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Lincoln Institute CEO charts civic challenges to sustain solvency

The Massachusetts think tank zeros in on financial health and sustainability around the world

Sustaining municipal fiscal health poses challenges for cities across the country.

George McCarthy, president and CEO of the Lincoln Institute of Land Policy, spoke about the potential hazards during an urban growth seminar hosted on March 3 by the USC Price School of Public Policy.

Based in Massachusetts, the Lincoln Institute is a think tank that focuses on the health and sustainability of cities both nationally and globally.

Chapter 9 filings

From 1980 to 2010, McCarthy noted that there was an average of seven municipal Chapter 9 bankruptcy filings per year. Today, high-profile bankruptcies in places such as Stockton and Detroit are setting up the future challenges for finding sustainable financial solutions for cities of the world.

“Very often insolvency today is the result of poor planning that was done 40 years ago,” McCarthy said. “Sometimes it’s the poor planning of the municipality, and sometimes it’s not.”

McCarthy pointed out that cities have to manage around unpredictable federal and state government mandates beyond their control. He said that most people don’t understand that the trigger for 12 Michigan cities, including Detroit, recently entering insolvency was a change made at the state level on how to redistribute sales tax money.

Fiscal problems are not unique to U.S. municipalities. In China, cities have issued $3.3 trillion in public debt since 2008 with permission of the national government, and they have few revenue sources to repay it.

“Municipal fiscal health, if not managed correctly, can lead to cataclysmic problems nationally,” McCarthy said.

Public debt and infrastructure maintenance

In the long term, McCarthy finds that public debt almost always accumulates in the under-maintenance of infrastructure, which has dire consequences. The United States already has an estimated $3.6 trillion demand for infrastructure maintenance, with global estimates at $17 to $40 trillion.

Finding ways to make sure infrastructure investments fortify revenue, linking transportation to housing and leveraging investments that will generate larger returns are keys to sustaining the fiscal health of local municipalities.

McCarthy also thinks it’s important to get the public on board with the importance of cities.

“We have to kind of rebuild the understanding in the general population of the role of local government and why it is necessary and good to pay taxes, or otherwise the provision of public goods would not happen,” McCarthy said.

Mark Phillips, an assistant professor at USC Price who specializes in public finance, added his thoughts after McCarthy spoke, stressing the need to plan better for the future.

“My question is, how can we design the incentives for public servants and elected officials to think in terms of long-run economic health,” Phillips said. “I don’t necessarily know the answer. In a democratic system where they care about votes, they’re necessarily going to care more about short-run accounting oriented things. I think they know they should be planning, it’s just how do we get them to do it?”

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Lincoln Institute CEO charts civic challenges to sustain solvency

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