Urban guerrillas: re-inventing our cities - includes related articles - Panel Discussion

Chief Executive, The, Oct, 1994 by Lorri Grube

We're looking at privatization in terms of the infrastructure, though some of these efforts take longer here than in other cities, because New York has lengthy, complex procurement and contracting rules. Parts of those rules are anachronistic, and we are trying to change them.

How do you rate the continuing potential of public/private partnerships?

We've used that approach to put health-care centers in some of our poorer communities. Another public/private partnership has the potential of raising $10 million to help New York City's cultural institutions.

That's important, because one of New York's defining characteristics is that it is a world cultural center: Culture is one of our biggest businesses--it's an industry. Not many people realize this, but the arts are to New York what steel was to Pittsburgh 30 years ago.

THE PHILADELPHIA STORY

On the day he took office in 1992, Mayor Edward G. Rendell knew he had his work cut out for him. The city of Philadelphia was running a deficit of $250 million on a $2.3 billion annual operating budget. On his fourth day as mayor, the city would have missed a payroll were it not for a judge's last minute intervention that allowed the city to stretch payments to its pension fund.

Two-and-a-half years later, the contrast could hardly be more striking. After the first 18 months, what would have been a $450 million deficit became a $3 million surplus. A $10 million surplus is expected at the end of 1994. This was done without any tax increase. Net job losses, which were running at an annual rate of 12,000, have been stemmed.

A Democrat, Ed Rendell, 50, took a supply-side approach to reform, partly because he had campaign promises to keep and partly because no other path was open to him. Washington wasn't eager to dole out money. Borrowing in the open markets was out of the question. The city's bond rating was among the least credit-worthy of any U.S. municipality. Philadelphia's local tax burden was already the third highest in the nation. In the 11 years prior to his becoming mayor, the city raised taxes 19 times, causing 16 percent of its tax base to leave. The onerous 4.4 percent wage tax, according to a Wharton School study, cost 150,000 jobs over this period.

Rendell, a former district attorney, often compares his situation to that of a doctor treating a cancer patient suffering from a gunshot wound. His first two years were devoted to treating the wound: Local government cost too much. With the crucial support of John Street, the powerful city council president, he faced down a municipal workers strike, gaining important work-rule concessions. City services, when opened up to competitive bidding with private local firms, suddenly became cheaper. Some 21 privatization initiatives, from cutting grass in parks to security guards in art museums, have saved $32 million a year. In addition, it allowed Rendell to trim a city work force of 25,000 by 1,200 without any layoffs.

Philadelphia CEOs are very much in Rendell's corner, but many say he must confront the harder part of his job--curing the patient's cancer. The wage tax, which is almost 40 percent of the city's revenue, must be lowered, and alternative revenue found. "We still face a financial problem, "says Binswanger's John Binswanger. "We have a tax base that is too onerous to attract business."