PART I COMMITTEE REPORT

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Overview Historically, cities have been the centers of culture and civiliza- tion. Even today, they contain the major museums, symphonies, and other cultural resources of metropolitan areas. But cities are funda- mentally economic entities, places where people gather to work and live. And for more than 100 years, American cities have been places where the poor and unskilled from rural areas and abroad come to seek economic opportunity and social assimilation. As economic entities, however, cities are not static. They change constantly in re- sponse to demographic shifts, the evolving structure of the national economy, emerging transportation and communications technologies, and state and federal policy decisions. For most of this century, metropolitan areas have grown more quickly than nonmetropolitan areas. Yet within metropolitan areas, the location of people and jobs has decentralized steadily since at least the 1920s. As suburbanization has increased, central cities, older suburbs, and industrial satellite cities have declined. At the same time, at the regional level, there has been a shift of economic activity and population from the Northeast and Midwest to the South and West. Although central cities in the older regions have been steadily losing manufacturing and other traditional blue-collar jobs, some have been able to attract new types of industries that are revitalizing their downtown economies. These new industries provide mostly white-colIar jobs in communications, finance, and business services and in cultural, leisure, and tourist services. The demographic and economic changes affecting major Ameri- can cities have also affected the socioeconomic composition of their populations. White middIe-income groups, followed more recently by middle-income blacks and other minorities, have moved to the suburbs. This exodus from the cities has been only partially offset by reverse migration: despite much talk about gentrification, only a few urban professionals have returned, and then only to specific neighborhoods in particular cities. Most of those moving into cities have been low-income minorities. As a result, central-city popula- tions have declined (except in fast-growing areas of the West and South), average personal income levels have dropped, and the pro- portion of residents who are low income, low skilled, poorly educated, and minority has increased. Unemployment in central cities has been increasing, especially among minorities. 3

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4 URBAN CHANGE AND POVERTY Although central-city residents have lower levels of educational skills in comparison with suburban residents, most of the growth in entry-level service sector jobs is taking place in the suburbs. There are controversies as to whether or not there is a spatial mismatch between low-skilled workers and low-skilled jobs and over the quality of those jobs: are they dead ends or stepping-stones to better and higher paying opportunities? The Committee on National Urban Policy, which was formed to examine emerging urban policy issues, decided to begin with a careful empirical examination of fundamental economic and demm graphic trends to provide a sound basis for selecting specific policy issues to study in depth. The committee first of all wanted to look at the structure of urban economies and the composition of urban populations and how they are changing. Have events of the late 1970s and early 1980s especially large cutbacks in federal aid to cities, a severe recession in 1981-1982, and a long-lasting economic recovery since 1982affected urban areas and their central cities in new ways? Are basic urban economic and demographic trends different from or the same as those of the past 40 years or more? The committee was also interested in empirical analyses of two closely related topics that are important to understand in assessing emerging urban policy issues: urban social structure and the ecm nomic well-being of urban residents. An analysis of economic and demographic trends should reveal any new patterns, or the continu- ation of old patterns, that might concern policy makers, such as the growth of families with children headed by poor women in central cities. Another topic, the fiscal conditions of local and state govern- ments, is important because those conditions affect the capacity of the governments to respond to urban social and economic problems. The committee proceeded by commissioning the series of papers published in this volume and holding a workshop in July 1986 to discuss them and their implications for research and policy. Although committee members are vitally concerned about such social issues as education, health, and crime and related issues such as housing and transportation, they decided it was important first to document basic economic and demographic trends affecting urban areas and their central cities to establish a baseline from which to identify emerging urban policy issues. Accordingly, the focus of the papers and the workshop was mostly economic. They reviewed and evaluated data in five topic areas: the economic welI-being of residents and the statuses of urban economies, finance, governance, and infrastructure.

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COMMITTEE REPORT 5 The committee was primarily interested in comparing central cities and suburbs; metropolitan and nonmetropolitan areas; the older regions of the Northeast and Midwest and the newer regions clef the South and West; and minority and white residents. It was particularly concerned about trends affecting central cities in the older regions and their minority populations, compared with their suburbs and with central cities and metropolitan areas in the newer, ~ growing regions. The committee found that cyclical economic forces, specifically, the 1981-1982 recession, have had surprisingly little effect on ur- ban economies and big-city finances, at least according to available data. Federal aid cuts in social and training and employment pro- grams have also had little direct effect on local government finances because such programs are mostly operated by private nonprofit or- ganizations. The cuts in human capital programs may, however, reduce the ability of cities to upgrade their work forces in the long run. At the same time the data show that long-term economic and demographic trends affecting urban areas have been continuing and are working to the disadvantage of most central cities, especially in the older regions of the country. Some central cities, blessed with high concentrations of business and government headquarters, producer services, and cultural and higher education institutions, are developing a new economic base as regional and even national "command-and-control" centers. Yet others, in particular those his- torically dependent on manufacturing, continue to decline. The committee's main finding, which is detailed in this report, is the growing concentration of poverty in certain areas of central cities, especially cities in the older regions of the country. A comparison of decennial census data on poverty areas of major cities in 1970 and 1980 shows that both the number and the percentage of poor people living in census tracts with high concentrations of poor people (40 percent or more) are increasing. This growing poverty is occurring iThe report and papers in this volume use demographic and economic data from the Bureau of the Census and the Bureau of Economic Analysis (BEA). The Census Bureau and BEA use different regional classifications of the country. Generally, discussions of individual-level demographic, social, and income characteristics refer to data classified by Census Bureau regions, and the discussions of regional, metropolitan, and local economic changes refer to BEA regions; see Appendix A for a detailed comparison of the Census Bureau and BEA classifications.

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6 URBAN CHANGE AND POVERTY even in command-and-control cities with improving economies, like New York and Boston, indicating that economic growth alone is not sufficient to improve the situation. Urban poverty appears to be a major by-product of the changing economic functions of large cities, yet little is known about its fundamental causes and dynamics after many years of research. Urban poverty, always a serious problem, appears to be getting worse, and it is being compounded by long-term changes in the structure of the national economy and in metropolitan and regional demographic patterns. SUMMARY FINDINGS WeB-Be~ng and Poverty The committee found that income and earnings are growing at a faster rate in metropolitan than in nonmetropolitan areas, revers- ing the trend of the 1970~. Residents of large central cities, how- ever, especially in the Northeast and Midwest, are still the poorest in the nation; suburbanites are the richest. Minorities and mem- bers of female-headed households are particularly poor, and black female-headed households in central cities are the poorest of all in metropolitan areas. Moreover, more affluent central-city residents- including middle-cIass minorities are moving to the suburbs while poorer and less-educated migrants continue to arrive in the central cities. The often-noted reverse migration by middIe-ciass whites into certain neighborhoods of central cities has not been large enough to counter the general out-m~gration of whites and more affluent mi- norities or to make much of an impact on the economic fortunes of those central cities. The result, as seen In statistics about the poor- est census tracts over time, is increasing concentration of central-city poverty. The education levels and employment rates of residents of large central cities are also lower, and the unemployment rates higher, than those of the rest of urban area residents, particularly among minorities. Even as some cities are adding jobs, unemployment re- mains high among the less educated because many of the new jobs require higher skill levels. These unfavorable statistics about central-city poverty and un- employment exist in the face of generally encouraging.urban ecm nomic and fiscal trends, which are detailed in this report. These trends are least favorable, however, in the regions in which poverty

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COMMITTEE REPORT 7 and unemployment tend to be highest: the Northeast and Midwest. In addition, hard-core poverty and unemployment may be growing in certain cities, like New York, despite overall economic growth in those same cities. These two dimensions of urban poverty concentration and iso- lation are worrisome, especially where they occur together. They affect the 3.7 million residents of the high-poverty areas of the 100 largest cities, areas in which 40 percent or more of the population is below the poverty line. More than 1.8 million of these residents, 0.8 million of them children, were classified as poor by the 1980 census. Central-city governments pay a disproportionate share of the costs of this poverty, although these costs are caused by fundamental eco- nomic and demographic changes affecting entire metropolitan areas. Concentrated poverty calls for higher levels of services and taxes at the same time it reduces a city's physical and human capital. Social ills related to poverty, such as crime, poor health, and homelessness, degrade the quality of personal and community life. Higher taxes and social problems constrain economic growth because they make an affected city a less desirable place to do business. When poverty disproportionately involves particular racial and ethnic groups, it vi- olates civic norms of equality and increases the possibilities of social and political conflict. The isolation of concentrated poverty popula- tions from new job opportunities that are being dispersed throughout metropolitan areas only makes that poverty more difficult to reverse. Urban Economies The committee found that manufacturing is continuing to dis- perse geographically and to decline as a share of the nation's em- ployment and that cities with manufacturing economies, which are prominent in the Mideast and Great Lakes regions, are still losing the most jobs and population overall. Metropolitan areas have regained their lead in population, income, and employment growth nationally, but people and jobs are still being redistributed from the Snowbelt to the Sunbelt. There is evidence that large cities, especially national anil re- gional centers, are becoming the primary locations for certain kinds of high-status service jobs- especially white-collar producer services in fields such as finance, insurance, law, advertising, and accounting- and these jobs are the basis for transformed but smaller urban economies. This trend began with the loss of manufacturing jobs

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8 URBAN CHANGE AND POVERTY in New England in the 1950s and 1960s, in the Mideast in the 1960s and 1970s, and more recently in the Great Lakes region. The latter lost nearly a million factory jobs in the early 1980s and has regained very few of them in the ensuing economic recovery. Meanwhile, New England has been transformed into an economy based on services and light manufacturing (for example, computers) and Is now enjoying strong economic growth and very low unemployment rates. How- ever, this economic success followed a long period of adjustment and relative population decline, which continues. In Boston, for example, the share of white-colIar service jobs increased from 21.7 percent in 1953 to 58 percent in 1983. There are signs of a similar transfor- mation in the Mideast, although there are many smaller cities with industrial economies that are still declining. The Great Lakes region, however, has captured very few of the 8 million new service jobs cre- ated nationally since the 1981-1982 recession; the region still had less employment of all kinds in 1984 than in 1979. Central cities continue to grow more slowly than their suburbs, and central cities in the older regions have experienced large-scale losses of white residents. These losses have been offset in part by in-migration and natural increase of minority residents. As a result, minorities constitute a growing share of central-city populations. Racial differences in the populations of central cities and suburbs are especially sharp in the Northeast and Midwest. Urban Finance The committee found that the largest cities generally have been doing well, according to various accounting measures of fiscal health. There are fewer cities exhibiting signs of fiscal problems, such as same-year revenue-expenditure deficiencies for 2 or more consecutive years or deficiencies greater than 5 percent. Nevertheless, some cities still have problems, particularly those in the older declining regions. Large cities apparently have been following conservative fiscal practices. But many have achieved their current relatively favorable positions by raising taxes and cutting services. There is also some evidence that cities in growing areas, although fiscally solvent, are not expanding their infrastructure and services fast enough to keep up with population growth. There is no necessary relationship, however, between trends in a city's economy and in its fiscal condition or between a city's fiscal health and its social health. A city with a balanced budget can

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COMMITTEE REPORT 9 have a poor educational system, high unemployment rates, increasing poverty rates, and other social ills that might, in the Tong run, reduce that city's revenue growth and retard its economic development. The ability of states to provide aid to their local governments depends on state fiscal conditions. Although most states are signif- icantly better off now than immediately after the recessions of the early 1980s, their fiscal condition is not as strong as it was in the 1970s. This is particularly true of the economically depressed farm and energy-producing states. Many states are also constrained by legacies of the tax revolt that limit tax increases and the reserves states may maintain. States are also affected by federal aid cuts. Urban Governance The committee found that city officials have coped with reces- sions and federal aid cuts by raising taxes, diversifying their revenue sources, promoting entrepreneurial economic development, and, in some cases, cutting services and the number of city workers. At the same time, voters have not been unhappy enough with service cuts and tax increases to turn mayors and other local elected officials out of office on a large scale. New groupsminorities and women continue to be incorporated in local political processes. Yet the longer term effects of conservative budgeting and aggressive economic de- velopment efforts In particular, the effects of such efforts on a city's attempts to maintain and increase its human capital base are not yet known. Local policy makers are also faced with the consequences of entrenched and apparently growing urban poverty. Megastructure The committee found that the urban infrastructure is not on the verge of collapse, but it is wearing out faster than it is being replaced. Although new government capital investment has declined relative to the gross national product (GNP) and to population growth, expen- ditures for operations and maintenance have increased rapidly. As a result, overall expenditures for infrastructure have been keeping up with population growth. There is evidence, however, that the capi- tal stock is not being replaced fast enough to prevent deterioration. There is also evidence that the largest cities have not been spend- ing as much of their budgets on capital improvements in the past few years as they did previously. This reduced capita] investment

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10 URBAN CHANGE AND POVERTY may result in part from high interest rates and in part from cuts in federal capital grants. Recent federal tax law changes restricting the issuance of private-purpose bonds will probably reduce capital investment, but this reduction in volume may lower the interest rates cities need to offer to sell their tax-backed general obligation bonds. SUMMARY CONCLUSIONS The committee concluded that there is not now a major crisis in the condition of urban economies and urban finance. There are, however, some significant causes for concern, particularly in relation to the existence and consequences of entrenched urban poverty and other social ills, problems that are now concentrated in central cities. In addition, some cities, especially those in the Great Lakes and some in the Mideast regions, have economies that have not responded to the national economic recovery and are facing fiscal problems. Urban Economies: [ong-Term Transformation and Regional Disparities Contrary to expectations, the econorn~es of metropolitan areas, or even their central cities, generally did not suffer disproportion- ately from recent recessions, even in the siow-growing older regions. There are exceptions, however, especially among cities with manu- facturing economies in the Mideast and Midwest: unemployment in Pittsburgh, for example, was higher in 1984 than in 1980. Although older urban areas and their central cities are less cycTi- cally sensitive than previously believed, they are still undergoing fundamental long-term economic restructuring. Many central-city and entire metropolitan area economies are in the process of trans- formation from centers of goods production to centers of information processing and other white-colIar service employment. This transfor- mation entails painful demographic adjustments. New England, for example, is now economically healthy, but only after three decades of adjustment during which there was high structural unemploy- ment and slow population growth. Indeed, Boston still faces fiscal problems despite its booming economy. Metropolitan areas in the Midwest are not responding favorably to economic recovery as they always have in the past. They are continuing to decline, and some of their central cities are facing fiscal problems. The Midwest's manufacturing sector has not rebounded

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COMMITTEE REPORT 11 from the 1981-1982 recession as it did from previous recessions, and the region's economy Is facing the beginning of a long process of adjustment. That process will be taking place in the face of unprecedented foreign competition. Urban Finances: Healthier Than in the Recent Past The finances of large central cities generally emerged from recent recessions and federal aid reductions in a better condition than had been anticipated, indicating that cities have more capacity to adjust their revenues to expenditures than is commonly believed, at least in the short run. Most of the federal aid cuts did not take eject until fiscal 1983, however, and their full impact may not have been felt yet. The impact of the termination of the revenue-sharing program, which will reduce the revenues of most large cities by 2 or 3 percent (and of some cities by more), will not be felt until the late 1980s. The committee concluded that the maintenance and replacement of the urban infrastructure bear monitoring to ensure that U.S. economic competitiveness is not constrained. Total spending for public works in the United States (construction plus operations and maintenance) grew very slowly during 1972-1984 and fell greatly as a percentage of GNP and total public expenditures. There does not appear to be a shortage of capital, but high interest costs in the late 1970s and early 1980s made cities reluctant to issue long-term debt, which reinforced the decline in capital investment during this period. Although recent low interest rates have revived the bond market, the recent federal tax changes will probably constrain the tax-exempt bond market. The use of tax-exempt bonds for private activities has been restricted, and, in addition, they have been subjected to stricter volume limitations. State and local governments that wish to con- tinue to issue bonds to finance private activities, such as multifamily housing, convention and sports facilities, or waste disposal and pol- lution control facilities, will have to issue them as general obligation or taxable bonds. Because general obligation bonds are backed by tax revenues, the risk is borne by taxpayers. Urban Poverty: Growing More Concentrated The most troublesome trend identified by the committee is the growing concentration of poor people in central cities. Better ed- ucated and more highly skilled residents, including minorities, are