Rhode Island’s capital has been squeezing its 178,000 residents for more cash since losing a significant chunk of a big revenue source: state aid.…There are few options for the government to tap more money. The city’s commercial-property taxes are the highest in the nation among major cities, at $5,085 per $100,000 of land-and-building market value, according to a May report by the Lincoln Institute of Land Policy.
After the cut in state aid, Providence continued to let pension costs and spending on social programs rise. In 2011 the outlook was so bad that the city was seriously considering bankruptcy. The city has taken painful steps since then: firing public employees, skipping pension payments, asking for donations from non-profits and levying every imaginable tax.Providence’s problems are particularly severe, but unfortunately not all that unusual. They illustrate the problem with blue governance across the country: at a certain point the extensive social programs and public services in these cities simply become unaffordable. Politicians eventually have to make a tough choice between cutting them, taking on powerful unions in the process, or raising taxes into the stratosphere to keep them running. These problems would be difficult anywhere, but many of these cities are located in areas that haven’t managed the transition to a service economy particularly well and have declining tax bases as jobs and people leave. Unfortunately, high taxes and tight regulations in many of these cities make it even less likely that new businesses will choose to move in and help spread the tax burden, further exacerbating the problem.Regular VM readers know that this is the greatest challenge facing America in the coming years. Is Providence up to it?[Rhode Island state capitol image courtesy of Wikimedia]