US cities face fiscal cirsis

Updated: 2011-10-15 15:19


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NEW YORK- Empty storefronts and "For Rent" signs right across the street from City Hall in the New Jersey town of Newark are telling a story about a city in decay. Located just 45 minutes from New York, Newark used to be an industrial hot spot. However, due to the economic downturn the city is now faced with a 57 million US dollar budget deficit.

According to the non-profit association National League of Cities, revenues of American cities continue to fall with a projected 2.3 percent decrease by the end of 2011 and even further declines in 2012. Cities are responding by cutting personnel(72  percent), delaying infrastructure projects(60  percent) and increasing service fees (41 percent). One in three cities have been forced to cut health care benefits for employees. The association' s report concludes that  "cities are squarely in the center of the economic downturn."

Falling wages, high unemployment, a suppressed real estate market and business closures have caused local tax revenue to fall.

The Ironbound, a mainly Portuguese-American working class neighborhood, is one of the better-off areas in Newark. It is famous for its seafood restaurants, outdoor cafes give these few city blocks an almost Mediterranean flair. However, the High School of this neighborhood has been closed since late August when hurricane Irene struck large parts of the US East coast. The storm caused major water damage to the historic building. Since then, the city has been unable to come up with the funds needed for the repairs. The children are now forced to go to several other schools all over town.

Council Member Augusto Amador, the representative of the Ironbound is outraged.

"My daughter teaches at a school that was built in 1842, in the 19th century! This is a country that is preoccupied right now with building new schools in Afghanistan and Iraq and we are neglecting the cities of this country, we are neglecting the kids of having state-of-the-art facilities so they can be the best students in the world," he said.

The city's infrastructure is crumbling. According to the councilman, many local property owners are shying away from making improvements to their homes or investments into their businesses because many low-lying areas in town get flooded regularly during rain storms. The sewer system in parts of the city is so dilapidated that it cannot handle severe precipitation. The repair would cost several millions, money it simply does not have.

To stuff the ever growing hole in the budget, the city council decided to raise property taxes by 20 percent in only two years. As a result, small business and home owners feel financially squeezed to the limit.

"I believe strongly that you can' t continue to raise taxes in order to solve the financial problems the city has because that causes a huge burden on the tax payer. Sooner or later if we continue to behave this way, people will resist the idea of investing in this community or will move away," council member Amador says.

Newark is only one of many US cities facing severe financial difficulties. On October 11, Harrisburg, the Pennsylvania state capitol, voted to file for Chapter 9 bankruptcy protection because it has a debt burden of 400 million US dollars, about five times its general-fund budget.

In the small town of Highland Park near Detroit, street lights were recently repossessed by the local power company because the town failed to pay its multi-million-dollar utility bill. Street lamps were removed, a town with 12,000 residents simply went dark.

In Newark, the city council decided to save money by laying off over 150 police officers. For years, the city has been fighting drug and gang related crime. The median household income in Newark has declined 12 percent in the last year. The number of shootings and homicides in the city has jumped recently. City officials deny that a increase in crime is related to the downsizing of the police force. However local residents were enraged enough that they decided to take matters into their own hands.

"The spike in crime has forced the community to come to the streets and right now, we have groups of organized residents going into the streets at a certain time at night and just look for potential signs of criminal activity," a local resident said.

In December 2010, the credit rating agency Moody's downgraded Newark's debt rating due to the city's ongoing fiscal crisis. Newark was now able to secure a 32 million US dollar short-term loan from the state of New Jersey. And that was exactly one of the predictions Moody's made: "The need for repeated significant cash flow borrowing."  A default of the city of Newark may be averted for now, the fiscal crisis, however, is long from over.