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A financial fix for strapped cities

| Sunday, March 11, 2012

Cities are struggling these days. But many are adopting innovative strategies that offer much promise.

From Lowell, Mass., to Berkeley, Calif., cities have discovered they can make better use of the millions of municipal dollars that temporarily sit in bank accounts.

They do this by choosing where to place deposits based on banks' willingness to relend those dollars to meet local community development goals. This stimulates local economic development without placing new burdens on taxpayers.

Direct city ownership of land and businesses is another successful approach.

Republican and Democrat mayors alike are involved in efforts ranging from land development to Internet and Wi-Fi services. In many cities, profits from municipally owned electric utilities also help finance other services and thus reduce the tax burden.

In Los Angeles, for example, the Department of Power and Water contributes about $190 million per year to the city's revenues. Still other cities have created new businesses to promote local economic development.

Hundreds of municipalities, for instance, generate revenues through landfill gas recovery, turning the greenhouse gas methane (a byproduct of waste storage) into energy.

Others have established programs to make equity investments in local firms and share in their success. San Diego has invested $2.5 million in an "emerging technology" fund targeting small businesses in low-income communities.

Cities can harness other public assets to nurture the local economy. The ability of city governments to use the municipality's purchasing power to keep business dollars circulating locally is vastly underappreciated.

Utilized wisely, city purchases can provide a revenue-neutral way of supporting the development of community-anchored businesses -- directing city contracts to firms structured in ways that keep jobs in the city.

In Cleveland, the purchasing power of the city's existing "anchors" -- not only hospitals and universities but also local government itself -- is providing a long-term market for a network of green worker cooperatives built in some of Cleveland's poorest neighborhoods.

This initiative not only builds the tax base, it also reduces the demand for city social services.

In an age of increasing fiscal crisis, we need comprehensive city-level economic planning. Strategies such as these might offer the only way out of the bind.

Rather than impose austerity, cut back on city services and pit taxpayers against public employees, enlightened city managers can utilize these strategies to strengthen and unify their communities -- not weaken and divide them.

Gar Alperovitz is a professor of political economy at the University of Maryland and the co-founder of the Democracy Collaborative.

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