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COMMITTEE REPORT 51 regions and in some fast-growing cities in the South and West. In- frastructure condition is also affected by local maintenance practices and other factors. Overall, rates of new capital investment have been declining, but this was to be expected given the completion of most of the nation's capital stock by 1980. Spending for operations and maintenance has increased steadily, and total expenditures capital plus operations and maintenance have stayed at about $400 per capita (in 1984 dollars) since the 1960s. The withdrawal of federal capital aid does not necessarily cause local capital expenditures to drop. The latter already were declining through the late 1970s, a time when federal aid was rapidly increas- ing. The declines in state and local expenditures in the early 1980s probably came as much from soaring interest costs and lower state expenditures (resulting from the recession) as they did from changes in federal policy. In other words, lower levels of long-term borrow- ing were probably a cyclical response rather than a long-term trend. State and local borrowing has recovered, and it has reached new heights since 1982. The biggest constraint on state and local bor- rowing is cost; the interest rates that local government bond issuers have to pay have remained somewhat high by historical standards. These high rates affect fiscally constrained cities the most and would help explain the apparent decline in capital expenditures observed by Dearborn (in this volume) in the largest cities. Problems remain in the tax-exempt bond market. The new tax law will probably keep the difference between tax-exempt and taxable bond interest rates small, although new restrictions on nontraditional borrowing for private purposes may ease the demand for tax-exempt bond issues and thus lower interest rates. Policy Implications After a careful review of recent data on demographic, economic, and governmental conditions and trends in urban areas, the commit- tee identified three sets of issues with major policy implications. URBAN POVERTY The evidence that poverty is increasing in central cities in the midst of economic recovery raises the issue that is most troubling

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52 URBAN CHANGE AND POVERTY in the committee's view. The economic restructuring of American cities is creating a service economy in many urban centers that requires high levels of education and skills. This restructuring is occurring at the same time better-educated residents whites and minorities are leaving central cities for the suburbs and beyond, and new immigrants, mostly minorities, are still moving into central cities looking for economic opportunity. Unemployment rates are very high among central-city residents and especially among minority residents who tend to have less education and work experience. This bifurcation of jobs and residents, if it is confirmed by further research, would have major implications for public policy because cities would not be able to carry out one of their traditional functions, that of assimilating poor immigrants into the economy. One policy approach to the problem of increasing urban poverty would be to encourage, or at least not discourage, the migration of unemployed individuals to areas with job opportunities, although the history of past attempts to relocate workers indicates that this may not be promising. The eligibility requirements- and benefit levels in public assistance programs could be made more uniform, for exam- ple, so that differences in welfare generosity do not affect migration decisions. This macro-level approach, however, will not help those who clo not have the education and skills for the available jobs. An- other policy approach would be to improve human capital investment programs, such as early childhood, elementary, and secondary edu- cation and job training and retraining programs. These micro-level programs, which aim to intervene in the lives of individuals, are also very difficult to implement, and knowledge about how to improve them is limited. There is a need for further research on changing urban labor mar- kets and on the causes of urban unemployment and poverty to help policy makers design effective programs. Such research also depends on the amount and quality of local area economic statistics. These statistics should be better designed to compare economic trends and conditions in central cities and their suburbs. Policy makers and researchers should examine approaches to reducing urban poverty that have worked in different places and with different types of poverty. Such approaches should include fed- eral and state experiments and demonstrations, such as workfare, as well as self-help and neighborhood-level development efforts. Fi- nally, government antipoverty policies should be concerned with the

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COMMITTEE REPORT 53 performance of the institutions constituting a central city's social infrastructure, especially the schools. REGIONAL DECLINE The second major set of issues with policy implications that troubles the committee concerns the effects of population and eco- nomic decline in the Great Lakes and Mideast regions. These areas are not rebounding in response to national economic recovery, and long-term trends affecting them point to continuing decline. Al- though metropolitan areas and many major cities are doing better overall, there are inclividual exceptions. The central cities with fis- cal problems also tend to be in declining metropolitan areas in the older regions. There may be long-run equilibrating forces that will improve the situation In the Mideast and Great Lakes regions, as they have in New England. Unfortunately, the adjustment process may be complicated by changes in the international economy that are making it more difficult for American industry to compete. The committee does not think it possible to reverse this fun- damental economic restructuring, but public policies couIcl ease the transformation. Although urban economic transformation may be beneficial for national efficiency and competitiveness over the long run, there are short-term costs that include high rates of structural unemployment and poverty among people not equipped to partici- pate in the new urban economy. The decline in the tax base, even if temporary, may also worsen the fiscal position of affected localities. They may not in all cases be able to reduce expenditures as quickly as revenues, especially if the needed decline in population is slow in coming or the remaining population includes more poor, or both, which is usually the case. In addition, worsened fiscal conditions may mean that local jurisdictions will provide less than optimal levels of such public goods as local human capital investment in education and training. Although much has been done already, more research is necessary to understand the nature and processes of economic transformations in American cities and how such transformations are operating in specific cities. This research should not be limited to the nation's older regions; it should also encompass developments in fast-growing metropolitan areas in the South and West, especially to try to un- derstand how urban areas in the South were able to overcome the disadvantages of a relatively less-educated work force.

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54 URBAN CHANGE AND POVERTY URBAN CAPITAL INVESTMENT The third area of concern to the committee is urban capital investment. The urban infrastructure is not now in critical condi- tion, but much of the stock is old and deteriorating. Replacement programs may not be keeping up with long-term needs. Growing areas also have infrastructure problems. They may not be able to build it as quickly as needed to sustain the level of economic growth that would otherwise be possible. The main barrier appears to be the high and fluctuating cost of capital, compared with historically Tow interest rate levels. As with human capital investment, there is more than a local interest in achieving optimal levels of local in- frastructure. Policy makers should be concerned that the nation's infrastructure, including urban infrastructure, is adequate to sustain national econorn~c growth. Local physical infrastructure vital to human capital development is especially important, yet the data on school and other local public facilities are very poor compared with those on so-called national in- frastructure systems, such as streets and mass transit. More research is needed regarding the adequacy of local capital facilities. Research is also needed on the factors affecting the cost of capital financing, such as the criteria used in decision-making by financial institutions involved in the bond market. The impact of federal infrastructure investment policies on pat- terns of urban growth, including economic development, labor mar- kets, and land use, should also be studied. The extent of the geo- graphical mismatch between the central-city poor and unemployed and the growing number of entry-level jobs in the suburbs, and the possible ways to remedy this situation, are one set of important research topics. Another set concerns growing traffic congestion in the suburbs, where most journeys to work now begin and end. To what extent do or should federal policies ease or contribute to the separation of home and work, within the suburbs as well as between central cities and suburbs?