Traditionally, when a city suffered a fiscal crisis, the pain was localized. The businesses and citizens that could leave did so. Somewhere else, a community prospered. But what if many cities falter at the same time? Such is the case today, with financial deficits facing metropolitan areas from San Diego to Pittsburgh.
The reasons will sound familiar to CFOs. Cities have been hit hard by the sluggish economy. Like many companies, cities operate with high fixed costs. In fact, the health-care and pension obligations of a midsize city dwarf those of all but the largest old-line corporations. These costs, coupled with pervasive antipathy to tax increases and declining federal and state support, have created the conditions for an epidemic of urban blight.
Even some of the cities that appear to be in good shape are merely riding the property-tax wave of the inflated real estate market. Should housing values collapse, as some predict, they too would stumble.
The situation argues for a more collaborative relationship between cities and companies. Civic spirit is a venerable tradition among American executives, although it has waned in recent decades. But as research editor Don Durfee demonstrates in “Big City Blues,” even the most shareholder-focused company recognizes that collapsing infrastructures, rising crime, and declining schools are, quite simply, bad for business.
Every CFO forced to orchestrate a relocation knows how disruptive and costly the process can be. And if any more cities join the sick list, moving elsewhere may not even be an option.