Cities Should Be the Focus of Federalism

Cities accelerate the spread of ideas and drive our national economy – but they are constrained in their ability to realize their full potential for their residents and for the nation.

(NLC)

(NLC)

In the first installment of this series, we looked at the basics of federalism and why it matters to cities. Part two focused on how affordable housing assistance has changed with the interpretation of federalism, and what that means for cities today, while part three examined federalism in the context of the American educational system. Part four focused on how local-federal partnerships support innovation and entrepreneurship, and today’s installment calls for more city-focused federalism.

Why should federalism focus on cities?

In 1932, Supreme Court Justice Louis Brandéis famously wrote, “It is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” This adage can be applied equally well to cities, which offer many advantages over federal and state governments.

Because of their limited geographies dense with human potential, cities accelerate the spread of ideas. They have become the drivers of our national economy. We can attribute this success to cities’ comparatively minimal bureaucracy, which allows them to respond quickly to changing technology and, in many instances, to act more pragmatically.

At the same time cities are innovating, they are providing a breadth of essential services to residents. Historian Kenneth Jackson once wrote, “Local governments in the United States have more responsibilities than municipal jurisdictions in other nations, and thus, they must themselves provide and pay for schools, policemen, fire protection, road repairs, sanitation and social services.”

Despite their role in our country, cities are faced with a lack of constitutional power. The federal government, over the last one hundred years, has embraced policies that have been notably anti-urban, including car subsidies, mortgage subsidies, substandard public housing, residential segregation and suburban land use laws. Coupled with the stifling attitude most state governments have towards localities, cities are constrained in their ability to realize their full potential for their residents and for the nation. This is why we need city-focused federalism.

What does city-focused federalism look like?

More resources. In today’s fiscal federalism – a carrot-and-stick approach to governing – money is everything. While cities generate most of their revenues from their own sources, intergovernmental aid is essential for jump-starting innovative projects and supporting necessary programs. Former Chicago Mayor Richard M. Daley once said, “Why should a city be mandated to do something by the federal government or state government without [being given] the money to do it?” City-focused federalism recognizes that cities need reliable funding from federal and state partners and not unfunded mandates.

Local decision-making. Cities should not have to wait on Congress to act in order to maintain highways, build transit systems, or spur new housing. Cities know which projects are critical, and will be responsible for maintaining them for years to come. City-focused federalism puts local governments in a position to set priorities and lead implementation. Federal funding formulas should reflect city priorities, or at least allow for flexibility at the local level. Passing more funding through to cities with fewer stipulations from the federal government will help catalyze this process.

Less preemption. Many state legislatures, which disproportionately represent non-urban constituents, have increased preemption of local authority on a number of issues. For example, local control over fiscal mechanisms is fundamentally important. Cities that have access to multiple revenue streams (sales, property and income) can tailor them to their local economies and preferences. However, the vast majority only have access to one or two streams of revenue. Reversing preemption and taxing limitations will only spur more innovation in cities. Moreover, granting home rule to more local governments will further enshrine the place of cities in the federal system.

A seat at the table. A strong federalist system relies on cooperation, not conflict, among the levels of government. The Obama administration set a positive precedent by placing former mayors in positions of influence and including local governments in important discussions, increasing the chances of local innovations becoming national policies. In the new administration, the voice of local governments deserves to be heard and respected. Furthermore, the creation of a national urban policy – something our country has long lacked – would go leaps and bounds towards affirming the importance of cities in America.

How do we achieve these goals?

Real change may not come without substantial shifts in politics and policy. More rights and protections for cities may need to come from a change not only in attitudes but in legislation. This is a daunting task. But the changes that city leaders create at the local level are often mirrored at the state and federal level – and by making their voices heard in statehouses and on Capitol Hill, local leaders can help change the nature of federalism in America.

To learn more about NLC’s efforts to promote more city-focused federalism – and make your voice heard at the federal level – join us at the Congressional City Conference in Washington, D.C., March 11-15.

Trevor Langan 125x150About the author: Trevor Langan is the Research Associate for City Solutions and Applied Research at the National League of Cities.

When It Comes to Innovation, Partnerships Are Key

NLC’s Brooks Rainwater examines federalism in the context of innovation and explains why the Small Business Administration is of critical importance to cities.

(NLC)

(NLC)

In the first installment of this series, we looked at the basics of federalism and why it matters to cities. Part two focused on how affordable housing assistance has changed with the interpretation of federalism, and what that means for cities today, while part three examined federalism in the context of the American educational system. Today we’ll look at how local-federal partnerships support innovation and entrepreneurship.

Cities are laboratories for innovation. It’s no secret that it is in cities where local leaders are continuously seeking out innovative solutions for tough problems. We have seen this exhibited particularly well in the small business and startup space. Local leaders are accelerating the unique ideas that make all cities thrive through the development of innovation districts, business incubators and shared working spaces.

The entrepreneurial ecosystems that have sprung up across the country enable cities to leverage existing business and draw in new companies that help foster creativity and technological breakthroughs in our nation’s urban places.

This type of innovation is exhibited in not only the largest metropolitan regions of the country, but also in places like Chattanooga, Tennnessee; Coralville, Iowa; and Kansas City, Missouri. Whether one examines the industry-leading app development in Coralville or the way Chattanooga and Kansas City are leveraging the power of gigabit speed internet as a backbone, these cities show that specialization and nurturing creative home-grown ecosystems works quite well.

In our own recent work on Chattanooga’s innovation district, we found that one of the critical factors for success was clear goals and close coordination between the city, the business community, the university, and the nonprofit sector in order to catalyze success and develop a critical path forward. Utilizing and reimagining the downtown of the city was just one key factor here, with another being the mayoral leadership of Andy Berke tied together with long-standing civic engagement in the community.

The fact that top-selling education apps are coming out of Coralville, Iowa, is not an accident – it took deliberate planning and partnerships. This community is just outside the area referred to as the creative corridor and is thus able to leverage the talent and resources needed to grow. In Kansas City, the Kansas City Startup Village is a great example of an entrepreneurial community that supports the city’s startup ecosystem. With the city’s rollout of Google Fiber tied together with its smart city initiative, there are a number of critical components in place. Thanks to the leadership of Mayor Sly James on these issues and many more, the city is doing the right things to promote entrepreneurialism and grow startup businesses.

This innovation that we observe in cities has a great deal to do with local partnerships. We also need strong partnerships at the state and federal level because they play such an important role in helping innovation and economic development thrive. One key example of this is found in the innovative companies in every corner of the country that are part of the U.S. Small Business Administration’s Growth Accelerator Fund Competition, which helps grow amazing companies nationwide.

History of Federal Funding for Small Businesses

The Small Business Administration (SBA) was established in 1953 by President Dwight D. Eisenhower as an independent agency with the signing of the Small Business Act. Since then, the agency has been responsible for delivering millions of loans, contracts, counseling sessions and other forms of direct assistance to small businesses. Throughout its history, the SBA has at times been somewhat of a pawn in political chess, with levels of support waxing and waning depending on the administration in power.

Most recently, Linda McMahon, co-founder of World Wrestling Entertainment, was confirmed as the SBA administrator. During her Senate confirmation hearing, Administrator McMahon walked back statements regarding folding the SBA into the Commerce Department, saying her priority in the first few months would be disaster relief programs. With the strong role the SBA plays in supporting entrepreneurialism in cities, the hope is that ongoing partnerships can be maintained and grown in the coming years.

Why the SBA Matters to Cities

The SBA matters to cities for a multitude of reasons. Connecting small businesses with the SBA and SBA-approved lenders is a critical role of many local economic development officials. The SBA has recently been supportive of entrepreneurs in cities by encouraging cities to sign on to Startup in a Day, an effort built in partnership between the SBA and the National League of Cities (NLC) to streamline city permitting and licensing procedures.

The SBA also serves a rebuilding role in cities. It has frequently been called on to revitalize cities struck by riots and unrest, from the Long, Hot Summer of 1967 to Los Angeles in 1992 and Baltimore in 2015. While the amount of support the SBA provides to cities is critical for a number of reasons, at the end of the day the economy of the country is reliant on cities. This is why the federal relationship is so important. The SBA has a loan portfolio of $124 billion, and these dollars are directly related to the nation’s growth. The SBA provides important counseling, educational and technical assistance to cities as well.

A Path Forward for Startups & Innovation in Cities

In thinking about a path forward for startups and growing innovation in cities, it is necessary to reiterate the importance of maintaining and strengthening the federal relationship. If instead of growing this support decisions are made to diminish it, the decreased federal funding available to small businesses will ultimately hurt cities and, therefore, national economic growth.

It is necessary to create a strong plan focused on increasing entrepreneurialism in our country. Statistics show entrepreneurialism is nearing a 40-year low and the pace of IPOs has slowed. However, the nation is in a good position to turn that around – according to a new survey from JPMorgan, the leaders of small- and medium-sized businesses are saying they are more enthusiastic about the U.S. economy in 2017. That survey found that 68 percent of respondents were encouraged about the outlook for local economic conditions, representing an 18-point increase from 2016.

Let’s leverage that potential for growth with startups and others in the entrepreneurial community. Innovation will continue to percolate from the ground up – but in order to truly grow this opportunity, cities need a partner in the White House and in statehouses nationwide to unleash economic dynamism and continue innovating.

To learn more about what NLC is doing in this policy arena – and make your voice heard at the federal level – join us at the Congressional City Conference in Washington, D.C., March 11-15.

About the author: Brooks Rainwater is Senior Executive and Director of the Center for City Solutions and Applied Research at the National League of Cities. Follow Brooks on Twitter @BrooksRainwater.

Forecasting the Role of Cities in Education

Both cities and the federal government want great schools because they help create a strong workforce, boosting the economy at a local and national level – but the legal and fiscal powers of both levels of government are limited, and the policies of the new administration will likely complicate this dynamic even more.

(NLC)

(NLC)

In the first installment of this series, we looked at the basics of federalism and why it matters to cities. Part two of the series focused on how one policy – affordable housing assistance – has changed with the interpretation of federalism, and what that means for cities today. In this post, we examine federalism in the context of the American educational system.

The expectation that government should provide accessible, quality education for all has become deeply engrained in the American psyche. This responsibility, however, falls squarely on the shoulders of local governments. Quality education is most often a local responsibility, increasingly paid for at the state level, and managed by policies set at the national level. More specifically, states and local school districts have always made the critical decisions about education, from who should teach to what should be taught. The role of the federal government has been more limited; education policy has long flowed from the bottom up, with the federal government often expanding innovative local policies nationally. For these reasons, education presents an interesting look at federalism.

History of National Education Policy

While the role of the federal government in education has been muted, its level of involvement has steadily increased over the last sixty years. Federal interest in schools was triggered by the launch of the Sputnik satellite by the Soviet Union in 1957 and the fear that American education was falling behind on a global scale. In 1965, President Johnson signed the Elementary and Secondary Education Act, delivering resources to poor urban and rural schools. Later in the 1960s and into the 1970s, the federal government worked to combat de facto segregation in public schools. The Department of Education became its own cabinet-level department in the Carter administration, only to see its budget severely reduced during Reagan’s tenure.

Similar to other policies, education policy followed the trend of heightened national importance during the Kennedy and Johnson administrations, with the focus shifting back to the states during the Reagan administration. However, these federal trends coupled with changes at the state level to constrain public school budgets. Funding for education, which has typically been tied to property tax revenues, started to come under threat in 1978 when California was the first state to pass a limit on local tax collection. In 1979, state spending overtook local spending as the largest source of education funding, in effect limiting local autonomy.

Today, the federal government contributes between 8 and 10 percent of the public education budget. This amounts to $55 billion annually as of FY 2013, according to the National Center for Education Statistics. Much of this funding is discretionary, which means that Congress sets the amount annually through the appropriations process.

The most recent era of federalism, while hard to define, has largely focused on accountability and performance – doing more with less money. No policy area exemplifies this better than education, and no particular legislation better than the No Child Left Behind (NCLB) act. Enacted at the outset of the George W. Bush administration, NCLB was built on the premise that standards should be equalized across states so that a school’s performance could be accurately measured. These priorities continued during the Obama administration with the Race to the Top program, which rewarded states that adopted common standards and broadened performance metrics.

In the Trump administration, the Department of Education will be led by Betsy DeVos. Secretary DeVos has been an advocate for school choice, meaning the privatization of education through school voucher programs and the expansion of charter schools. It is likely she will bring her views on education reform to the Department.

Because of recent reforms to federal education funding, local governments and school districts are under pressure to ensure schools are performing adequately or they risk losing critical funding to privatization. If Vice President Mike Pence’s tenure as Indiana governor is any indication, the Administration will likely move to expand charters and voucher programs. When the vice president was governor, Indiana shifted millions of dollars shifted away from public schools, and more children from middle-income families received vouchers to attend private schools.

Steps Cities Can Take Moving Forward

While education policy is administered at the local level, city governments often do not have direct oversight of their public schools. In some municipalities, school boards are jointly appointed by the mayor, city councilors, and/or the governor. In contrast, many school districts are independent special-purpose governments with leadership that is elected rather than appointed by city officials. In both of these scenarios, the policies of the new administration will likely add to the complexity of local-federal relationships in the education arena even more.

However, whether or not cities are directly responsible for their public schools, local governments can still lead (or expand) educational programs. Many cities offer programs during out-of-school times, either in the evenings or during the summer. These programs enrich the education experience, prepare students for specific careers, or help close the racial achievement gap.

Cities can also use data to improve their school systems. In the City of Nashville, for example, a partnership between Metro Nashville Public Schools (MNPS) and the city-funded afterschool program for middle school youth, the Nashville After Zone Alliance (NAZA), has significantly improved students’ reading ability in just three months. This is exactly the type of partnership and focus students need, especially if they are struggling or falling behind. In another example of partnerships, NLC’s Institute for Youth, Education, and Families teamed-up with MomsRising and School Readiness Consulting to produce Strong Start for Strong Cities, an early learning resource guide for mayors, councilmembers and other municipal leaders.

Finally, local elected officials can exercise leadership to support youth education beginning with pre-school, expand alternatives for students who struggle in traditional educational settings, increase high school graduation rates, and promote college access and completion.

To learn more about what NLC is doing in this policy arena – and make your voice heard at the federal level – join us at the Congressional City Conference in Washington, D.C., March 11-15.

Trevor Langan 125x150About the author: Trevor Langan is the Research Associate for City Solutions and Applied Research at the National League of Cities.

Cities Are Part of the Prescription to Fix America’s Affordable Housing Crisis

Dr. Ben Carson will likely take over the Department of Housing and Urban Development (HUD) and its budget. HUD provides significant resources to cities and their residents – so when it comes to affordable housing assistance, what does that mean for cities?

(NLC)

(NLC)

This article was made possible with the research support of American University Department of Public Administration and Policy graduate students.

In the first installment of this series, we looked at the basics of federalism and why it matters for cities. In this post, we’ll look at how one policy – affordable housing assistance – has changed with the interpretation of federalism, and what that means for cities today.

An Affordable Housing Crisis

There is an unprecedented demand for rental housing, among all income levels. With rental markets tight, low- and moderate-income renters are having a difficult time finding housing. In America’s central cities, which house the majority of low-income renters, the problem is exacerbated by an overall decline in public housing developments and a steady increase in transferable vouchers. These cities are seeing an increase in the number of severely distressed renters and a decrease in the affordable housing supply.

While the federal government takes an active role in the housing space, local governments face tough decisions daily. The negative effects of homelessness and poor housing have real effects on resident well-being. And because property values are usually tied to revenues, city budgets are strongly affected by changes in the real estate market. The federal government works to support housing in all of these areas, but the tools available sometimes reflect past problems.

With his likely confirmation, Dr. Ben Carson will take over the Department of Housing and Urban Development (HUD) and its budget of over $40 billion (FY17 requested outlays). HUD provides significant resources to cities and their residents, including both rental and homeownership assistance. For this reason and others, housing policy offers an interesting look at the federal-city relationship.

Federal Housing Policy

The nature of federalism over the past 30 years has been defined by an interplay between economic and political realities. As the economy has expanded and contracted, governments at all levels have responded by expanding or cutting spending. Similarly, different administrations have had drastically different viewpoints on the size of government and the degree to which local problems warrant national solutions.

During the 1980s, a changing economy and the Reagan administration combined to drastically change the face of federalism. Increased reliance on block grants, incentivizing third-party partnerships, and limiting unrestricted funding all began during this time. To meet their aggressive fiscal goals, the federal government shifted from place-based to person-based aid. By redirecting the flow of federal assistance to people instead of places, housing vouchers became more portable since they were attached to eligible persons instead of eligible units; however, this shift decreased the amount of funding received by local governments. As a result, although federal aid increased by 78 percent from 1989 to 1994, states captured approximately 89 percent of the increase because states are the principal administrators of intergovernmental aid-to-persons programs.

By decreasing the use of direct federal funds allocated to affordable housing, localities were forced to become more involved in supplying affordable housing. This led to the practice of combining grants such as the Community Development Block Grant (CDBG), HOME block grant, and the Low-Income Housing Tax Credit (LIHTC). The Reagan administration’s emphasis on less federal spending and more private market solutions laid the foundation for the relationship of federalism and affordable housing policies that can still be felt by localities today.

In 1998, Bill Clinton and a Republican Congress enacted the Quality Housing and Work Responsibility Act, which sought to address the issues of deteriorating public housing, concentrations of poverty, and the allocation of subsidized rental assistance to individual households. The law continued the trend of devolving responsibility to lower levels of government by granting public housing authorities greater flexibility and authority.

Today, with the election of Donald Trump as president, the future of the Low-Income Housing Tax Credit has been called into question. The tax credit has subsidized the construction or renovation of a substantial number of multifamily units since its inception in 1986. Funding for new projects funded with LIHTCs have become less attractive as investors anticipate the new administration to reduce corporate tax rates. If the trend holds, this presents a significant worry to cities.

Recommendations

It is likely that the trend toward greater private involvement in affordable housing policy will continue into the future. Members of the new administration, including Dr. Carson, view housing assistance as a government handout that is not necessary to escape poverty. Undoubtedly, local leaders need to be innovative if they want to use yesterday’s tools to address today’s crisis. The following are recommendations for dealing with housing policy in the current federalism context:

Successfully leverage federal aid by drawing from as many programs as possible. Take advantage of the entire package. There are a number of programs and resources available to cities. Each has a different purpose and structure. Working in concert, these funds can be powerful tools for combating a city’s affordable housing crisis from all angles.

Low-cost initiatives like Inclusionary Zones can be successful, but don’t assume that they will work in all situations. There are always going to be new and innovative programs. Make sure these work for your city. When copying a successful model, cities must always evaluate whether administrative structures that have been used elsewhere can be duplicated. When copying a model program that relies on the cooperation of private actors, cities must also assess if there are enough similarities between the extra-governmental environment in the model city and their own.

Make the most of federal programs by making your city attractive to the private sector. Despite the difficulties brought by increased reliance on the private sector, cities can increase the odds of success by making themselves attractive to outside investment. Perhaps the easiest way to do this is to simply market existing opportunities to developers. Even if LIHTCs are distributed through state governments, cities can work to help developers apply for them and make the process to attain them as smooth as possible. Similarly, inclusionary zones with density bonuses are more likely to draw investment than inclusionary zones with punitive fees. The less organic interest there is in development, the more cities must do to encourage it. Unfortunately, there can come a point where no amount of promotion can overcome economic realities, and even the most innovating third-party partnership policies will flounder. It is these situations that highlight the continued need for stable federal aid more than what the market will provide.

To learn more about what NLC is doing in this policy arena – and make your voice heard at the federal level – join us at the Congressional City Conference in Washington, D.C., March 11-15.

Trevor Langan 125x150About the author: Trevor Langan is the Research Associate for City Solutions and Applied Research at the National League of Cities.

Federalism in Focus

The relationship between the federal and local levels of government has been in the spotlight after just a few short weeks of the new administration. It is clear from public statements, Tweets and an executive order that President Trump intends to shake up political institutions as we’ve come to know them.

(NLC)

(NLC)

In this new series, Federalism in Focus, we’ll unpack the nature of the city-federal relationship today, how federalism is reflected in urban policy, and what an ideal relationship would look like.

What is federalism?

Federalism is the constitutional relationship between state governments and the federal government. Cities have a role in the federal relationship that can be difficult to decipher. Local governments are not mentioned in the U.S. Constitution, or even the Federalist Papers, because, for much of early American history, cities – even the largest – tended not to be incorporated. Over the years, cities derived their existence and limited powers from their state governments. Only since the 1930s has there been an active and direct federal-city relationship.

The prevailing interpretation of city authority comes from an 1868 Iowa court case. In it, Judge John Dillon offered a narrow interpretation of a local government’s authority, stating that state legislatures give cities life and can take it away. States, therefore, vary tremendously in their treatment of local governments. Some states offer cities home rule, where the cities have been granted broad authority to create new programs or raise taxes without state approval. However, states have increasingly sought to limit the power of cities through by preempting the authority of cities to regulate particular issues. States also broker the relationship between the federal government and their localities, adding their own preferences to those interactions.

Why is federalism important to cities?

The way in which a president and Congress view the relationship between levels of government is important context for the legislation they produce. From affordable housing to immigration, federal policy toward cities is shaped by the interpretation of the U.S. Constitution and the federal system it enshrines. Before approaching any policy argument, it is essential to know the way power is divided. In the case of so-called sanctuary cities, President Donald Trump’s executive order relies on the power of the purse. This is a coercive view of federalism, where state and local governments comply with federal mandates based on grant funding.

Although the federal government does not provide a significant amount of funding to local governments (only about 5 percent of general municipal revenue), it has other ways of increasing local revenue or reducing local costs. This includes establishing federal tax exemptions that reduce municipal borrowing costs. Federal tax exemptions for local property, sales and income taxes encourage homeownership and consumption of goods and services, thereby increasing municipal revenue from local sales, income and property taxes.

In addition, federal aid reaches municipalities in the form of grants. Federal grants come in two forms: block and categorical. Block grants are allocated according to a predetermined formula that dictates how much money a locality can expect to receive, depending on quantifiable factors like population, housing density or health indicators. Cities that apply for block grants must use funds from a preapproved broad functional area such as community development, but generally have few restrictions on how it is spent. Categorical grants, on the other hand, may be spent on more narrowly defined programs.

How has federalism changed over time?

As political climates shift, the way federalism plays out in America also changes. The 1960s saw a very activist federal government that worked directly with cities to implement social policy. Federal aid to cities was a much larger share of the budget than it is today. During the administrations of presidents Nixon and Reagan, the paradigm shifted. Grants became less specific, preferring block grants over categorical, and funding also shrunk.

Today, federal policy tends to prefer transfers of aid to individuals rather than to governments. Money for cities is therefore limited. This is emphasized in the federalism today, which values accountability through results oriented programs and increased incentives to work across jurisdictions. Moving forward, we can likely expect a Trump administration and Republican Congress to look for ways to leverage private investment in cities, rather than direct federal dollars. In the current landscape, we can also expect differences between levels of government to become highly politicized to the point of brinksmanship.

In the rest of this series, we’ll look at what specific federal policies can tell us about the city-federal relationship. To find out more – and make your voice heard at the federal level – come to NLC’s Congressional City Conference!

Trevor Langan 125x150About the author: Trevor Langan is the Research Associate for City Solutions and Applied Research at the National League of Cities.