Strong Towns opens 2017 with a reflection on the ways in which policies that favor Shiny New Projects over mundane repairs reduces future prosperity.  Summarized in one sentence, it goes, "Our cities are drowning in unproductive liabilities. The last thing they need is more."  The underlying idea is well-known to economists who study the public sector.  Forty years ago we understood, for instance, that capital grants might lead to uneconomically early retirements of existing plant and equipment.  If what's involved is old-look buses with opening windows, replaced by new-look buses with air conditioning, the efficiency losses might be small.  Get into new highways, new bridges, New Towns, and things can go wrong in a hurry.
Our economy is based on growth. All our pension promises, public debt payments and entitlement spending rely on aggressive levels of future growth. We used to be able to create this growth through infrastructure investments; build an interchange and a frontage road and get the big box stores, strip malls and housing subdivisions that result. Our entire economy -- from local zoning codes to bank financing programs to insurance underwriting to auto sales and on and on -- is oriented around repeating this simple formula, despite the diminishing returns.

What we have not figured out -- and what we won't figure out with another flood of federal infrastructure spending -- is how to translate maintenance into growth. How do we go out and fill potholes and fix leaking pipes and have that result in additional wealth in our neighborhoods? This is a daunting challenge that requires us to rethink -- from bottom to top -- how we develop our places. We need to modernize our zoning codes, building standards, housing incentives, insurance programs, etc.  There are a lot of people trying to do this, but they get cast aside every time the federal gravy train rolls into town.
The absence of maintenance becomes an instrument in the undoing of a community.  When the roads are potholed, the mains leaky, and the schools and buses well-worn or downright scary-looking, the people who have the means to escape escape.  The tradeoff the policy makers face, though, is that assessing people for street repairs is a political hard sell (and has been for a long time, why else make that $40 per house and $115 per hotel in recent editions of Monopoly?) whilst living at the expense of others and getting to cut a ribbon to boot is fun.  Until the roads wear out, the mains leak, and the schools and buses have to be spruced up.  Then the reality of unproductive investment bites.
Productive debt is debt that can be paid back with the proceeds collected from the project. Local governments generally rely on property and sales tax, but federal projects rarely add enough to the local tax base to extinguish the debt while sales tax revenue from a project, if there is any, ends with the project. It's really hard for local governments to turn down large dollar amounts, but it is comparatively simple to increase the local debt burden.
Particularly in the absence of proper balance sheets for governments. Some public borrowing creates assets, and there has to be a going concern value in secure borders and sound money. But that value has to be based in reality, and, unfortunately, that reality seems to be crashing into the victory dividend resource curse.
The primary lesson of the Great Depression and World War II was that, if we focus our resources and energy on a task, Americans can do amazing things. We put this lesson to work after the war building the interstates and suburbia. When the two 70-year-old presidential candidates in our most recent election spoke nostalgically about what America used to be, this is the time period they were speaking of.

America is a very different and more complex country today, but the inertia of those post-war systems is overwhelming. We're still trying to fund highways, bridges and interchanges in a country that really needs better sidewalks, crosswalks and street trees. When we look for the highest returning investments, they are almost all small. We desperately need to make better use of the infrastructure we've already built. That is fine grained work not well-suited for a federal program.

The way we have structured our governments, cities sit at the bottom of the food chain. Their bureaucracies are oriented up that chain, looking to the programs of state and federal governments for solutions. Instead, they need to be reoriented to the neighborhoods in their own communities. Local officials must humble themselves to ask one simple question day after day after day: What is the next smallest thing we can do right now to make this place better? If local governments did that, the result would transform America. The allure of federal programs is the biggest obstacle to making this critical shift and having the needs of cities, towns and neighborhoods drive our national agenda.
Sixty years ago, in the midst of the urban renewal craze,  William F. Buckley noted that the national government had destroyed more houses than it had built, and that the best thing Washington could do for the big cities would be to go away.  Perhaps that's the way forward for local governments.  The lights didn't go out, after all, in Caracas or Flint, or Milwaukee, in one great John Galtian blackout.

1 comment:

Dave Tufte said...

Here, here for better balance sheets for government.