Tax Cut an Empty Gesture to Cities

Every year, the nation’s mayors plead with Washington to talk about the problems facing cities -- and provide funds to address them.

But as President Bush prepares to sign a sweeping tax cut bill into law today, city leaders say that the federal government is wildly out of sync with their priorities.

“People weren’t looking for a tax cut,” John DeStefano Jr., mayor of New Haven, Conn., and president of the National League of Cities, said Tuesday. But “people do want to be safe. People look forward to having health care.”

According to a group of mayors, economists and other experts convened here by the league, the tax cut is simply the latest example of a dangerous disconnect between federal policymakers and the state and city layers of government.

“The things that citizens care most about are what municipalities do”: operating schools, fighting crime and providing transportation, said Alice Rivlin, a senior fellow at the Brookings Institution and former director of the Congressional Budget Office.

Yet the tax cut -- which sets aside $20 billion to aid financially strapped state governments -- left the cities empty-handed. Buffeted by a weak national economy and new homeland security expenses, many localities are planning to cut still deeper into basic services.

Most cities surveyed by the league already have imposed or increased fees for services and have dipped into their cash reserves. One-quarter of the 330 cities polled said they had increased property taxes, while 13% had raised other taxes.

Now, with revenues down 1% and spending up almost 3%, cities are cutting closer to the bone -- delaying road and sewer projects, for example, while shrinking their workforces and services.

At the same time that the federal government is requiring cities to spend much more on public safety and homeland security measures -- officials said cities have spent $3 billion on security since Sept. 11, 2001 -- cash-strapped states have delayed and reduced their aid to local governments.

In California, for example, “things are so bad that the state is about to defer” reimbursements to local governments for the second consecutive year, said Christopher K. McKenzie, executive director of the League of California Cities.

McKenzie warned that dramatic spending cuts being implemented in Sacramento this year will not even begin to take care of California’s budget problems. Yet the cuts will leave the state “years behind in capital investment,” he said.

Economists who met with national league officials warned that cutbacks in spending by local and state governments could further weaken the national economy.

Other outside experts agreed that the problems were aggravated by short-term political actions, including the federal tax cut package, that ignore long-term structural issues such as the looming retirement of the baby boomers and a shrinking pool of younger, taxpaying workers.

For now, “the pain is being passed down” from Washington and the states to cities and towns, said Karl Jacob, director of public finance for the credit-rating agency Standard & Poor’s.

Iris J. Lav, deputy director of the Center on Budget and Policy Priorities, asked: “Why does every other interest come before localities?”