FINANCING SUSTAINABLE CITIES.

• Author: O'MEARA, MOLLY

"With insufficient public revenue to meet the rising demand for services, cash-starved municipal authorities have relied increasingly on the resourcefulness of local communities and the profit-making drive of the private sector."

LIKE SO MANY ARTIFACTS of civilization, money and finance arose in cities. Researchers believe that cash first flowed in ancient Mesopotamia as early as 2500 B.C. As many more goods became available in urban centers like Babylon and Ur, bartering became unmanageable and, for the first time in history, people needed a standard medium for setting prices. Today, cities remain the engines of economic growth--generating a disproportionate share of national income--but their problems with money are legion.

For the sake of the public good, citizens and local officials alike struggle to harness the money they generate, but all too often it becomes yet another squandered urban resource. Among the obstacles keeping money from constructive uses are lack of support from Washington, poor financial management by city officials, and the outflow of money from a city as banks or store-owners invest in places that inspire more confidence.

Lack of local budgetary control limits the ability of citizens and city officials to make urban environmental concerns a priority. Washington has shifted many responsibilities to city governments in recent years without expanding the ability of local authorities to raise revenue. Generally, city governments still must rely on the central government to transfer to them a share of the national tax revenue. Often, the amount of the transfer depends upon the size of the local budget deficit, thus encouraging overspending and mismanagement. If and when the transfers come through, local officials--and the citizens who elect them--may have little say in how they are to be spent.

Washington can block local efforts to create healthier cities even more directly. By subsidizing water and energy, it can undermine a city council's building codes to improve efficient use of these resources. National transportation and land-use priorities can similarly foil local environmental goals. For instance, metropolitan areas such as Portland, Ore., that have tried to constrain sprawl have historically been thwarted by national transportation policy that offers far more money for road building than for mass transit.

Encouraging reforms in the 1990s include the Intermodal Surface Transportation Efficiency Act and its...