KATHARINE C. LYALL
The public-private partnership, developed as a policy tool during the Carter administration, was an invention born of necessity. National economic conditions that the Carter administration inherited were volatile and unsettling. The economy was growing and unemployment was at low levels; but inflation, fed by an energy crisis, was about 12 percent annually; and interest rates were rising toward a peak of 18 percent, creating investor uncertainty and nearly impossible conditions for long-term investment planning. Earners and savers soon discovered that investment in real property and other assets constituted good speculative hedges against inflation, while net borrowers and people on fixed incomes were alarmed at how quickly their incomes were eroding. Economists coined the term stagflation to describe this period of inflation with underlying economic stagnation.
Among the borrowers who felt the financial pinch most acutely were a number of major cities that found themselves in real danger of defaulting on their financial obligations; New York, Detroit, Cleveland, and many others struggled with "the urban fiscal crisis." Congress was asked to consider bailing out cities through various forms of Federal financial guarantees but declined. Cities dealt with the crises in different ways, but nearly all made substantial reductions in public services and deferred maintenance and replacement expenses for infrastructure, including roads, sewers, bridges, and other capital items. During these years, some states that had largely escaped the financial crises nonetheless experienced local and sometimes statewide referenda, such as Proposition 13 in California and Proposition 2½ in Massachusetts, to limit state and local taxes. In short, the times were not ripe for the introduction of a large number of new money-program initiatives at the Federal, state, or local levels. And yet the needs were manifest.
The growing problem of homelessness among the poor, the displacement of low-income families and households because of center-city renewal and soaring property values, urban decay, and fiscal crisis all threatened the continuation of