emocrats currently govern most major American cities and face no serious Republican challenges in any of them. Of the 50 largest cities in the United States, only 13 have Republican mayors. Surprisingly, while urban areas have been turning deep blue, Democratic city governments have not been increasing their spending as much as most people think. Massive debt and poor revenue growth have forced urban Democrats to find a more austere pathway to satisfying their progressive ambitions. They have found it in regulation. By legislating how businesses can conduct themselves, whom they can hire, what they must provide, and much else, Democrats in local governments are transforming the new urban progressive agenda into a regulatory agenda.
Because of this, even as these politicians tout their imposed correctives for sluggish growth and inequality, we should expect increased stagnation and growing inequality in the coming years. If Democrats continue to expand regulations, the urban economy will be even less accommodating to small businesses and entrepreneurs than it is already. And as these economic engines stall, opportunities for the poor and immigrant classes will dry up. The liberal appetite for the imposition of local regulation, like the appetite for spending it has supplanted, will usher in a new chapter in the history of unintended policy consequences. And, once again, the worst-off among us will pay the highest price.
he progressive conquest of city governments came hard on the heels of a national urban renaissance—a renaissance led by many Republicans who sought to reverse the decline of American cities through the judicious application of conservative policies. During the 1990s, conservative ideas had a profound and lasting influence on welfare policy, policing, and K–12 public education. Cities that had appeared to be in a death spiral only years before began to see their populations stabilize and even start growing again. Republican mayors such as Steven Goldsmith in Indianapolis, New York City’s Rudolph Giuliani, and Los Angeles’s Richard Riordan gained national renown for their successes. Welfare rolls fell dramatically without the corresponding rise in poverty predicted by liberal doomsayers. Crime rates plummeted. School choice gained broad support throughout low-income minority neighborhoods.
Their success spelled their doom. The Republican Party’s inability to capitalize on the great American crime decline and the popularity of charter schools ranks among the biggest political failures of modern times. Republican mayors may have won Democratic votes, but they did not make new Republican voters. Instead, like Churchill in Britain’s 1945 general election, conservatism found itself rejected—and even more ironically, rejected in favor of Democrats who had lurched to the left. The two most prominent urban progressives to be swept into office are Mayors Ed Murray in Seattle and Bill de Blasio in New York. Others include Mayor Jim Kenney in Philadelphia, Minneapolis’s Mayor Betsy Hodges, Boston’s Mayor Martin Walsh, and Oakland’s Mayor Libby Schaaf. Even Democratic mayors with reputations as moderate technocrats, such as Los Angeles’s Eric Garcetti and San Francisco’s Ed Lee, personally support all the bien-pensant views of their left-wing colleagues and have their centrist impulses kept in check by local legislative bodies, who are even more extreme than local executives. White ethnic conservative Democrats, long a staple of city politics, no longer figure among either the electorate or political leadership.
Urban progressive agendas are focused on social liberalism, climate change, reining in the police (now that crime is down), and, above all, fighting income inequality. What is most remarkable, however, is that the spending increases ordinarily characteristic of progressive governance are nowhere in sight. Universal pre-kindergarten, the only new program on the progressive agenda, is modest in cost compared to what taxpayers already spend on public education. De Blasio’s pre-K expansion represents only 1.6 percent of the New York City Department of Education’s $22 billion operating budget. And while coastal-city mayors are under immense pressure to focus on housing, particularly in New York and San Francisco, direct city-government investment in housing has been modest. No one is even taking a stab at locally funded public housing.
Progressives aren’t spending for one reason and one reason alone: The money isn’t there. Unlike the federal government, cities are subject to balanced-budget requirements, and thus every year must bring expenditures in line with revenues. Detroit’s 2013–14 bankruptcy highlighted the risk of insolvency run by blighted old industrial cities. Other cities are also strapped for cash, even if they haven’t gotten the same attention.
In a September 2015 survey, the National League of Cities found that, across the nation, city revenues have yet to return to the levels of 2007–08, before the financial meltdown. On the other side of the ledger, legacy costs related to pensions and other debt obligations continue to absorb much of what revenue growth is coming into cities’ treasuries. According to Census Bureau data, between 2004 and 2013, all local-government pension expenditures grew 107 percent, whereas local revenues generated by local taxation grew by only 43 percent. Had pensions grown at a normal budgetary rate, local officials nationwide would have had $19.2 billion more to spend in 2013 on K–12, infrastructure, and any number of other priorities. The capital debt burden of America’s localities stands at $1.8 trillion, or 11 percent of national GDP, only slightly below the 40-year peak of 11.7 percent in 2010.
Since de Blasio’s inauguration in January 2014, New York City politicians have targeted various businesses with a quiverful of regulatory proposals.
What about raising taxes? Tax-and-spend, it turns out, is not so easy for municipal governments. The burdens on ordinary citizens are already high, and states keep cities on a short leash when it comes to raising revenues (since state capitals want to reserve flexibility on their own to tax as needed). Additionally, volatile pension costs complicate efforts to dedicate new tax revenues for services. For example, because New York City’s investments underperformed last year, pension expenditures must go up by more than $400 million over the next four years. That’s money lost to other programs.
Even more startling, Chicago just passed the largest tax hike in its history—and of the $588 million raised, a staggering 92 percent will go towards pensions.
inding themselves unable to eliminate income inequality by spending, local progressives are instead trying to regulate it away. The first bill Mayor de Blasio signed into law mandated paid sick leave for businesses with five or more employees. This putatively compassionate policy can impose considerable cost burdens on small companies. (New York had passed a paid-sick-leave law a year before, but it had exempted business with fewer than 15 employees.) Paid sick leave was just the start. Since de Blasio’s inauguration in January 2014, New York City politicians have targeted various businesses with a quiverful of regulatory proposals—nail salons and other cosmetology services, car washes, horse carriages, used-car dealerships, pet shops, industrial laundry operators, helicopter tours, grocery stores, and Uber and other “gig economy” businesses. The regulations that don’t target specific commercial sectors instead cover them all. So-called ban-the-box legislation, for example, is designed to restrict a business’s ability to deny job offers to applicants with an arrest record or criminal convictions. New York’s ban-the-box bill passed a month after an earlier bill that deemed inquiries about applicants’ credit history a form of job discrimination.
In cities beyond New York, the situation is much the same. Paid sick leave has been a top priority of progressive administrations in Philadelphia, Minneapolis, Newark, and elsewhere. Similarly widespread are new environmental initiatives. Practically every Democratic mayor in recent years has committed his or her city to the fight against climate change. Much of this, like the recent Paris climate agreement, amounts to gaseous posturing about “leadership” and “ambitious targets.” But green building codes, which the U.S. Conference of Mayors has endorsed and which have been adopted by Dallas, Boulder, and Boston, will raise costs on both residential and commercial real-estate development. Washington’s “Sustainable D.C. plan” proposed going still further by reducing emissions via a local carbon tax that would “place a fee on all energy use.” At a time when China produces over 9 billion metric tons of carbon emissions each year, urban environmentalism will do nothing to thwart climate change but is sure to cool the local business climate.
Housing policy offers a clear picture of regulation as a supplement to limited funding options. Politicians in Seattle and San Francisco, for example, are making regulatory pushes on mandatory inclusionary zoning policies and exercising tighter controls over evictions and rent hikes. Democratic mayors are looking to make landlords pick up the slack for a dearth of public housing.
But the focus of the urban progressives regulation agenda is on raising the minimum wage. It has become a liberal obsession. In the past two years, Seattle, Los Angeles, and San Francisco have passed laws phasing in a $15-an-hour minimum wage. Other cities have stopped short of $15, with Oakland, for example, at $12.25 and Sacramento at $12.50. The number of cities raising the minimum wage would surely be larger were it not for the fact that about a third of state governments wisely prohibit such local regulations. That hasn’t entirely stopped governments in Pittsburgh, Portland, Rochester, and Buffalo, which have resorted to imposing $15 minimums for city workers and government contractors (sometimes referred to as “living-wage ordinances”), thus raising costs for taxpayers.
Accommodating small-business growth requires a forbearance from economic regulation that big-city mayors and city-council members don’t seem to have these days.
Here’s how. New York’s 421a property tax abatement program for real-estate developers and San Francisco’s “Twitter tax break” for large technology firms both attest that big businesses will do just fine under progressive leadership. But a $15 minimum wage will present enormous managerial challenges for small businesses by forcing them to get by with fewer workers. In a 2006 study, the University of Georgia’s Joseph Sabia analyzed 25 years of labor-market data and determined that a 10 percent hike in the minimum wage corresponded with a 0.8 to 1.2 percent decline in employment for small employers. All politicians profess to be pro-entrepreneur, but the real test consists of what they do for, or to, small businesses. Several studies by urban economists have found striking correlations between an area’s average firm size and long-term job-growth trends. Summarizing this research, a 2014 study by the U.S. Chamber of Commerce Foundation noted that “nearly all of net job creation in the United States occurs in firms that are less than five years old.” The less a city’s private sector resembles Big-Three-era Detroit, the better its chances at staving off economic collapse. But accommodating small-business growth requires a forbearance from economic regulation that big-city mayors and city-council members don’t seem to have these days.
In addition to creating jobs, small businesses have also, historically, played a pivotal role in immigrant assimilation. Between 1990 and 2013, the foreign-born population in New York increased by 1 million, thus accounting for the entirety of the city’s population growth during those years. As my colleague Peter Salins has shown, immigration’s “growth share” of cities’ population gains from 1990 to 2013 has been even more substantial in Philadelphia (285 percent), Chicago (160 percent), Boston (130 percent), and Minneapolis (129 percent). New regulations make it much easier to sue immigrant-owned bodegas and nail salons and thus put them out of business. This progressivist indifference to the needs of small businesses suggests that the left has put little serious thought into how to provide economic opportunity for our massive foreign-born population.
Liberal mayors seem utterly unaware of how poorly positioned cities are to address income disparities. The deepest causes of inequality, such as globalization and cultural disparities, are entirely out of the reach of city governments. They are seduced by mission creep. Progressive politicians are unwilling to stick to their real work of improving the core functions of municipal government, namely K–12 public education and public safety, and maintaining the basic infrastructure and services—parks, libraries, and the like. The rise of 21st-century urban progressivism points toward a future characterized by shoddy local services, increased regulation of city economies, and the consolidation of inequality.