Part One: The State of America's Cities

National Economic Progress Is Steady and Strong

There are 16 million new jobs and record low unemployment. For many years, it seemed that high employment could only be bought at the price of high inflation. But today's recovery has succeeded beyond most economists' expectations. Under President Clinton's leadership, the U.S. economy has created more than 16 million jobs, driving unemployment under 5 percent for the first time since the early 1970s. Black unemployment has fallen to rates lower than any since 1973.⁶

Regional economies, with cities at the heart, are now the primary engines of our national prosperity. Only a few decades ago, it was possible to see the national economy as a vast constellation of thousands of interlocking and competing local markets. Cities dominated this system by virtue of their greater ability to concentrate the basic ingredients of commerce -- capital, workers, and customers -- in one place. Today, these rival local economies have consolidated into a much smaller number of regional economies. To compete in the global economy, cities and their suburbs must cooperate more than they compete, drawing together resources from an ever-wider metropolitan area to create dynamic clusters of industries.

A recent report prepared by Standard & Poor's DRI for the U.S. Conference of Mayors and the National Association of County Officials shows that metropolitan areas have generated 86 percent of the Nation's total economic growth since 1992, as well as 84 percent of all jobs.⁸ This economic power is particularly concentrated among a relatively few regional giants, which dwarf not only their own States but most of the world's nations. Metro New York City's economic output, for example, is greater than that of 45 of the 50 States.

The roots of these metropolitan economies lie in America's great cities. While central cities contain barely 30 percent of the U.S. metropolitan population, they were home to more than 43 percent of all metropolitan jobs in 1990.⁹ And these jobs are more likely to be in the highly paid financial services and transportation/communications/utilities industry sectors.

Cities are also particularly rich in the resources and characteristics essential to developing new industries. Cities boast many great universities and research institutions that help spawn new ideas and provide advanced technical training and resources. The highly specialized professional and business services needed to support dynamic regional economies also tend to congregate in central cities. And cities -- particularly their downtowns -- have traditionally offered dense and diverse concentrations of people, firms, and customers that allow knowledge and innovations to spread throughout an industry more rapidly. Metropolitan economies thus depend on these urban strengths and have a huge stake in city job growth.

Jobs Are Growing and Unemployment Is Falling in
Central Cities

Employment is on the rise. The economic recovery is putting paychecks in the hands of additional hundreds of thousands of city residents. Between March 1993 and March 1998, the number of employed workers living in central cities of metropolitan areas increased by 10.4 percent, or almost 3.7 million people.¹⁰ This rate is almost twice as fast as the growth in these cities' labor force, suggesting that many previously unemployed adults were finding jobs. Many workers are joining city-based industries that are integral parts of the "knowledge economy" of the 21st century, including innovative manufacturing, financial services, producer services -- even tourism and the arts.

City unemployment has fallen sharply. Between March 1993 and March 1998, central city unemployment fell from 8.2 to 5.3 percent. The unemployment rate tumbled by more than one-third in the Nation's 50 largest cities, with every city registering declines. Four of the 10 largest cities saw their unemployment rate cut by at least one-half. Detroit, for example, has come roaring back -- only 1 of every 16 workers remained unemployed in March 1998, compared with more than 1 in every 7 workers in March 1993. By early this year, the demand for workers in cities such as Austin, Charlotte, Phoenix, and San Jose was so strong that the unemployment rate had fallen below 4 percent.¹¹

More new jobs are being created in cities. Rising employment levels among city residents reflect, in part, the growth of entry-level jobs in cities across the country. The economies of many cities -- particularly those in the Northeast and Midwest -- stagnated during the 1980s and early 1990s, losing jobs at all skill levels. Particularly problematic was the sluggish growth of low-skilled, entry-level jobs in the retail and service sectors. As documented in last year's The State of the Cities report, in the early 1990s, cities produced just 13 percent of metropolitan growth in low-skilled retail and service-sector jobs. As the economic recovery gathered strength, job growth spread to the older industrial base located in the cities. Between 1994 and 1995, central cities captured 34 percent of all metropolitan area low skilled jobs.

Some turnarounds were modest, others dramatic. Among the Nation's largest cities, Detroit, New York, and San Diego lost low-skilled jobs in the period 1990-1993 but notched modest gains from 1993 to 1995. In other large cities -- Dallas, Houston, Philadelphia, Phoenix -- the growth rate of entry-level jobs more than doubled. Among the 10 largest cities, only Los Angeles was slow to recover, but even there, by the mid-1990s the reviving economy was beginning to stem the loss of entry-level jobs. San Antonio's already high growth rate diminished little, remaining the second-highest rate among the top 10 cities.

Source: Standard Statistical Establishment List, Special Extraction

Source: Bureau of Labor Statistics

*Metropolitan Statistical Areas

Central city poverty rates are falling. The poverty rate for central cities has fallen from 21.5 percent in 1993 to 19.6 percent in 1996. For blacks, central city poverty rates have fallen from 35.8 percent in 1993 to 31.0 percent in 1996, the lowest level since 1976. Higher employment rates are helping many families and formerly jobless adults to escape the deprivation and insecurity associated with a life in poverty.

Source: U.S. Bureau of the Census, Current Population Survey

Cities Are Improving as Places to Live

City balance sheets are healthier. City governments have emerged from the fiscal distress of the 1970s and 1980s and the recession of the early 1990s leaner, more efficient, and better able to innovate. The National League of Cities' annual survey of city fiscal conditions found local governments on comparatively healthy footing. According to the survey, two-thirds of participating cities reported that they "were better able to meet city financial needs" in fiscal year (FY) 1997 than in the previous year. And local leaders most often credited the health of the local economy and the value of their tax base as the primary reasons for this confidence. City revenues increased by 2.2 percent in FY 1996 -- the largest jump since FY 1991.¹² All but 3 of the 77 largest cities in the Nation had strong Standard & Poor's DRI investment bond ratings of BBB or higher and so can borrow at favorable rates to invest in infrastructure and other critical needs.

Crime is falling dramatically in many major cities. Cutting crime is both cause and effect of the economic comeback in many cities. A job can be a very effective weapon against crime, providing a positive alternative to those who otherwise might be tempted to turn to criminal activity. Aided by the tailwind of a strong economy, local crime prevention and law enforcement efforts have brought greater safety to the streets once notorious for crime problems. And gains in safety, in turn, fuel reinvestment in the urban cores so important to the long-term health of regions -- their economies and their quality of life.

In many cities, the reductions in crime have been staggering. Nationwide, violent crime has fallen for 6 straight years, dropping an estimated 27 percent between 1991 and 1997 and by 19 percent in large cities between 1993 and 1997. During the first 6 months of 1997 alone, the rate dropped by 6 percent.

In the space of 6 years, violent crime fell by 45 percent in Dallas and New York City, by more than 35 percent in Los Angeles, and by more than 25 percent in Boston and Houston. Crime rates are up, though, in some high-growth, medium-sized cities, such as Louisville, Minneapolis, and San Jose.¹³

Source: FBI, Uniform Crime Reports (UCR)

* Does not include arson figures.

** In 1991, Charlotte-Mecklenburg was labeled as "Charlotte" in the UCR.

Homeownership Is on the Rise

Prompted by steady income growth, low interest rates, and affordable home prices, over the past several years the Nation has witnessed a homeownership boom of substantial proportions. With increasing employment opportunities, improved fiscal conditions, and reduced crime rates, central city homeownership is on the rise for the first time in over a decade. This trend is welcome relief to those cities struggling to hold onto their middle-income families.

Central city homeownership rates are the highest in 15 years. Reversing the downward spiral of the 1980s, the homeownership boom of the 1990s has pushed the national homeownership rate in 1997 to an all-time record high of 65.7 percent. Particularly encouraging is the fact that the recent surge is now expanding homeownership opportunities in the Nation's central cities. By 1997, fully half of all central city households owned homes -- the highest rate in 15 years. While urban homeownership continues to lag far behind suburban rates, the increase of more than 1 million central city homeowners since 1994 is a welcome sign of hope.

Homeownership stimulates economic activity. Homeownership is also a powerful force in enhancing individual well-being and promoting community development. Home equity represents a major source of household wealth, and the housing stock constitutes one of the Nation's principal assets. Homeownership also can foster community stability and safety by encouraging families to maintain their properties, to look out for their neighbors and watch for trouble, and to get involved in other activities that improve the quality of life in their neighborhoods.

Minority families lead the way. While the homeownership boom has touched all demographic segments of the population, the growth of homeownership among minority households has been particularly strong-805,000 more African-American households and 867,000 more Hispanic households became homeowners between 1994 and 1998, bringing their homeownership rates to 46.0 percent and 44.4 percent, respectively.¹⁴

Long restricted in their homebuying opportunities, minorities have now emerged as a powerful force in the market for new and existing homes. According to The State of the Nation's Housing 1998 by the Harvard University Joint Center for Housing Studies, minorities account for 42 percent of the growth in homeowners between 1993 and 1997, up from the 36-percent share that was recorded in the 1985 to 1993 period. In large measure, this surge in minority homeownership reflects a growth in lending activities, including the growth of Federal Housing Administration insured loans to first-time minority homeseekers. Since 1993, conventional mortgage lending to African-Americans has increased by 67 percent, lending to Hispanic borrowers is up nearly 50 percent, and lending activity in low- and moderate-income communities has risen by 37 percent.¹⁵