Despite the calamitous impact that insolvency can have on a city, there really aren’t clear-cut measures that make it easy to compare the fiscal health of municipalities.

As the authors of a new book from the University of Toronto’s Institute on Municipal Finance and Governance explain, credit ratings aren’t the end-all of whether a city’s finances are in good condition: “Although the [Organisation for Economic Cooperation and Development] and [the International Monetary Fund] provide information on expenditures and revenues for local governments in many countries, there is no similar information on individual cities. The result is that we often have to turn to credit rating agencies for information, even though they have a particular perspective on fiscal health.”

Is Your City Healthy? Measuring Fiscal Health looks to carve out a more holistic understanding of the conditions, processes and institutional structures that influence fiscal health. I spoke to one of the book’s co-editors, Richard M. Bird, professor emeritus of economics at University of Toronto’s Rotman School of Management, about credit ratings, the difference between benchmarking and diagnosis, and how to run a city like a household.

Why did you and your co-editor, Enid Slack, decide to do this book?
It’s partly because we live in Canada. Canadians are overwhelmed by information from the United States, so a lot of Canadians think that their country runs like the United States does.

The other reason we took up this subject was because both my co-editor and I have worked extensively in other countries. We were interested in looking across countries. You keep getting these stories like, “They do so-and-so in Denmark, why can’t we do it here?” We were trying to identify factors that were comparable and not comparable across cities.

It turns out that even within a particular state or province within any country, it’s still difficult to get your hands exactly on what you might define as urban fiscal health. [Once you] figure out ways to measure it and then once you’ve done these measures, to understand what it is exactly you’ve found out, and how you apply that to improve the situation.

What is a better measure of cities’ fiscal health than credit ratings?
Credit ratings are fine if what you are measuring is the probability of getting your money paid back if you lend money to a city. … But they are not directed to many of the concerns of people who actually run cities or live in cities. That is, the quality of services delivered, the coverage of services and things like that. People are much more interested in whether the potholes in the street are fixed and that their kids have a school to go to, than whether their city is able to repay their debt or not. These things are related, but not directly, so you need a different set of measures.

Richard Bird

The United States used to have a very thorough coverage of city finance, but over the last 10 or 15 years, it hasn’t been so good, because the federal government has cut back substantially on the government division that collected that information. Recently the [Lincoln Institute of Land Policy] has put together a pretty comparable series of data on U.S. cities from a broader fiscal perspective — but not so much from the services perspective.

If you go beyond the U.S., it’s worse. There isn’t anything that’s comparable to U.S. databases in other countries, including [Canada]. Anyone who is looking at any particular city has to construct their own database, which is pretty archaic really in this era of big data, when they apparently know everyone you call and every place you go, but we know so little about the way urban communities function.

In the book, you mention the difference between benchmarking and diagnosis. Can you elaborate on that?
I developed this whole approach in a different context, working for USAID doing a series of comparisons in Eastern Europe. They kept pressing me to get these quantitative measures of how well different countries were doing. Even if we had the best measures in the world, we still wouldn’t be able to say to the Poles or the Bulgarians, “This is what you really should be doing,” because there was a lot of other things we had to know in addition to the numbers.

Benchmarking is essentially like getting a ruler against which you measure the performance of a city. First you have to figure out what you want to do, second you have to figure out how to measure it, and third, you have to figure out what to do once you’ve measured it.

[But when a medical doctor makes a diagnosis] there is a whole different set of environmental initial conditions that they take into account when assessing your performance against the benchmark. You can have the best tests in the world, but unless you can actually interpret what those tests tell you, you don’t actually know what medication to apply or what effects you’d expect from doing it. A person attempting to diagnose the fiscal health of a city is in the same position as a physician. A lot of time what people think is their problem isn’t their problem.

I don’t think doctors are all that good at this. I don’t think economists are all that good at this either.

If there’s a city that uses some of the measurements in the book and determines that they are in “poor health,” what are some simple or small things they could do to improve?
Any time you have a set of numbers like a credit standing rating, any capable accountant or manager can adjust yourself to improve your standing. But if you are actually asking the question, “How can we do better?” the answers are going to be the usual economic stuff. You should make sure that you’re charging the right prices. You should make sure that people who are getting the benefits are paying for the services, unless they can’t because they’re too poor, and you have some sort of redistributive role going on at your local fiscal level. [That] isn’t a great idea, but it is inevitably politically necessary to some extent, for no other reason. There’s no other way than spending as well as you can and taxing as well as you can.

It’s just like running a household — if you are borrowing to buy food or pay rent, you’re in real trouble. … You also have to be really careful that you’re not building up a huge, intolerable pension burden — that’s one of the big problems with the U.S. structure compared to almost everybody else’s. Instead of giving wage increases, you make pensions more attractive, but that’s just shifting the burden to the future. That doesn’t make any sense at all.

Alexis Stephens was Next City’s 2014-2015 equitable cities fellow. She’s written about housing, pop culture, global music subcultures, and more for publications like Shelterforce, Rolling Stone, SPIN, and MTV Iggy. She has a B.A. in urban studies from Barnard College and an M.S. in historic preservation from the University of Pennsylvania.

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