As the Clinton era begins, the fate of a number of major American cities seems to hang in the balance.

Philadelphia, which went to the brink a month ago with an employees strike, is still struggling to regain its equilibrium. Detroit, which some observers say is in a class of destitution by itself, is finally facing up to its municipal unions.

New York, always teetering on the brink of something, has suffered a round of seemingly permanent employment losses from the recession. Los Angeles, which only recently seemed about to lead the nation into the age of the Pacific, is torn by racial strife and tribal dissension.

Faced with these problems, can America's cities decide their own fate, or are they being overwhelmed by larger economic trends? Can federal programs make a difference, or are local strategies more important?

These questions have been addressed by three recent reports from Washington think tanks that concern themselves with urban trends. Although the reports differ in their approach to the subject, all three seem to agree that local policies can make a difference and that federal aid--if necessary at all--must be carefully tailored to individual circumstances.

"City Distress, Metropolitan Disparities, and Economic Growth," issued in September 1992, emphasizes the widening disparity in wealth between cities and their own suburbs as a marker for urban decline. The report was released by the National League of Cities, a confederation of the nation's metropolitan governments.

Looking at the 85 largest metropolitan areas in the nation, authors William R. Barnes and Larry Ledebur found the mismatch between wealthy suburbs and a struggling city to be a prime indicator of recent economic growth.

"We found that the gap has been widening over the last 30 years and that disparity itself predicts a city's relative economic health," said Barnes, director of the league's Center for Research and Program Development.

As late as 1960, people living in cities actually had incomes 5% higher than people living in surrounding suburbs. But the figure has been declining ever since. Urban incomes were only 96% of suburban incomes in 1973, 89% in 1980, and 84% in 1989.

When Barnes and Ledebur measured employment growth from 1988 to 1991, they found that job creation was strongest among cities where urban incomes most closely matched suburban incomes and weakest where the disparity was greater.

~No National Economy'

The strongest growth rate, 4.1%, was in areas where city income was 89% to 96% of suburban income. The second-strongest, 3.4%, was where it was 97% to 158% of suburban income. Job growth was lowest, minus 1%, in areas where urban income was only 69%-78% of suburban income.

Surprisingly, more cities were below than above the country's average unemployment rate of 6.7%. But the key point, Barnes and Ledebur said, was that the cities' figures ranged so widely: from 1.9% to 19%.

"There is no single ~national economy,'" they wrote. "The diversity of performance among urban regions suggests that what we have is an interdependent system of regional economies. How an individual city performs depends very much on policies and social factors that are particular to that city."

That means talk of a "national growth package" is misguided, the authors said. "The federal government must create a federal ~local growth package' to address effectively the long-term needs of urban economic regions," they said.

Ledebur and Barnes say that the city-suburb income gap, with its resulting political polarization, can be a major factor in an economy's decline. "When a region starts abandoning its [central city] infrastructure, it creates inefficiencies that are difficult to overcome," they wrote.

A city and its suburbs just create more problems by competing for jobs. "One of the best strategies is to avoid this through tax-sharing between city and suburb," said Barnes. "Both Minneapolis and Louisville have had some success with it."

The Seattle area also has developed its Seattle Trade Alliance, through which the city and its suburbs are cooperating to build international trade. "It's important for people to see that the whole metropolitan area is the unit for economic development," he said.

Still, Barnes and Ledebur's study leaves the question of cause and effect. Do metropolitan areas decline because city and suburb stop speaking to each other, or do city and suburb drift apart precisely because the area is declining? "It's question that's asked frequently and we don't yet have the answer," said Barnes.

Another effort at unlocking the urban riddle is the Urban Institute's "City Finances in the 1990s," authored by Philip Dearborn, George Peterson, and Richard Kirk for the Urban Institute, a non-profit, nonpartisan organization concerned with public policy problems.

The authors point out that, contrary to popular impressions, cities did not fare badly during the 1980s. "The decade, after the 1982-83 recession, was a period of remarkable growth for city budgets, with both revenues and expenditures growing substantially in excess of the inflation rate," the report says. "Moreover, during the 1980s, cities dramatically improved pension funding and a number even decreased property tax rates."

Unfortunately, urban areas in general, and particularly a few older cities, have been caught in the downdraft of the 1990-92 slow-down. "Imbalances became more pervasive and much larger, thereby diminishing reserves," the authors wrote. "Several cities now have imbalances that are large or have persisted over several years, coupled with diminished surpluses or deficits. Historically, such patterns have signaled impending financial emergencies."

"Fortunately," the report concludes, "most cities had sufficient reserves to withstand the initial effects of the recession on their revenues." Some cities, however, have long-term problems.

State Aid Over Federal

In particular, the authors identify Detroit, Philadelphia, St. Louis, and Cleveland as cities with troubled futures. Tax bases are shrinking and expenditures proving difficult to control -- Detroit will soon have more people on employee pensions than employees. In some instances -- Philadelphia and San Francisco -- rising expenditures are obviously to blame. In others -- New Orleans and St. Louis -- limitations on taxing powers have undermined legitimate efforts to cut costs. In either case, the result has been budget shortfalls.

Dearborn, Peterson, and Kirk argues that increased state aid to cities holds greater promise than blanket federal programs.

"Historically, the federal government has had trouble targeting aid because the political process does not easily accept some cities getting aid while others do not," they said. General revenue sharing, for example, gave unconditional aid to all 38,000 local governments without making any differentiation for need.

Instead, they argue, the federal government should limit itself to expanding welfare and food stamps, plus solving general problems like uncontrolled health-care costs.

States, on the other hand, have a variety of options in creating effective programs. The report cites Milwaukee as a city that is thriving with judicious application of state aid.

"States can channel financial aid directly to cities, increase city taxing powers, or relieve cities of spending responsibilities," the authors wrote. "They also have the ability to cope with city governments that actually face financial emergencies. . . For this reason, states remain the best source of help for financially troubled cities."

Opposing both these perspectives in some respects, although confirming them in others, is a study by Stephen Moore, of the Cato Institute, entitled "The Myth of America's Underfunded Cities" and due out this month. Cato, a libertarian Washington think tank, generally supports privatization and opposes ambitious government spending.

Big cities are in trouble, argued Moore, precisely because they spend and tax more and because this high taxation stifles private economic growth.

"With very few exceptions, we found that those cities that have the biggest municipal bureaucracies are in the most rapid decline," he said.

"People say we need another Marshall Plan for the cities," said Moore, who was assisted by researcher Dean Stansel. "But we've already spent the equivalent of five Marshall Plan without much result. Since 1965, the federal government has spent $2.5 trillion on the war on poverty and urban and and there's been little or no improvement."

To correlate cities' economic performance with their level of public spending over the last 25 years, Moore first devised a scale that ranks the nation's 76 largest cities according to economic health.

That included factors such as the city's population growth from 1965-90, the increase in the number of residents employed from 1960-89, the growth of per capita income from 1967-87, and the change in the percentage of female-headed households from 1970-90.

When measured by these criteria, the 10 healthiest cities in the nation are Mesa, Ariz.; Arlington, Tex.; San Jose; Aurora, Colo.; Colorado Springs; Anaheim, Calif.; Lexington, Ky.; Raleigh, N.C.; Las Vegas; and El Paso.

The lowest ranked, in ascending order, are: Detroit; Cleveland; Newark, N.J.; Buffalo, N.Y.; Rochester, N.Y.; St. Louis; Birmingham, Ala.; Baltimore; Louisville, Ky.; and New Orleans.

"Not all cities have been declining over the last two decades," Moore noted, echoing the other two reports. "Raleigh, Charlotte, Boston, and Nashville have all had per capita income growth of over 35%, while Detroit, Cleveland, and Newark have all had negative income growth." Moore particularly singled out Raleigh, which has seen its population double and its jobs nearly triple since the mid-1960s.

To compare these rankings with municipal spending in 1990, Moore devised a scale he called "fiscal health." The factors here included: expenditures per resident, expenditures as a percent of residents' money income, increase in per capita expenditures since 1965, tax revenues raised per capita, tax revenues as a percentage of money income, and the number of city employees per 10,000 residents.

"Because we didn't want the numbers to reflect the amount spent on poor people, we eliminated welfare, Medicaid, and education spending," said Moore. "Instead, we limited ourselves to the basic services that most cities incur -- police, fire, sanitation, administration, courts, and the like."

On this scale, the 10 cities with the most efficient municipal expenditures are: Fresno, Calif.; Jackson, Miss.; Arlington, Tex.; Mesa, Ariz.; Stockton, Calif.; Santa Ana, Calif.; Las Vegas; El Paso; Corpus Christi, Tex.; and Wichita, Kan.

The 10 worst, in ascending order, are: New York; Richmond; Baton Rouge, La.; San Francisco; Baltimore; Denver; Philadelphia; Norfolk, Va.; Minneapolis; and Boston. New York's ranking was particularly adverse.

On a scale of 1 to 100, the first 75 cities compiled scores ranging from 95 for Fresno to 34 for Richmond. New York City scored only seven, half an order of magnitude below the next-lowest score.

Correlating economic and fiscal health, Moore found a moderately strong association. "Generally, the coefficient of correlation between a high tax-and-spend pattern in local government and a poor economic performance ran between 0.4 and 0.5," said Moore. "This means that between 15% and 25% of the difference between cities' economic health can be correlated to its fiscal situation. Those cities with the biggest governments are growing most slowly and turning in the worst economic performance."

Other findings:

* Shrinking cities spend almost twice as much as growing cities. Expenditures in high-growth cities average $759 per person and 6.2% of personal income, while they average $1,177 and 11.9% in shrinking cities.

* Taxes are roughly twice as high in the shrinking cities as they are in growth cities. A family of four pays $2,332 in taxes in shrinking cities, while it pays $1,220 in taxes in high-growth cities.

* Shrinking cities have twice as large a bureaucracy as growth cities. The high-growth cities have 114 city employees per 10,000 residents, while shrinking cities average 232.

* Shrinking cities are much more likely to impose an income tax. None of the 15 highest-growth cities have an income tax, whereas 10 of the 15 lowest-growth cities do. "With very few exceptions," said Moore, "cities with an income tax are getting poorer."

In many ways, Moore's study seems to reflect only the newness of cities and their relatively small size, which may enable them to function more efficiently. The small size of the correlation, and the number of obvious exceptions, also suggests there is more involved.

St. Louis, for example, has strong limitations on tax increases and has made strong efforts to hold down municipal spending. Yet the city is obviously declining as quickly as many older urban areas. Boston, on the other hand, ranks very high in Moore's ratings for spending, yet has thrived economically.

"The causality between spending and the growth of poor populations obviously works both ways," admitted Moore. "Cities with more poor people have to spend more in services. This spending drives out middle-class taxpayers, which only furthers the cycle of decline. When the contrast between city and suburb becomes too stark, political rivalry increases and things get worse."

Regardless of their differences, all three reports agree that a few older urban centers face a worsening dilemma that may be difficult to untangle.

"There's very little disagreement that a few cities are in a downward spiral," said George Peterson, co-author of the Urban Institute report. "The question is whether the process is reversible."

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