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<br />
<br />activities, establishment of new urban spending ventures,
<br />and use of tax incentives to curb urban sprawl and
<br />revitalize central city areas.
<br /> The Urban Institute's George E. Peterson said states
<br />have an obviot,s interest in making the cities competitive
<br />with rural and suburban areas for economic development.
<br />It "needn't be especially costly, and over the long run (pro-
<br />vides) a much more secure base for .cities to rebuild their
<br />private economics and not be dependent on other levels of
<br />government," he said.
<br /> Industrial revenue bonds and tax increment financing
<br />are other ways in which state action has bolstered local
<br />development. California, Massachusetts and others have
<br />"taken some very strong leadership" in urban economic
<br />development, says Miles Friedman of the National. Coun-
<br />cil for Urban Economic Development (CUED) in
<br />Washington, D.C.
<br /> Friedman, director of CUED's Division of Legislative
<br />and Program Analysis, said noteworthy state initiatives
<br />have included business development corporations,
<br />technical assistance programs, revolving funds and direct
<br />state aid. Other states active in this effort include Illinois,
<br />Michigan, Connecticut, Pennsylvania, Indiana and New
<br />Jersey, he said.
<br /> In addition, he pointed to a "whole new wave of states,"
<br />such as North Carolina, with smaller cities, which are pro:
<br />moting policies that include urban growth and develop-
<br />ment aspects. Cities that obtain state technical assistance
<br />for development capacity are "going to have a tremendous
<br />advantage" in obtaining certain federal funds, such as
<br />community development Block grants, Friedman said.
<br />High interest rates "... make public-private sector
<br />cooperation all that much more important to continued
<br />economic development," he said. For all his optimism
<br />about recent state actions, however, Friedman is worried
<br />that the long effort "to turn the corner on economic
<br />development" will be thwarted by program cuts at state
<br />and federal levels.
<br />
<br /> The Pass-through Role
<br /> Two recent studies have underlined the importance of
<br />the states in passing through federal money to local
<br />governments. The National Governors' Association
<br />Center for Policy Research found that "a state-federal
<br />partnership in a!locating aid to local jurisdictions has pro-
<br />duced greater responsiveness to distressed cities than has
<br />federal aid alone." "Because most aid to cities originiates
<br />from the state level," the report said, "these findings sug-
<br />gest that bypassing state governments with direct federal-
<br />local aid may be counterproductive for those who seek
<br />greater responsiveness to areas of need." .
<br /> In another study, two professors at the University of
<br />Missouri (Kansas City), G. Ross Stephens and Gerald W.
<br />
<br />Olson, ~so exmined intergovernmental ~d flows. The]
<br />concluded that ignoring actual state-local governmem
<br />relmionships may contribute to the ineffectiveness of some
<br />feder~ ~d programs.
<br /> ~q Olson and Stephens point out, "legaCy, the United
<br />States h~ a two-tier federal system comprised of state ~d
<br />feder~ leve~. ~though the loc~ifies are dependent en-
<br />tities of the stmes, the feder~ government often acts ~ if
<br />~ere is a three-tier system of government," they s~d.
<br />"~eomtic~y, in a two-tier feder~ system it is the job of
<br />the nation~ govemmem to relocate resources mong the
<br />states, ~d the job of the states to reallocate r~ources
<br />mong loc~ ~e~ ~d Ioc~ governments," according to
<br />the two.
<br /> They also obse~ed that "it appears the states do a much
<br />better job of placing these funds (state aid progrms,
<br />which included p~s-through funds) with 'active' loc~
<br />governments than do~ direct feder~ to loc~ formula
<br />fllocation."
<br />
<br /> Problems Ahead
<br /> There are, in particular, several major issues which now
<br />concern observers of the distressed cities and the inter-
<br />governmental aid system.
<br /> For some of the older, industrial cities, the major time
<br />bomb ticking away is the physical decay of such urban
<br />assets as roads, bridges, water mains, sewers, and transit
<br />systems. Operation budgets have often drained capital
<br />reserve funds, and left cities vulnerable to the deterioration
<br />of capital stock as maintenance has been deferred. Reduc-
<br />tion in city budgets may, in five to I0 years, produce a
<br />"structural crisis" for the cities, according to a Congres-
<br />sional Joint Economic Committee study.
<br /> States have been expressing more concern about preser-
<br />ving this capital investment, notes Peterson of The Urban
<br />Institute, and require a review of state aid to insure that a
<br />current, temporary financial crunch doesn't become a per-
<br />manent fiscal crisis because maintenance is deferred.
<br /> This is one example of what Peterson calls the" financial
<br />oversight" responsibility of the state for their cities, and he
<br />believes that more states will do this "over the next couple
<br />of years."
<br /> For many states, though, financial oversight of local
<br />government has received attention for a number of years.
<br />One effort to strengthen this role is the NCSL State/Local
<br />Finance Program, which assists state legislatures in im-
<br />proving their financial relations with local governments,
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