Decades under Democratic rule have left many US cities barely solvent, and Sen. Rand Paul (R-Ky.) sees an opportunity. Early next month, in a speech to the Detroit Economic Club, Paul will roll out an urban revitalization proposal centered around tax cuts and deregulation.
For someone with such a keen appreciation of the limits of federal competence, Paul exhibits an odd sympathy for the idea of a national urban agenda. Reviving Detroit and cities like it will require a degree of care impossible to incorporate into any solution designed at the federal level. Paul’s ideas sound well-intentioned, but, as Democrats have learned from their recent, abrupt loss of ownership over healthcare reform, good intentions are not enough. Effectiveness matters, and that’s what seems most in doubt about the Paul plan for Detroit.
How to explain the urban turn of Rand Paul, a man who once claimed that Detroit would receive a federal bailout “over my dead body”? It seems safe to assume that he wants to bolster his intellectual reputation, tarnished by recent plagiarism charges, and to show that Republicans can compete in urban policy and politics. A 2016 presidential candidate, Paul may also be hoping to strengthen his bipartisan bonafides. The Obama administration has never entertained a Motown bailout, but Democrats would presumably like to be able to say they did something to help struggling cities. What a coup it would be for the junior Senator from Kentucky, were he to somehow seize the lead on urban policy and bring Democrats along with him.
Full details have not been made public, but based on what Paul has said about his proposal, it will invite comparisons with Enterprise Zones, the oldest urban policy idea in the GOP playbook.
Around about 1980, the failure of Great Society spending to prevent the near-collapse of New York and other cities had become obvious. As an alternative, Congressman Jack Kemp began championing targeted tax relief and deregulation for poor urban areas.
Kemp, who also served as George Bush Sr.’s Secretary for Housing and Urban Development, never succeeded in implementing true Enterprise Zones at the federal level. But thanks to renewed sympathy for cities in the wake of the early 90s recession and LA riots, the Clinton administration established “Empowerment Zones” in six American cities (one of which was Detroit). These specially-designated areas became eligible for business tax credits for wages, training expenses, and capital costs, as well as social services grants, which some critics claimed defeated the purpose.
The real action with Enterprise Zones has always been at the state level in America. At least 40 states (including Michigan) have tried out some version.
In 2008, Edward Glaeser and Joshua Gottlieb characterized the evidence on enterprise zones as “hardly overwhelming.” What new jobs are created tend to come at a steep cost. Some areas have experienced increases in economic activity, but, as the programs come in so many different forms, it can be difficult to determine just how much been caused by the tax cut and deregulation elements.
One could argue that the federal government has never given the Enterprise Zone, as originally conceived by Jack Kemp, a fair chance. But, when we’re talking about a problem as complicated as municipal distress, it’s unclear why a federal program should succeed where state-based programs have not.
Detroit’s most pressing need is not a tax cut, but improved services. City officials filed for bankruptcy in July to cut Detroit’s debt, and thereby free up some of the 40 per cent of revenues it now spends on legacy costs to devote to police, fire, streetlights, parks, IT, blight and vacancy. A product of both incompetence and cratering revenues, poor services stands as the greatest obstacle to achieving the kind of sustained economic growth Paul’s proposal sets forth as its goal.
Are taxes in Detroit a problem? Absolutely. The Citizen’s Research Council of Michigan has documented that Detroit residents are taxed in more ways and at higher rates than in every other major city in Michigan. But it doesn’t necessarily follow to say that lower federal taxes is the solution to high local taxes. Detroit needs tax reform just as much as it does a tax cut. It suffers from an amazingly high delinquency rate, and it depends too much on a local income tax (21 per cent of all revenues, compared with only 12 percent from property taxes).
In the near term, local economic policy in Detroit should have modest goals, and focus primarily on the city’s position relative to other communities in Michigan. What, if anything, should be done to reform inter-local economic competition is patently a question for state government.
(As for deregulation, how bold does Paul intend to be? Lowering or eliminating the minimum wage for Detroit? Scaling back federal environmental regulations? Detroit does have around 70 Superfund sites. Paul once seemed to imply that local regulations might be the trouble, but surely he does not intend to recommend involving the federal government in the minutiae of Detroit’s permitting process.)
Any national urban agenda, put forth by Democrats or Republicans, risks violating the spirit of federalism. Respect for the states is especially critical when contemplating a solution to municipal distress, both on principle and simply as a question of what will work. The point is not that states have covered themselves in glory in managing distress, but that they haven’t. Those unfamiliar with the state and local scene should know that the traditional American admiration for self-government, coupled with state Home Rule legislation passed during the 20th century, have allowed states to defer too much to plainly incompetent local officials and avoid interventions. Putting a federal solution to distress on the table would encourage yet more buck-passing by state officials. Unlike federal officials, states understand cities’ needs. But they’re too often unwilling to do anything about it.
Distressed cities need good government, which the Democratic party cannot deliver without risking confrontation with public employee unions. (Local government is the most unionized “industry” in the US.) Scott Walker, a former county executive and Paul’s presumptive rival for the 2016 GOP nomination, pursued collective bargaining reform to empower local managers. Walker grasped that the ability to dispense with nitwit work rules and “last hired first fired” practices becomes most valuable in conditions of fiscal crisis, which now seem to be permanent for many cities.
Good government and better management, and a respect for federalism, is the right Republican message on municipal distress. That will, and should, stop short of a fully-developed national policy agenda for cities, which will never work, because the most effective solutions to local problems must be developed and executed at the state and local level.
If all you have is a hammer, everything looks like a nail. Despite Paul’s good intentions, his proposal’s central emphasis on tax cuts and deregulation risks strengthening, instead of refuting, the popularly-held belief that Republicans don’t understand cities’ needs.
Stephen Eide is a Senior Fellow at the Manhattan Institute.