CHALLENGES OF MANAGING URBAN AREAS IN
THE FACE OF STATE AND FEDERAL CUTBACKS

Remarks of MAYOR RICHARD M. DALEY
Municipal Bond Investors Assurance Corporation

I decided to call this speech "Survival of the Fittest," because cities, as well as small towns, are literally facing a fight for their lives. The cost of providing basic services — police protection, sanitation, transportation — is going up, while the tax base to pay for those services has steadily eroded over the past 30 years. Urban infrastructure is falling apart and it's harder and harder to find the money to pay for capital improvements. And when the infrastructure goes down, the economy goes with it.

No one is going to start or expand a business in a city that doesn't have good roads, bridges, airports, public transportation, housing, sewer systems, and all the other basics that make a place work. That's a given, and mayors who fail to understand that are looking at a grim future. And a part of the blame for the deterioration of our infrastructure lies with the federal government, which has steadily reduced its investment in America.

Just seven years ago, federal funds accounted for roughly 27 percent of the budget of the City of Chicago. In 1992, federal funds will make up just 15 percent of the city budget — about $475 million of a $3.2 billion dollar budget. In real terms, that means that federal cutbacks will cost Chicagoans almost $400 million next year. That is $400 million we could have used for public safety, housing, infrastructure, and social services. These are real losses that hurt real people.

States have also lost a lot of federal money. They are solving their fiscal problems by passing on their responsibilities to local governments. The result is a squeeze on local taxpayers.

The National League of Cities recently did a survey and found that one in four cities today faces a budget deficit of more than five percent. Five percent may not sound like a lot, but it was enough for Bridgeport, Connecticut to declare bankruptcy.

The question is, what can we do to survive? Cut expenses? Cut services and programs? Reduce capital spending? Lay off employees? Shift responsibilities back to the state? Or raise taxes? The answer is not a simple one, and it's certainly not the same for every city. What's working for Chicago may not work for Bridgeport.

My answer is, before you raise taxes — before you ask any more of the people who pay the bills — you change government to make it work better for people. You scrap the programs that don't work, and you demand greater efficiency in the programs that do. You look for any way to save money and improve services.

Last month, I announced Chicago's $3.2 billion budget. My budget included cuts in every area except public safety. We announced over 1000 layoffs and elimination of several hundred more jobs that were vacant. All told, we cut roughly 13 percent of the corporate budget outside the police and fire departments.

To further save money, we announced plans to privatize more city functions — such as window washing at city buildings, and janitorial services at our police headquarters, just to give you a few examples.

Here's another example. For years, people were screaming about abandoned cars blighting every community. They would call the city, but the cars would sit for months. My solution was to privatize the program. Under the terms of the deal, the private vendor paid the city $25 for every car removed. The vendor then sold the cars for scrap at a profit. In the first 18 months, 100,000 cars were removed from the city streets, and, instead of spending $3 million dollars on a program that wasn't working, we earned $1.3 million for the city on a program that does work — a net difference of $4.3 million.

We're being more efficient in the area of public safety as well, because it is consuming more and more of our resources every year. Due to the drugs and gang problems, crimes are on the rise, and people want more police. I'm all for it, even though it's going to cost Chicago $48 million more next year. However, it's not the added money that will really make the difference. Changes in the way we manage the Police Department will do a lot more to improve public safety. We commissioned a major management study of the Chicago Police Department — Booz, Alien & Hamilton, a management consulting firm.

One result of the study will be fewer police behind desks, fixing cars, typing reports and doing things that civilians can do. Another result will be less time wasted on non-emergencies — which now account for more than half of all 911 calls. A third result will be a better-managed sick leave policy so that 10 percent of our police force isn't out sick every day.

The basic fact of government today is that people want more for their money and government has less money to do the jobs people are demanding. People are getting less and less tolerant of higher taxes. Raising taxes has to be the absolute last resort for a city. It's not just that it's politically unpopular. Raising taxes is economically destructive.

The alternative is to create a government that is smaller in size, but greater in performance — to take a sprawling urban bureaucracy that has grown haphazardly for generations, and whip it into shape through cuts in staff and better management. Cities that fail to do that will have to raise taxes and cut services. That will only drive away businesses, jobs, and finally, people, leading to a long, slow, painful death. And when that happens, cities aren't the only ones that suffer.

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Whole regions suffer, because cities are the economic engines of America.

Some people think suburbs are the economic centers of the future. I think they are wrong. Suburbs would not exist without cities. I think it's time to recognize the false dichotomy between urban and suburban economies. When cities decline, the surrounding suburbs will just as surely decline. And of course a thriving city will support a suburban economy. And the foundation of the economy is the infrastructure. The best example is O'Hare Airport in Chicago. 40 years ago it was a small local airport surrounded by cornfields and orchards. It was expanded and quickly became the busiest airport in the world. Today, O'Hare is surrounded by thriving communities stretching for miles into the city's northern and western suburbs. A corridor of corporate and commercial activity has evolved from that single investment in Chicago's infrastructure.

Chicago grew up around the railroads and the Illinois and Michigan canal that connected the eastern seaboard to the Mississippi River and the Gulf of Mexico. Today it remains the transportation hub of the country because of O'Hare Airport, And, we are now positioned to take advantage of the expanding global economy, because we have direct flights to every continent in the world.

That's what O'Hare did for the northern half of the Chicago region. We're hoping to accomplish the same thing on the city's southeast side by building a second international airport at a site near Lake Calumet. The area used to be the heart of the steel industry. Today it's an economically depressed area plagued by environmental problems. A new airport can turn the economy around and stimulate growth throughout the south suburbs as well as northwestern Indiana. It's also an opportunity to clean up the site and recycle land that is already developed and already has an infrastructure. It's both a good land use policy, and a good economic policy. Moreover, it's a sound investment in our future.

Right now, we are competing with the City of Gary, Indiana and with several rural sites for this new airport. The people pushing for a rural airport argue that they can build an airport for less money in a cornfield 35 miles south of the city.

I say great — but who will use it? How many of you in this room would drive an hour or more to catch a flight? When you fly to Washington, D.C., you don't fly to Dulles — you fly to National — because it's close to downtown. We have the space in the city, we have the businesses, the people to use it, the convention center, and the tourist trade to attract travelers.

Among the five competing sites, Lake Calumet stands the best chance of becoming a major airline hub, which is critical to the growth of the airport. We also have the infrastructure in place already — the roads, bridges, railroads and sewers. We have the people to fill the estimated 200,000 jobs the airport would provide. And, finally, we have a way to pay for it.

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I personally went before Congress and worked closely with Congressmen Dan Rostenkowski, Bill Lipinsky and other members of our delegation, as well as members of the Ways and Means Committee to get cities the authority to collect a passenger facility charge to raise revenues for new airports. We can now collect a $3 dollar fee on airline tickets sold at O'Hare and Midway Airport, which will raise about $90 million a year.

That means we can issue bonds to begin construction of a new airport and begin paying them off immediately with a new source of revenue, instead of having to rely on state and federal revenues that could be spent on other needs. I would think that you, who are in the business of insuring municipal bonds, would look favorably on a plan to pay off bonds in this way. And that only helps us both. Needless to say, Chicago — like all cities — needs bond financing for large capital projects. Nothing can be done without bonds, and municipalities that recognize the importance of investing in their infrastructure will be using bond financing more and more in the coming years.

That's why we have worked hard to maintain our bond rating, and we're working hard to make it even better. That's why I am making the tough choices in city government to keep Chicago fiscally sound, and economically progressive. Right now we have many major projects in the works — none of which could be built without the support and faith of the bond industry.

We are renovating a 3,000-foot pier along the lakefront — to create a major commercial, cultural and recreational center. We're doubling the size of our convention center — McCormick Place — so that we can remain the convention capital of America. We're building a downtown trolley system to improve traffic flow in our expanding central business district. Here as well, we have a creative financing solution that won't rely on a citywide property tax hike. The state pays a third, Washington pays a third, and, through a special tax levied on downtown businesses, we pay a third.

Everyone benefits from this project. Downtown businesses, people from the suburbs who come into the city to work, Chicagoans who come downtown to shop and work. It also cuts down on bus and car traffic, as well as pollution. It's the kind of forward-thinking project that can really help Chicago grow. As I said, the key for Chicago is to keep our property tax base growing so that we don't have to hit the individual homeowner or business owner with higher taxes.

Because of the changes we are making in city government, our tax levy next year will be the same as it was in 1989. Because of new growth in Chicago, individual homeowners will actually pay less in city property taxes next year than they paid in 1989.

In my budget address in Chicago, I also went on record in favor of a dollar-for-dollar swap of state income taxes with property taxes. For every dollar the state gives the city from income taxes, the city would cut a dollar from the property tax levy. That way, the

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people who are out working every day are picking up more of the tab for local government than the senior citizen on a fixed income, or the struggling homeowner trying to raise a family. In Illinois, it's an idea whose time has come.

The National League of Cities Survey said that 43 percent of the cities are raising property taxes. I would like to see a study that shows the impact of property tax hikes on local economies. My guess is that it would result in a smaller tax base.

Cities need new revenues, and Chicago is no exception. We announced a new tax on out-of-state calls. We raised fees in some areas, and we rescinded a $25 million tax rebate. But most of this was a direct result of $59 million in funding cuts and mandates passed down from the state. In the face of these state cuts and the public demand for more police protection, maintaining the tax levy at the 1989 level is the best we can do. The key to reducing expenses and improving services is to take more of the money from the bureaucracy and put it into programs that work directly for people.

For example, I just reorganized Chicago's Office of Employment and Training, which is federally-funded. I cut the staff in half, freeing up more than $3 million dollars in administrative costs for community-based, job-training programs. I did the same thing with housing: cut 73 jobs, but added $25 million to the department's budget with new money from the Federal HOME Program. That means less money on bureaucracy, and more money on direct programs for people. That's money we can use to address our most common housing problems, which are the lack of affordable housing for low-income people. In Chicago today, more than one in four households spends over 30 percent of its income on housing. The HOME Program will also pay to repair defective housing, and help reduce overcrowding.

Despite these and other new federal programs, the federal government still needs to make a real commitment to investing in America again. We have spent trillions of dollars on national defense — much of it to serve as the world policeman for democracy: defending Western Europe from the Soviet threat; liberating Kuwait from Iraq and Panama from Noriega. How much have we spent to liberate our people from drugs? How much have we spent to create a more competitive educational system? How much have we spent to re-

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train our workers for the jobs of the future? The answer in all three cases is, not enough. Drugs are easily available everywhere in this country, our schools are failing, and our workers do not have the skills they need.

The federal government and the banks write off billions in loans to third-world countries. At the same time, U.S. cities are absorbing millions of immigrants from these same countries, whose needs include health care, housing, and language skills. Cities must provide for all of these people, and what the federal government needs to understand is that these aren't simply local problems. These are national problems. The federal government cannot ignore its responsibility to help pay for the solution.

And with these kinds of needs growing every day, it seems especially tragic that the federal government is spending $286 billion on interest payments this year to service the national debt. That $286 billion did not buy a computer for a single school. It did not give one poor child in the inner city a flu shot. And it did not create a single job for Americans. That money is not available to invest in ourselves, and our children will pay the price. There are so many critical needs today, and cities don't have the option to pass the buck the way the federal and state government do.

We can't ignore health care. We'll have an epidemic on our hands. We have to give children flu shots, and provide pre-natal care to pregnant mothers, no matter what it costs. We can't ignore housing because people end up homeless. We see them every day. We cannot put off investments in public safety because people move out of the city when they don't feel safe. If we didn't collect the garbage — just for one week — we'd have a revolution on our hands, not to mention, a rat plague.

So in a sense, managing urban areas is like serving in the trenches. The generals in Washington can sit back and discuss policy options all day long. But at the local level, the bullets are always flying, and we have to take action.

However, the cities have a responsibility as well to find better ways to spend the money we are getting — both from our local taxpayers and from the federal government. For me, it's been a struggle to redefine the role of government. Figure out what we can do best and figure out ways to do it more efficiently. Take the money we're spending on bureaucracy and spend it on programs and people. Develop better ways to measure performance and hold people accountable. The reductions in federal aid to urban areas have forced us all to be much more lean, efficient, and creative. In the future, only the fittest will survive.

It should not be necessary to remind everyone how important cities are to America. In addition to being economic engines, cities define our culture today, just as much as the small farm did a few generations ago. Cities are the gateways for immigrants, the crossroads of industry and culture, and the centers for art, science, education, and human progress. We all have an investment in keeping our cities thriving. That's why I have made a commitment to develop stronger partnerships in Chicago between business and government — government and industry — industry and labor — labor and academia.

Government can't solve everyone's problems. But government can get people to sit down together and work it out. That's what leadership is all about.

The first step in that process is to tear down walls that divide society — the bureaucracies that impede progress and the racial and ethnic differences that generate antagonism. But, the next, and more important step, is to build bridges and move our urban areas, and the people who live there, forward. •

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