Are Cities Heading for a Fiscal Crunch?

“Although they are run down, many still boast high local taxes. Sadly, this forms a vicious cycle of adverse selection, spiraling tax rates, and underfunding. “

With the nation’s economic outlook being anywhere from ambiguous to rosy depending on whose forecasts one is reading (and some states being surprised to find themselves awash in cash at the end of the pandemic), for some cities, the specter of a fiscal crisis is looming. The chief culprit: outmigration.

Some larger cities have been notably struggling to retain their populations for a while now. Detroit has been hemorrhaging residents for so long it has shown a willingness to pay people to move there. The city’s population is down 1.2 million residents from its peak in 1950. Chicago is another well known example, down about 1 million residents from its peak.

And, for many others, a sustained exodus is an unwelcome throwback to the post-War era during which deindustrialization and the flight of wealthy residents to the suburbs contributed to the degeneration of big cities’ social and economic environments.

Over the last 30 years, that trend has reversed—at least where certain cities are concerned. Between 1950 and 1980, the population of New York City fell by about 800,000 on net. But between 1980 and 2019, the city packed 1.3 million more residents into its five boroughs. Other heavyweight cities of the modern economy, like Boston and San Francisco, follow a similar pattern. Members of the modern bourgeoisie have flooded into urban cores, often paying a premium to do so. Formerly working class neighborhoods have been gentrified to a remarkable degree by this influx.