Like all other levels of government, cities need to provide services and programs, including welfare and “housekeeping” expenses. To pay for these services and programs, they need to raise money through user fees and their tax bases. To maintain a tax base sufficient enough to provide such services requires the city to attract residents and profitable businesses through various programs and incentives. Since cities are not allowed to run deficits year after year, they need to balance their revenue from taxes and user fees with expenses for services and bond repayments.
Unlike the other two levels of government, state and federal, the city holds the “institutionally and physically weak position in the American federalist system” and is thus at the mercy of the former two. Such powers are limited de jure, via unfunded mandates from above and “restrictions on municipal taxing and spending policies” enacted by the individual states, and de facto, lest individuals and businesses either move out, refuse to move in, or both if cities raise taxes and cancel incentives.
For a city to be prosperous, it must “export” goods and services outside the city, as it cannot raise money by taxing itself via taxes and user fees. According to Paul Peterson, “When cities produce a good that can be sold in an external market, labor and capital flow into the city to help increase production of that good”, thus creating a self-perpetuating cycle of city prosperity and vice-versa. For that to happen, cities must successfully make use of available land, labor, and capital, Peterson’s three factors of production. Of the three, the city only has full control of the former, as one cannot easily physically move land from one city to another.
Since the city only has full control over its land, it must take steps to competitively attract and retain labor and capital, while competing with other cities for the same. That has to be done in a way that would benefit the interests of the city, business, and labor. Thus, this enables multiple interests to shape city politics, from businesses who want subsidies, tax breaks, and other incentives to be attracted into the city to residents who want to see that essential services are maintained without increasing taxes to a significant degree, lest they choose to vote with their feet by moving out, generally to the suburbs.
Cities do not have much power, compared to states and the federal government, in running their own affairs, as they are at the mercy of various elites and interests. Thus, they are always at the mercy to such powers, and whatever agendas and priorities made, if any, tend to be a reflection of their interests. One manifestation of the elitist theory of city politics is in education policy, which includes funding for schools. In New Haven, Connecticut, as observed in Dahl’s critique of the ruling elite model, many “Notables living in New Haven send their children to private schools; as a consequence their interest in the public schools is rather slight”, indicating their disinterest in services and programs that they have no direct connection with. Thus, whoever is in power tends to make the rules.
One reason that Dahl’s “Economic Notables” are apathetic towards such services as education is that they are in power to oppose tax increases, and this is why “the Notables do recognize that public school expenditures have a direct bearing upon their own tax liabilities.” Instead, they are only enthusiastic about services that would be of benefit to them, primarily housekeeping-type duties, such as public works and public safety. Such priorities tend to be advanced at the expense of ones put forth by other interests, for example the working classes and families with children.
Unlike states and the federal government, cities act in the most constrained manner of the three. Not only are they at the mercy of restrictions passed by states and unfunded mandates of the federal government, their functions are influenced by varying interest groups. Such groups include businesses, the economic and social elites, and organized labor, all of which have a say in the development of a city’s policies and priorities.
 Stein, Robert M. “The Politics of Revenue and Spending Policies,” in Cities, Politics, and Policy: A Comparative Analysis by John P. Pelissero, ed. Washington, DC: Congressional Quarterly Press, 2003.
Ibid., 233. This restriction is known as Dillon’s Rule, in which a city can only raise money in the way a state says it can.
 Peterson, Paul. “The Interests of the Limited City,” in City Limits. Chicago, IL: The University of Chicago Press, 1981.
 Dahl, Robert A., Who Governs? New Haven, CT: Yale University Press, 1961, 70-71. When he writes “Notables” he is talking about the ruling elite of the city, who have much influence over city politics.
 Bachrach, Peter; Morton S. Baratz. “Two Faces of Power.” The American Political Scicence Review, Vol. 6, No. 4. Washington, DC: American Political Science Association, 1962, 951.
 Water, sewer, other utilities, and transportation, for example.
 Police and fire services primarily.