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“Stress Tests” For Cities?

Here’s an interesting idea from Ryan Avent:

I actually think it would be helpful to have a process of economic health reviews in place, which could then lead to temporary federal government receivership of failing cities, in which institutional barriers to reform are addressed and budgets supported while the broader economic potential of the place was considered.

This seems like a good idea, in principle. The idea is that a negative shock can send a city into a downward spiral. Some kind of misfortune reduces the city’s tax base, but it’s stuck with a fixed infrastructure. So the quality of services declines. That further encourages people to leave the city, leading to further deterioration of the tax base. Soon enough, you’re left with a city primarily populated by people who are too poor to leave, trapped in a bad-services equilibrium. From a national point of view, this is wasteful because a lot of fixed investment in the old city — housing stock, office buildings, roads, rail lines, etc. winds up devalued and eventually lost as ruins. A discrete, one-off infusion of funds and reorganization backed by a credible commitment could halt and reverse this process and allow resources to be mobilized in a more efficient way.

In practice, I have serious doubts as to whether or not a workable system along these lines can be put in place. There are technical aspects to these kind of issues, but fundamentally it’s too much of a political topic to hope to erect some kind of purely technocratic path for receivership. But I think that some of the thinking behind recent changes to federal education policy — more resources for high-poverty districts combined with provisions to allow for the reorganization of persistently underperforming school districts — captures some of the merits of this suggestion. William Stuntz’s proposal to incrase federal support for police departments in poor cities could have some of the same impact.

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