THE SUBDISTRICTING OF CITIES Applying the Polycentric Model

Baer, Marando / SUBDISTRICTING URBANCITIES AFFAIRS REVIEW / May 2001 THE SUBDISTRICTING OF CITIES Applying the Polycentric Model SUSAN E. BAER Univer...
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Baer, Marando / SUBDISTRICTING URBANCITIES AFFAIRS REVIEW / May 2001

THE SUBDISTRICTING OF CITIES Applying the Polycentric Model SUSAN E. BAER University of Wisconsin–Oshkosh

VINCENT L. MARANDO University of Maryland, College Park

Applying the polycentric model to the urban core, the authors first examine how the polycentric model may be applied to an increasing number of large cities that are using subdistricts to provide supplemental public services that district residents desire such as security, sanitation (garbage collection), and economic development. They next analyze the recent creation of the Charles Village Community Benefits District in Baltimore, Maryland, as an empirical example and briefly discuss this subdistrict’s positive impacts. The article concludes with some observations on the implications of subdistricts for equitable and efficient service delivery.

Cities are often adumbrated in the literature as offering the same services throughout their territory. In fact, however, central cities have never displayed a monolithic distribution system in delivering public goods and services. As a result, all areas of cities do not receive the same level of services, even if the same tax rate is assessed against all property owners (Lineberry 1977). And large cities are becoming increasingly reliant on the use of subdistrict governmental units to provide tax and service differentiation and to provide choice that is qualitatively different from informal approaches. However, the pursuit of policies that target city services to residents and businesses in selected subdistricts through an additional property tax assessment is rarely examined even though a plethora of subcity structures with less than full autonomy exists (Briffault 1997).1 Examples of city subdistricts that levy an additional property tax in return for supplemental services include business improvement districts (BIDs) and community benefits districts (CBDs). The CBD is the focus of this inquiry and is defined as a city subdistrict whose property owners, both residential AUTHORS’ NOTE: We thank Brett Hawkins, Michael McGinnis, Elinor Ostrom, Vincent Ostrom, and Roger Parks for their careful reading of this manuscript and helpful comments. Of course, any errors are the responsibility of the authors. URBAN AFFAIRS REVIEW, Vol. 36, No. 5, May 2001 721-733 © 2001 Sage Publications, Inc.

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and commercial, pay property taxes in addition to what the city levies to receive supplemental services such as security, sanitation (garbage collection), and economic development. In this article, we first examine the classic polycentric model and how city subdistricts are theoretically part of the model. Then, the formation of the Charles Village Community Benefits District (CVCBD) in Baltimore, Maryland, is examined as an empirical example, and a brief assessment of the subdistrict’s impact is provided. We conclude with some observations on the politics of creating CBDs and their implications for equitable and efficient service delivery. The term polycentric connotes “many centers of decision-making which are formally independent of each other. In addition, whether these centers actually function independently, or instead constitute an interdependent system of relations, is an empirical question in particular cases” (Ostrom, Tiebout, and Warren 1961, 831). To the extent that the various political jurisdictions in a metropolitan area take each other into account in competitive relationships, enter into various contractual and cooperative undertakings, or have recourse to mediating mechanisms to resolve conflicts, they function in a coherent manner with consistent and predictable patterns of interacting behavior (Ostrom 1994). Two major components of the polycentric model are articulated in two classic articles: Charles M. Tiebout’s (1956) “A Pure Theory of Local Expenditures” and Vincent Ostrom, Charles M. Tiebout, and Robert Warren’s (1961) “The Organization of Government in Metropolitan Areas: A Theoretical Inquiry.” The two components are (1) that residents and businesses will locate to those local units that best meet their public goods preferences (Tiebout 1956) and (2) that local government in metropolitan areas can be organized and reorganized to meet service preferences (Ostrom, Tiebout, and Warren 1961). The first component of the polycentric model suggests that residents and businesses will maximize their public goods (tax and service) preferences by “voting with their feet.” Thus they locate or relocate to those local jurisdictions that best meet their public goods and services preferences (Stein 1987). There is also evidence to support the contention that those who move do so in part because of services and taxes in the new jurisdiction (Teske et al. 1993). The model further posits that the greater the number of local governments in metropolitan areas, the more likely residents’ and businesses’ public goods preferences will be realized. The second component of the model suggests that a decentralized governance system may provide services efficiently in response to a variety of demands. The explosion of suburban jurisdictions over the past four decades

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has been taken as evidence of the efficiency of these jurisdictions in meeting the public goods and services needs of many metropolitan residents and businesses (Stein 1987; Dowling, John, and Biggs 1994). This explosion also shows people’s natural desire to have governing units tailored to their particular needs and preferences. However, rarely has the polycentric model been applied to explain intracity decentralization. We contend that the model has empirical application for explaining the creation and organization of city subdistricts. The creation of subdistricts formalizes service-level differences among residents and businesses within cities because to receive supplemental services, property owners in city subdistricts are taxed at higher rates than nondistrict property owners (Briffault 1997, 1998). Also, although a large number of neighborhoods have lost population and businesses in part because they did not have adequate discretion or authority to meet property owner and renter service preferences, many city residents do not desire or cannot move to another neighborhood or jurisdiction. The polycentric model does not fully articulate this fact. Subdistrict creation within cities is instead a response to residents and businesses staying in “place” for the purpose of obtaining particularized goods and services (Briffault 1996). In other words, the creation of local subdistricts within cities may be a feasible and effective option for obtaining public goods without these groups having to move to another jurisdiction. In effect, it is an exercise of “voice” rather than “exit” (Hirschman 1970; Orbell and Uno 1972; Parks and Oakerson 1989; Williams 1971).

COMMUNITY BENEFITS DISTRICTS (CBDS) In the nation generally, CBDs are preceded by and share a common legal heritage with the business improvement district (BID), a structure that normally taxes and provides supplemental services exclusively to commercial property owners. The success of BIDs in meeting the service needs of city merchants stimulated their widespread adoption, and there are now 15,000 BIDs estimated to be in existence in North American cities (International Downtown Association 1996). The existing literature tends not to recognize that new BID-type arrangements such as CBDs have extended to communities with diverse residential and commercial properties (Oakerson 1999). However, at least 12 cities have in fact established subdistricts that are similar to CBDs.2 CBDs’ specific institutional arrangements vary from city to city and at times within a city. Using a Baltimore CBD as a model, the following serve as common institutional arrangements in these subdistricts:

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• CBDs have the authority from a state legislature and city government to mandate an additional tax assessment levy above citywide rates, which the city administers on all property owners, commercial and residential, within the subdistrict.3 • CBDs are created only after the service preferences of subdistrict property owners (and renters in the case of Baltimore) are identified and taken into account. A referendum is required to assess property owner and renter support in Baltimore. In other cities, a specified number of signatures meeting a public petition requirement or attendance and participation at city/community-sponsored public hearings may be used to assess support for creating CBDs. • CBDs are governed by an elected or appointed board whose qualifications are specified by city charter ordinance and, in some cases, state statute. • CBDs have full- and/or part-time professional and nonprofessional staff to manage the day-to-day operations of the subdistrict. Commonly, CBDs are created to provide primarily “traditional” municipal services such as security and trash removal but might also provide neighborhood organizing and economic revitalization services.

In terms of subdistrict institutional arrangements, Hawkins, Percy, and Montreal (1996, 1997) offered findings that support the assumption that decentralized, specialized, and nested governance organizations are part of the “intergovernmental” system of sharing authority and delivering services. Clearly, neighborhood property owners and renters in a city cannot create a subunit by themselves. A “higher”-level local government is necessary for creating subdistrict government. In other words, neighborhood interests for creating subdistricts need to be “negotiated” with officials representing city interests (Thomas and Hawes 1999). And the creation of a city subdistrict such as a CBD is the result of a “compact” or officially sanctioned intergovernmental agreement involving state government as well (Briffault 1997). Thus CBD creation reflects the results of a negotiated process between property owners and renters, on one hand, and city and state officials, on the other. EFFICIENCY AND EQUITY

Provision-side efficiency calls for CBD boundaries to be large enough to include the affected group of people and, at the same time, to not be so large as to include groups of individuals with very heterogeneous preferences (Oakerson 1999). In terms of production-side efficiency, one finds that subdistrict residents desire and receive those labor-intensive public services exhibiting diseconomies of scale such as safety, garbage collection, and neighborhood revitalization. And small production units supply these services most efficiently. In contrast, larger production units with economies of

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scale supply capital-intensive public goods most efficiently. This concept of production-side efficiency informs the discussion of city subdistricts and helps to explore how efficiency is related to the size of local organization (Tullock 1994). As a result, a mixed system that includes both smaller units such as city subdistricts and larger overlapping units may possibly increase service delivery efficiency. In other words, the diversity of life requires complex organizational arrangements that are neither exclusively Gargantua nor the land of Lilliputs (Ostrom and Parks 1999). Considering equity, one finds that the initiation of a Baltimore CBD involved a struggle between two approaches to distributional equity. The first approach, one advocated by traditional reformers, calls for subdistrict consolidation followed by redistribution, and the second polycentric approach relies on larger overlapping provision units to provide intergovernmental aid and equalizing services to the smaller subdistrict (Oakerson 1999).

BALTIMORE’S CHARLES VILLAGE COMMUNITY BENEFITS DISTRICT (CVCBD) Informed by interviews with area business persons, neighborhood activists, past or current subdistrict employees, Baltimore city officials, and state of Maryland officials, we examine and describe the formation of Baltimore’s CVCBD to open up a new set of research questions related to polycentricity within the city. Specifically, how do issues related to efficiency and equity affect the processes and outcomes of subdistrict formation? It is important to note that polycentrism does not offer clear guidelines concerning the appropriate size of subdistricts other than general ones relating to provision- and production-side efficiency and equity. One can always argue for larger or smaller units based on either efficiency or equity grounds in general or related to a specific service. Although these questions can be addressed by rigorous research, policy makers may hold deep-seated beliefs that affect their view of this question. And as the case study shows, determining the size of the CVCBD was the source of considerable conflict. The section concludes with a brief discussion of the subdistrict’s impact. The CVCBD was initiated at the grassroots level by a neighborhood business. Unfortunately, the district’s genesis began as a result of a deadly act of violence in the South Charles Village community. According to a prominent member of the South Charles Village business community who made a strong contribution toward the formation of the CVCBD, the district’s creation began on December 30, 1990, when two 15-year-old youths robbed and murdered an employee of the engineering and architectural firm, Whitman,

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Requardt and Associates, LLP, in the firm’s parking lot. The two teens then lingered in the neighborhood and attacked another person. After the murder, management at Whitman, Requardt questioned whether its 250-employee firm should “exit,” leaving South Charles Village and the city of Baltimore. It is natural for a company to consider whether to flee to a safer suburban location after one of its employees falls prey to murdering predators in the inner city as happened to the Whitman, Requardt employee. In opposition to such violence, the foundation of a successful city district is that a person must feel personally safe and secure on the street among strangers. A city district that fails to make persons feel secure creates huge troubles for itself and the city at large. And according to many researchers, the problem of crime hinges on the inability of communities to come together in joint action (Jacobs 1961; Newman 1972). As a member of the South Charles Village community and a public entrepreneur, Whitman, Requardt decided to exercise “voice” and attempt to combat further crime in its community. Company executives met with Baltimore City Mayor Kurt L. Schmoke, who assigned a city planner to help them organize a community effort to address the problem of neighborhood violence. The grassroots-initiated organizational meetings of this private corporation, community, and city administration led to the creation of the 25th Street Task Force that studied a 30-block section in the South Charles Village neighborhood between 20th and 26th Streets, a lower-income area (see Figure 1). In a 1992 meeting of the task force, the president of the Baltimore City Council first suggested the creation of the CVCBD. And the task force identified and publicized a driving concept of equity—fiscal equivalence—for creating this city subdistrict: If everyone benefits, everyone pays for it. It was decided that CVCBD supplemental services would include safety, garbage collection, and economic development. The task force believed that taxing both residential and commercial property owners was necessary to acquire an adequate and constant source of revenues. However, Maryland statutes required that a CBD first receive stateenabling legislation to tax property owners. Legally, the state’s role was to pass legislation to enable CBDs to be established in communities in which the city gave its authorization. With state-enabling legislation, the Baltimore City Council could enact the necessary local ordinances for allowing a community to establish a subdistrict.4 The task force lobbied city and state officials for the creation of the benefits district. Given Maryland legislative norms, the city delegation to the state general assembly needed community and city administration support, especially that of the mayor, to favor a state bill to create benefits districts in Baltimore. This

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Figure 1: Charles Village Community Benefits District

caused a problem because the mayor was concerned that state legislation creating CBDs might not be in the interest of the city’s entire population. Although the proposed benefits district was located in a lower-income area, the mayor, the city delegation to the general assembly, and several Baltimore city council persons rather paradoxically expressed concern that by creating subdistricts, the city would be balkanized with white middle-income neighborhoods engaged in an elitist movement to obtain services that exclude lower-income neighborhoods. Several legislators were further concerned that such balkanized subdistricts aimed to promote lifestyle homogeneity through subtle forms of “gating” by placing an additional tax levy on property owners.

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These concerns motivated city officials to enact an ordinance requiring city oversight to the local task force in drawing up the subdistrict boundaries. This city ordinance mandated that the subdistricts be both larger in geographic scope and more diverse economically and racially than the 30-block subdistrict originally proposed by the Charles Village Task Force, although the CVCBD’s boundaries were not enlarged before the 1993 Maryland legislative session.5 This mandate, it should be noted, embodies and represents adoption of one of the two well-known strategies for promoting intercommunity distributional equity—that of traditional metropolitan reformers. In classic reformist style, it required enlarging the boundaries of the subdistrict from 30 to 100 blocks to include a more heterogeneous community with respect to income and race. However, this mandate also meant that the provision unit would be less tailored or specialized and thus less able to satisfy particularized constituent needs. It might also prove more conflictual as a result of including more heterogeneous populations. The proponents of this approach did not support the other strategy for achieving intercommunity equity—that embraced by polycentrist theory. The bill authorizing a CBD was killed during the 1993 Maryland legislative session when it did not receive the Baltimore city delegation’s support. The reported reason was that the community did not provide assurances of inclusiveness and diversity. To gain the city’s support and follow the general terms of its mandate, the proposed benefits district was then enlarged to encompass a 100-block area containing a total of four other neighborhoods besides South Charles Village. This consolidation increased the subdistrict population from 3,000 to 14,000 residents. The city of Baltimore then chose to support creating a CBD. With city administration support, the CVCBD was successful in obtaining the necessary local delegation support for passing the enabling legislation in the Maryland State Assembly during the 1994 legislative session. The statute authorized the mayor and city council to establish by local ordinance not more than six CBDs, including the Charles Village Community Benefits District, within the city of Baltimore.6 The local ordinance creating the CVCBD also required a referendum in the proposed area as a prerequisite for subdistrict adoption. The city ordinance required an extra-large majority of 58% of property owners and renters in the 100-block benefits district to support adoption of the subdistrict and its additional taxes of 30 cents per $100 of assessed valuation through a referendum. The 1994 referendum was successful, with 67% of property owners and renters voting in favor of creating a district. The result was a landmark

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decision, with the CVCBD becoming one of the first in the nation to form a mixed-use district that combined residential and commercial areas.7 The city ordinance authorizing the CVCBD also required a “sunset clause” that mandated that the district would have to be reauthorized every three years. This “sunset” provision gave city officials an opportunity to abolish the district if political conflict arose or if residential or commercial support diminished. In essence, the provision served as a city administration “escape hatch” and not a precedent for a permanent city commitment to subdistricts. Reading the above analysis, one sees that the creation of the CVCBD depended on the particular circumstances of time and place. The original decision to initiate the subdistrict was left to the actors who were familiar with local circumstances such as the local public entrepreneurial firm of Whitman, Requardt. In other words, the initial process of creating the subdistrict was decentralized and grassroots in nature. Local actors knew the particularities, local conditions, and special circumstances that were relevant to the Charles Village area, and they were highly organized in pursuit of their goal of subdistrict creation. As a result, they were best suited to lead the subdistrict formation process (Hayek 1945). Eventually, however, the Baltimore city government and Maryland state legislature became highly influential in determining the composition of the subdistrict. Thus the creation of the subdistrict became more centralized. IMPACT OF THE CVCBD

Although we focus on the creation of the CVCBD, this section briefly provides a perspective on its impact. The short-term impact of the CVCBD has been positive, but future research will need to evaluate the subdistrict’s longer-term impact. A key means to assess the CVCBD’s short-term performance is reauthorization. The fact that the Baltimore City Council unanimously reauthorized the CVCBD in 1998 with strong community support shows that the subdistrict so far has been perceived successful in providing its three supplemental services of safety, garbage collection, and economic development equitably and efficiently. The CVCBD will again come up for reauthorization in 2001. One might also look directly at the three supplemental services provided by the CVCBD to gauge its impact. First, in terms of safety, statistics show that over the past several years, crime is down in the entire city of Baltimore by 35% and down by a larger 56% in the CVCBD. Although the subdistrict’s safety team may not explain the entire drop in CVCBD crime, it is thought to

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account for at least some of the decline. Second, the subdistrict is cleaner since its inception. The CVCBD’s clean team removes an extra ton to a ton and a half of trash each week from the subdistrict in addition to what the city normally removes. Finally, economic development in the CVCBD is also on the upswing. A new grocery store, pharmacy, and various restaurants have located in the area since the subdistrict’s creation. Also, the desirability of owning a home in the subdistrict has recently increased. Home purchases have grown by 40% in the past few years, with selling prices equaling a sizable 97.3% of asking prices.8

DISCUSSION AND IMPLICATIONS We conclude by discussing the politics of creating subdistricts and their potential equity and efficiency implications for district and nondistrict residents alike. As throughout the article, the polycentric model guides this discussion. It is not surprising that the seminal polycentric model as presented in the 1956 and 1961 articles is largely silent on how intracity subdistricts are created. These articles served as theoretical models, not empirical research. And although the two articles had a profound impact on the study of metropolitan governance, the authors recognized the need for empirical inquiry into how local circumstances and conditions affected the provision of public goods and services. The CVCBD case illustrates that population homogeneity may not be permissible for creating a subdistrict. From a citywide perspective, allowing the creation of a subdistrict may potentially lead to balkanization, therefore separating the city by class and race. To minimize this possible outcome in the case of the CVCBD, city-community negotiations led to the subdistrict being enlarged and made more economically and racially diverse, meeting a necessary objective of city and state officials. For example, the enlarged subdistrict’s residential population was 55% white and 45% African-American in 1998. Expanding the subdistrict from 30 to 100 blocks added to its political base and potential influence with city and state officials. But subdistrict expansion also implies that city residents and businesses may not be allowed to do what suburbanites have long done and continue to do—create their own homogeneous governance formations—because of a city government’s ideology. Allowing the subdistrict to remain its original 30-block size is a polycentric alternative to expanding the area that the city council and administration did not permit.

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Under this alternative, other smaller subdistricts, including low-income ones, may also be able to form and achieve equity with the help of intergovernmental equalizing aid or services from higher-level overlapping governments. City officials were aware of this alternative but instead selected the reformist option of consolidation followed by redistribution. The original smaller subdistrict that includes 3,000 residents may also have been more efficient than the larger, more heterogeneous 14,000-resident subdistrict. The smaller district may have been better able to meet more homogeneous citizen preferences in its provision of labor-intensive public services, and it is less costly to meet homogeneous needs than heterogeneous ones, other things being equal. However, although the originally proposed smaller CVCBD might have proven more efficient than the current larger subdistrict, the case study shows that the larger district seems to be efficient enough, at least in terms of achieving reauthorization, reducing crime, and enhancing sanitation and economic development. In the end, an efficient metropolitan governance arrangement may be a mixed system that includes both larger overlapping provision units and smaller overlapped provision units. Again, provision should not consist solely of Gargantua or the land of Lilliputs. As an illustration, all areas of a city may be able to form subdistricts if the lower-income ones receive aid or equalizing service allocations from overlapping city, county, state, or national governments as polycentrists desire. If all areas of the city are able to form subdistricts, a CBD’s benefits may outweigh its potential abuses. If city property owners and renters do not form CBDs and therefore do not receive needed supplemental services, they may find themselves living and working in neighborhoods that are becoming more and more unstable. Or they may simply decide to “exit” the city for the suburbs. Alternatively, through “voice” city property owners and renters may create CBDs that have the potential to help stabilize and prevent population decline and business closures in inner-city neighborhoods, and the CBD may even attract new residents and businesses from outside the city. Because inner cities continue to experience instability, population loss, and business closures, CBDs may serve as a structural policy option to aid in stemming these trends.

NOTES 1. There is no official national count of city subdistricts. The census of government documents does not tally or report dependent districts of general-purpose local governments. The

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census of government documents reports independent districts, not administrative units of cities. Estimates of some types of subdistricts do exist. 2. We conducted a telephone survey with officials of 36 large cities concerning the existence of community benefits districts (CBDs). The National League of Cities also conducted a survey of subdistrict organizations. The assessment from both sources was that subdistrict organizations similar to CBDs exist in at least 12 U.S. cities, including Baltimore, Chicago, Cincinnati, Detroit, Great Falls, Houston, Louisville, Minneapolis, New York, Philadelphia, San Jose, and Seattle. The subdistricts were similar to CBDs because both residential and commercial property owners paid an additional property tax to receive supplemental services. 3. This taxing authority distinguishes CBDs from more traditional neighborhood associations. CBDs also differ from residential community associations (RCAs) because residence or property ownership in the subdistrict is a criterion of membership in a CBD, whereas property ownership only is a criterion of membership in an RCA. 4. Interview with city of Baltimore administrator (March 1999). 5. Interview with city of Baltimore councilperson (April 1999). 6. Interview with state of Maryland official (March 1999). 7. Interview with a member of the mayor’s staff (April 1999). 8. Interview with Dan Klocke, current Charles Village Community Benefits District executive director (May 4, 2000).

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Orbell, J. M., and T. Uno. 1972. A theory of neighborhood problem solving: Political action vs. residential mobility. American Political Science Review 66 (2): 471-89. Ostrom, E., and R. B. Parks. 1999. Neither Gargantua nor the land of Lilliputs: Conjectures on mixed systems of metropolitan organization. In Polycentricity and local public economies: Readings from the workshop in political theory and policy analysis, 284-305. Ann Arbor: Univ. of Michigan Press. Ostrom, V. 1994. The meaning of federalism: Constituting a self-governing society. San Francisco: ICS Press. Ostrom, V., C. M. Tiebout, and R. Warren. 1961. The organization of government in metropolitan areas: A theoretical inquiry. American Political Science Review 55 (4): 831-42. Parks, R. B., and R. J. Oakerson. 1989. Metropolitan organization and governance: A local public economy approach. Urban Affairs Quarterly 25 (1): 18-29. Stein, R. M. 1987. Tiebout’s sorting hypothesis. Urban Affairs Quarterly 23 (1): 140-60. Teske, P., M. Schneider, M. Mintrom, and S. Best. 1993. Establishing the micro foundations of a macro theory: Information, movers, and the competitive local market for public goods. American Political Science Review 87 (3): 702-13. Thomas, R. D., and D. W. Hawes. 1999. Changing coalition politics in Houston: Municipal districts to tax increment reinvestment zones. Paper delivered at the annual meeting of the Urban Affairs Association, April, Louisville, KY. Tiebout, C. M. 1956. A pure theory of local expenditures. Journal of Political Economy 64 (5): 416-24. Tullock, G. 1994. The new federalist. Vancouver: Fraser Institute. Williams, O. 1971. Metropolitan political analysis. New York: Free Press.

Susan E. Baer is an assistant professor of political science at the University of Wisconsin– Oshkosh. She received her Ph.D. in government and politics from the University of Maryland, College Park and completed a postdoctoral appointment at Indiana University’s Workshop in Political Theory and Policy Analysis. Her research interests include urban revitalization and metropolitan governance. Vincent L. Marando is a professor of government and politics at the University of Maryland, College Park. He was on leave to the U.S. Department of Housing and Urban Development (HUD), working on HUD’s Regional Connections Policy Initiative: 1998 to 1999. He has authored or coauthored three books and many articles on metropolitan governance.