PART I
GOVERNANCE AND OPPORTUNITY IN METROPOLITAN AMERICA



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PART I GOVERNANCE AND OPPORTUNITY IN METROPOLITAN AMERICA

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Executive Summary Socioeconomic inequality—of income, wealth, and opportunity—in the United States is high compared with other developed democracies, and it appears to be growing. A considerable body of scholarship is concerned with measuring inequality and identifying its causes. The Committee on Improving the Future of U.S. Cities Through Improved Metropolitan Area Governance has chosen to revisit the issue of inequality of opportunity in the United States from a perspective not widely explored in scholarly accounts: the perspective of metropolitan governance. The spatial distribution of inequality, and in particular the increasing isolation of low-income minority populations in central cities and inner suburbs, appears to be a result of mutually reinforcing efforts by working-class and middle-class people to create living arrangements to their liking and by economic actors to locate their activities in a manner that furthers their specific interests. These efforts have become institutionalized in the fragmented, decentralized structures of metropolitan governance, and these structures in turn both exacerbate socioeconomic inequality and effectively stand in the way of policies that might ameliorate or reduce its extent and social costs. Although the underlying causes of inequality cannot be addressed solely or even primarily by metropolitan governance reforms, in the committee's view it is of utmost importance to document the role that current patterns of metropolitan governance play in exacerbating socioeconomic inequality and in restricting the range of potentially effective ameliorative public policies. Furthermore, acknowledging that patterns of state and local political representation are themselves the product of the forces that have produced the social and economic isolation of

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poor minority groups, it is the committee's view that both the scholarly community concerned with inequality and policy makers who recognize its costs to society as a whole must begin to identify and evaluate state-level policies that aim to undermine the forces of inequality. Extent of Disparities Between Central Cities and Their Suburbs Analyses of differences in economic and social conditions in metropolitan areas are nearly always presented in terms of central-city versus suburban differences, even though there is clearly substantial variation across individual suburbs. In many metropolitan areas, there are inner-ring suburbs or industrial suburbs whose residents share the same environment and consequent problems as residents of the central city. However, virtually all of the available research examines only central-city/suburban differences, and it is that research that we report. The extent of central-city/suburban disparities is striking. In 1990, the poverty rate of central-city households was 18 percent compared with 8 percent for suburban households. Median household income in the central city was less than 75 percent that of the suburbs, and the unemployment rate was 70 percent higher. Disparities in employment and education were somewhat smaller, but central-city residents appear to be more deprived in these realms as well. Central-city/suburban disparities vary considerably by region. The disparities appear to be greater in the Northeast and the Midwest and lower in the South and the West. On average, the per capita income of central-city residents in the South and the West nearly matched that of their suburban counterparts. In the average metropolitan area in the Midwest and the Northeast, by contrast, the per capita income of central-city residents was just 76 and 65 percent, respectively, of that of suburban residents. Central-city poverty rates are almost 2 times greater than suburban poverty rates in the West, and they are almost 4 times greater in the Northeast. Perhaps more significant than the magnitude of these disparities are their trends over time. With the exception of education, every measure of change indicates that the relative status of central-city residents has consistently declined over the last three decades. Relative to their suburban counterparts, central-city residents now have lower incomes, higher poverty rates, and lower employment rates than they did 10, 20, and 30 years ago. The deepening of central-city disparities over time reflects both the selective migration of better-off people to the suburbs and the declining fortunes of lower-skilled and low-income groups who remain in the city. Disparities among racial and ethnic groups in metropolitan areas remain pronounced as well. In 1990, the poverty rate for blacks in metropolitan areas was 28 percent and for Hispanics 25 percent, compared with 8 percent for non-

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Hispanic whites. Per capita income of blacks and Hispanics was roughly half that of metropolitan-area non-Hispanic whites, and unemployment rates were nearly 3 times greater for blacks and more than 3.5 times greater for Hispanics than for non-Hispanic whites. In pan, these racial and ethnic gaps in income reflect differences in labor force participation and employment rates. Over 90 percent of non-Hispanic white men of prime working age in metropolitan areas held jobs in 1990, compared with 83 percent of Hispanic men and just 73 percent of black men of similar ages. Some fraction of the employment gap may be explained by racial and ethnic disparities in educational attainment and skill level. Among men between ages 25 and 34, for instance, nearly 90 percent of non-Hispanic whites have at least a high school diploma. The corresponding proportion for blacks is 76 percent and for Hispanics, 56 percent. Causes of Disparities in Metropolitan Areas There is research evidence for a variety of causes of these disparities in the well-being of people and places in metropolitan areas. Some of the most important causes are unrelated, or related only indirectly, to metropolitan governance. For example, differences in labor market outcomes between blacks and whites and between central-city and suburban residents may be related in pan to differences in human capital--the education and skills they bring to the workplace. In addition, changes in the structure of the national economy and technological change have increased education and skill requirements for jobs in many sectors of the economy, including manufacturing. Well-paid, low-skilled jobs in manufacturing and other sectors have largely disappeared. When combined with differences in the education and skills of prospective employees, the result is a mismatch of skills between labor demand and supply that disadvantages lower-skilled workers in general and black workers, a higher proportion of whom are lower-skilled, in particular. Other causes, more directly related to metropolitan-level processes, are discussed below. Spatial Mismatch The spatial mismatch hypothesis states that there is a disjuncture between jobs that are increasingly found in the suburbs and potential qualified workers who are constrained to live, as a result of low income or housing segregation patterns or both, in central-city neighborhoods. Research, although not conclusive, suggests that a combination of barriers hinders central-city blacks and less-educated whites from obtaining suburban jobs; these barriers include an absence of information on suburban job opportunities, greater hiring discrimination against

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blacks in suburban areas (reflecting both consumer and employer prejudice), low levels of automobile ownership, and difficulties in commuting from the inner city to suburban employment centers via public transportation. Concentrated Poverty, Social Isolation, and Neighborhood Effects Other possible reasons why central-city residents have low employment rates relative to suburban residents are not necessarily related to distance but may nonetheless be related to location and metropolitan structure. One possible set of reasons relates to the social isolation of poor people, particularly blacks, in high-poverty neighborhoods. Residence in such areas, it is argued, imposes ''neighborhood effects'' on inhabitants, external costs that would not be present if the individual lived elsewhere. Some neighborhood effects are simply the result of features highly associated with poverty. Since crime and poverty are related, individuals living in high-poverty neighborhoods are more likely to be the victims of crime than would be the case if they were living in some other neighborhood. Some effects have to do with the level of public services and amenities in high-poverty neighborhoods, which tend to be worse than would be the case in other neighborhoods. Others, however, have to do with more subtle influences of residents on the behavior of each other. Since behaviors considered socially undesirable are more prevalent in poor neighborhoods, people living there are more likely to be influenced to engage in self-destructive or antisocial behavior, from poor school performance to higher rates of crime and teenage pregnancy. Some neighborhood effects may directly affect employment prospects. Youth growing up in concentrated poverty areas may be cut off from mainstream values and may adopt values of their peers that are not well related to workplace success. The lack of adults in the area with steady employment may also affect the employment prospects of other people in the neighborhood. Also, young people living in a neighborhood of concentrated poverty may know very few people who work. This provides two forms of disadvantage: they are not linked into word-of-mouth job networks, through which many jobs are filled, and they are not exposed to modeling about appropriate job behavior. Although research evidence increasingly suggests that neighborhood effects exist, the importance of these effects relative to other factors is still uncertain, and little is known about how they operate. Racial and Economic Segregation Racial segregation is extremely high in most U.S. metropolitan areas, although it has been declining slightly over tune. Segregation by economic class is also prevalent, and, unlike racial segregation, it is growing. Racial segregation appears to promote concentrations of poverty among low-income blacks; poor black people are much more concentrated in high-poverty

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areas than poor white people are. This in turn contributes to disparities in measures of well-being between blacks and whites through the neighborhood effects and social isolation mechanisms just mentioned. In addition, racial segregation, when combined with incomes that are lower for blacks than for whites, may mean that blacks (including middle-income blacks) are more likely than whites to reside in communities with lower tax bases relative to need and thus a lower ability to finance public services from their own resources. As a consequence, segregation contributes to disparities in levels of public services. Research suggests that racial segregation does contribute to disparities in outcome, but there is little research on the contribution of economic segregation to disparities in outcomes between minority groups and whites, except for the findings on neighborhood effects. Tax/Service Disparities Socioeconomic segregation by jurisdiction in metropolitan areas routinely translates into tax and public service disparities. That is, jurisdictions with lower than average tax bases must impose higher tax rates or provide lower levels of public services than their more affluent neighbors. Also, jurisdictions with high concentrations of poverty tend to have higher levels of per capita need than more affluent jurisdictions--for example, larger numbers of at-risk children, higher crime rates, and greater service requirements for commuters who live elsewhere. Such disadvantages in tax base and service need can be overcome by equalization grants from higher levels of government, and in most other developed western nations, they are, to a very considerable extent. Such efforts at equalization in the United States have generally been weak in the past, but the courts of numerous states have recently mandated fiscal equalization policies for elementary and secondary education, and a few states have made substantial progress toward achieving it. The public service that is most important for human capital development and that has received the most attention in this context is education. The available research suggests that there is little correlation between school spending or resource levels and educational outcomes when more powerful determinants of educational achievement—in particular, family background and peer influences—are held constant. However, some recent studies have found more positive relationships between school spending and educational outcomes and between spending and labor market outcomes. Metropolitan Governance and Government Structure The system of metropolitan governance has also been implicated as a contributor to these disparities. The spatial distribution of population that isolates poor people in central cities and stratifies the suburbs by income is not simply the

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inevitable result of the interaction of individual choice, market forces, and technology; it also reflects the impact of public policies, broadly construed to include choices about the structure of political institutions. The policies that have given rise to this pattern are state deference to local governments with regard to land use, state laws permitting easy incorporation of municipalities, and a fiscal system that requires municipal governments to finance most services from their own tax base. Local land use regulation and municipal incorporation efforts have been driven to a substantial extent by exclusionary impulses. And the system of local self-reliance has provided localities with a powerful fiscal incentive—over and above social patterns of discrimination and preferences—to exclude low- and moderate-income households, which typically consume public services costing a good deal more than they contribute in local tax payments. The ease of municipal incorporation permits the creation of many local governments within metropolitan areas. One important motive for incorporation is to exercise land use controls at the local level in order to exert control over the local setting. Although close proximity of residents to land use decisions has many desirable attributes, it also allows those with sufficient resources to influence who their neighbors are by using land use controls to raise the price of housing beyond what lower-income households can afford. In addition, there are fiscal incentives for local governments to keep poor people out, since, as we said, low-income households consume more in public services than they contribute in local taxes. The resulting fragmented system of local government in metropolitan areas has thus frequently been pointed to as a contributor to unequal opportunity and disparities. Fragmented metropolitan areas, some contend, are likely to be more highly stratified by both income and race; they are also likely to have greater tax/ service disparities among local governments. To find that local government fragmentation accentuates tendencies toward segregation and fiscal disparities is not the end of the story, however. First, even the least fragmented urban areas display high levels of segregation and inequality. Second, the fragmented system of local government has many positive features—involving efficiency, choice, and grass-roots accountability—that might be lost in a more consolidated system. In short, there may be very real trade-offs between these benefits of a fragmented local government system and the equity gains of a more consolidated system. Most of the research effort with respect to fragmentation has been directed toward the impact of fragmentation on size of government, as measured by expenditures per capita, or on service delivery and efficiency. This research generally indicates that small-scale (fragmented) local governments are more efficient for many of the public services that local governments provide, particularly for those that are heavily labor-intensive. More consolidated forms of metropolitan

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government are efficient for more capital-intensive services, since they are able to take advantage of declining costs associated with economies of scale. The body of literature directed at the effects of government fragmentation on disparities and inequality is smaller and less compelling. The variation in measures of fragmentation and the nature of dependent variables and methodologies used make it difficult to come to overall conclusions. The Costs of Extreme Disparity In the committee's view, the costs associated with extreme disparity threaten the future well-being of society. A rough estimate is that, when comparing metropolitan areas that have very high levels of segregation to those that (within the American context) have relatively low levels, the segregation of blacks results in a 3 to 6 percent decline in productivity. In addition to the economic cost of lower productivity and output, there are the social and economic costs of crime, the threat to personal security and social order inherent in a large disadvantaged population that feels it has been denied opportunities, and the long-term debilitating effect on the quality of American democracy, which depends on a well-socialized population with active commitment and participation from its diverse population groups. The higher unemployment rates and lower incomes resulting from unequal opportunity also impose greater public costs on all levels of government, through higher public expenditures on welfare, medical care, food stamps, social services, housing assistance, police protection, and prisons. These costs are reflected directly in higher taxes paid by taxpayers throughout the nation. Recommendations for Research The charge to the committee called for the delineation of specific research priorities and policy considerations of interest to social scientists, urban planners, and policy makers at all levels of government. In this respect, the committee is impressed by both the importance of the task it undertook and by how much remains to be known about it. It is very clear that additional research is needed, both with respect to causal processes and, even more so, with respect to the effects of policies that have been proposed and undertaken to deal with unequal spatial opportunity structures and unequal opportunity in metropolitan areas. The ability to conduct such research depends on the availability of relevant data, many of which can be gathered only by the federal government as a provider of public goods. We strongly urge that the Census Bureau and other related agencies continue to perform their vital role in collecting and providing data on metropolitan areas and their residents and governments. Indeed, such efforts should be expanded. In addition, the committee recommends that research be conducted on the following questions of high priority:

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The spatial distribution of metropolitan population and its determinants. The extent and causes of mobility into and out of areas of concentrated poverty and of racial concentration. The nature of the "push" factors related to the condition or characteristics of the central city that movers to the suburbs wish to avoid, and their relative importance. The pace and extent of suburbanization cross-nationally and its causes. Relatedly, variation among countries in spatial segregation by income and race and in the location of the poor within metropolitan areas. The stratification of metropolitan areas by race and income. The broad question from the committee's perspective is why households are sorted in a manner that results in highly stratified areas. The effects of recent public efforts to consciously affect the spatial distribution of population through various devices to limit land use controls (e.g., urban growth boundaries and inclusionary zoning policies). The variation in tax/service capacity among local governments within metropolitan areas, including changes over time. The relationship of metropolitan-area density to disparities in outcomes. There has been virtually no research on the contribution, if any, of density to disparities in outcomes among jurisdictions or among groups. The extent to which government structure and particularly fragmentation contributes to differences in outcomes. The distinction between the portion of inequality of outcomes that is metropolitan in nature and the portion that is due to broader causes—such as differences in human capital or racial discrimination in employment—that are simply manifested in metropolitan areas because that is where most people live. The relationship between unequal spending and outcome disparities in noneducational services (currently most of the research focuses on education). In all cases, including education, we need to know more about the production function or basic processes that are at work by which input resources are transformed into outcomes. The effects of recent strategies to reduce inequalities in spatial opportunity structures, such as empowerment zones and community development corporations; worker mobility and reverse commuting programs; Gautreaux-type residential dispersion strategies; housing vouchers; and the equalization of educational expenditures. Whether the extent of governmental fragmentation in metropolitan areas affects the degree of inequality of income or racial and economic segregation in those areas. The extent to which there is greater equalization of service delivery in more consolidated metropolitan areas, or in metropolitan areas with more "elastic" cities, than in more fragmented areas.

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The nature of effective political coalitions at the state legislative level on behalf of city interests. The costs imposed on suburbs and their residents—and on metropolitan areas and the nation--by the decline of central cities. Policy Options The committee has identified policy options worthy of serious consideration by policy makers. Most of these are directed at the state and local level. Although the research base in many areas is not as strong as we would like, it is the committee's determination that there is sufficient evidence to allow us to identify certain options as making a positive contribution to the reshaping of spatial opportunity structures in metropolitan areas. The committee considered two alternatives to the existing system of governance in metropolitan areas. Both are counterfactuals, in the sense that they require us to consider how their implementation would result in differences from the current system and to shape our discussion with these in mind. The first is a change in government structure that would reduce reliance on small-scale local governments and move to a system of more consolidated metropolitan government. The second, which is the committee's preference, would largely retain the existing system of nested local governments--smaller units of local government overlain by larger ones that provide broader functions—but would increase the critical role of state government in reducing barriers to equal access and opportunity in metropolitan areas. The committee supports a restructuring of metropolitan governance, focusing particularly on the critical role of state government. In our judgment, more aggressive state government action is fundamental to reducing inequality of opportunity in metropolitan areas and to achieving prosperous metropolitan areas that are less racially and economically stratified. Local governments operate within a framework of state laws and regulations; the state is, after all, the locus of constitutional authority with respect to local governments. State governments thus have both the responsibility and the authority to bring about change in the metropolitan governance system by changing the legal framework within which local governments operate and the set of incentives they respond to. At a minimum, state governments can stop being an agent for discriminatory action and a barrier to equal opportunity by exercising oversight over the constitutional authority they have devolved to local government with respect to local land use controls. States routinely override local zoning for a raft of purposes—to facilitate the location of power plants, public facilities, group homes, and churches on one hand, and to constrain local development impulses for such reasons as environmental and public health protection on the other. They can do likewise to prevent exclusionary zoning behavior discriminating against low- and moderate-income households. The committee also supports more vigorous efforts

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to enforce housing antidiscrimination laws in metropolitan areas and to ensure that access to housing credit is available on a nondiscriminatory basis. The committee recognizes that reducing the ability of jurisdictions to exclude low- and moderate-income households through exclusionary zoning devices may result in some loss of allocative efficiency. If so, that would be a cost that we consider worth incurring as a means of reducing inequality of opportunity in metropolitan areas. Finally, attention should also be given to the potential for breaking the link between place, income, and quality of life outcomes. Three areas of particular importance are education improvement, providing access to suburban jobs, and reducing fiscal disparities.