According to a recent survey of municipal services, the city`s streets

This question tests parallelism in lists.

The challenge lies in the helping verb structure.
The first item in the list sets the structure.
If the administration improved its management practices, three things could happen.

Option A:
the city's streets could be cleaner
its fire code be better enforced, [no could]
and its crime rate [________] reduced [no could be]

Option C:
the city's streetscould be cleaner,
its fire code could be better enforced, [identical to #1]
and it could [__] reduce its crime rate [extra subject "it" plus absence of "be" ruins the parallelism]

Option D
the city's streets could be cleaner
its fire code better enforced, [could be is omitted]
and its crime rate could reduce [only be is omitted; reduce is a verb, not an adjective or adjective phrase; and the sentence is nonsencial

Option E
the city's streets could be cleaner
its fire code could be better enforced, [identical to #1]
and its crime rate [________] reduced [missing could be, which the third item needs because the first two have that construction]

The items in all the options above are not parallel.

By contrast, option B is:
the city's streets could be cleaner
its fire code better enforced,
and its crime rate reduced

Although items two and three omit could be, that omission is fine.

In general, helping (auxiliary) verbs can be split from main verbs in lists.
The helping verb
(1) is rooted and "carries over" or distributes to the other two items, and
(2) its accompaniments (e.g., the main verb phrase or adjective) are presented in parallel form.
--Correct: Please make sure that the junior associates have proofread, cite checked, and submitted the appellate brief.
In that construction, the have in (have + past participle) is implied in items #2 and #3.
Correct but repetitive: Please make sure that the junior associates have proofread, have cite checked, and have submitted the appellate brief.

The words "could be" can be omitted after the first item, or they can be repeated (not preferred),
but whichever is the case must be the case for both item #2 (better enforcement of fire code) and item #3 (reduction in crime rate)

Answer B is correct.