Municipal advisory board: Sense of fiscal limits;

              THE MUNICIPAL
ADVISORY BOARD
A sense
of fiscal
limits
The real world of politics and
municipal finance was brought to
the research study by a Municipal
Advisory Board of mayors, municipal
officials, government experts, and
academic scholars. The Board
offered guidance to the research
staff on the direction, scope, and
focus of the study. The following
edited transcript reflects concerns
expressed at an August meeting of
the board. Participating in this por­tion
of the discussion were: Fred
Armstrong, controller, Indianapolis,
Ind.; Peter Bearse, Princeton Univer­sity;
Clark Burris, controller, Chicago,
III.; Arthur Holland, mayor, Trenton,
N.J.; Walter Kelleher, former mayor,
Maiden, Mass.; Arthur Naftalin, for­mer
mayor, Minneapolis, Minn.;
Mason Neely, finance director, East
Brunswick, N.J.; and Florence Rubin,
League of Women Voters. The
moderators were: James Howell, First
National Bank of Boston, and Charles
Stamm, Touche Ross.
BEARSE: The basic question is: what
do we really mean by fiscal stress?
We need to come up with indicators
for people on the firing line. What
kind of data, what kind of information
system does one need in order to
manage a city's financial affairs?
Perhaps it's a matter of looking at the
behavior of a city over a period of
years and asking: what are the warn­ing
signals, and what should I do in
response to them? Take the pension
fund problem. People who have
Rubin
worked on this recognize that we've
got a time bomb here. Another
warning signal can be the rise in
short-term debt.
NEELY: And what about your long-term
debt that is authorized but not
issued? How much hidden debt is
there out there, because people are
afraid they're going to lose their
rating or they won't be able to issue
the debt. Instead, they're building
progress out of borrowed funds or
fund surpluses, and this authorized
debt doesn't show up on the balance
sheets. It's just not recorded.
ARMSTRONG: There's also the ques­tion
of whether it is social factors or
economic factors that are causing
your fiscal stress. Indianapolis used to
have a strong welfare program with a
year's residence requirement, and
you had to have a meaningful job as
a taxpayer before you were eligible.
Then we dropped those require­ments
about four years ago, and the
welfare rolls went sky high. So social
programs can have their own impact.
HOLLAND: Perhaps the point is, if
you're in need of money in this
country, you go after whatever's
available. Out of general revenue
sharing, for example, one affluent
county in New Jersey built bridal
paths. One township in our county,
which did not need public works
money, nevertheless applied for
sewer money under the program.
NEELY: The risk is rewarding ineffi­ciency.
If people who operate ineffi­ciently
get more money, you will
encourage inefficiency.
Holland Naftalin
HOLLAND: The latest CETA legisla­tion
provides very rigid requirements
on accountability and against
abuses. We supported it because
people who spend money properly
don't want to have it cut off.
NAFTALIN: It's clear that some cities
have extended themselves beyond
the realities of their economic base.
But it is a very subjective question:
what are the realities of an economic
base? Clearly, many northern cities
extend themselves beyond their lim­its,
if you compare some of the
growing sunbelt cities. But you get
involved in a choice of values there.
I'm uncomfortable with that kind of
measurement.
BEARSE: One of the things you can
do with a complete data base is see
the trade-off between the current
expenditures burden and the capital
expenditure ratio, whether you're
trading off the future for present
expenditures. If you look at that in
relation to things like the tax base,
you'll get a sense of your limits, at
least with respect to debt.
HOLLAND: I like what Peter is saying
about debt and time, for I really
believe people do use current funds
to rob the future. And then all of a
sudden they have a crisis, for the
waterworks has not been main­tained
and it just cannot handle the
capacity, and they're faced with an
emergency and they rob the future
again.
BEARSE: One of the reasons, of
course, that it is easy for public
officials to postpone maintenance is
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