Wednesday, June 24th, 2009
I consider the suburban decay facing inner ring suburbs across America, especially those of the 60’s and 70’s vintage built on a modern suburban pattern, as one of the key challenges facing urban leaders over the coming decades. I outlined a lot of the case in my review of the book “Retrofitting Suburbia”.
Why is this happening? One big reason cities tend to fall into decline is that they accumulate huge unfunded liabilities, and those liabilities attach to the territory, not the people. This lets one generation of residents rack up huge future bills, then skip town to leave the next generation or those not lucky enough to get out with the bill. It’s the equivalent of being able run up a huge balance on the civic credit card, then pawn the bill off on someone else.
Consider the $1 billion pension time bomb that was facing the city of Indianapolis for its pre-1977 police and fire pensions. I think it’s fair to say that no one who was not yet eligible to vote prior to 1977 played a role in making unfunded promises on the future. Many of the people who did simply moved outside of the district as part of the great suburban migration. That’s why it is entirely proper that the state picked up this cost, so that residents who fled the central city for the suburbs after running up that debt have to contribue towards paying it off.
This problem is more acute in suburbs that fall into decline than it is in cities. City living might always appeal to a minority, but because we are not building many new neighborhoods today, those that prefer urban living have to do it in the city, thus there is built in redevelopment demand. This is not true for suburbs, where there is always a shinier, newer product being built somewhere in the region, without all the legacy problems. To the extent that living tastes change significantly – say, in favor of New Urbanist developments – this only obsoletes older places more quickly. Plus, regions tend to see propping up their central city’s urban core as an imperative, but don’t feel the same way about a random suburb’s problems. Almost all of the serious urban research, thinking, and funding has been oriented towards urban, not suburban problems.
I have a couple of practical recommendations in my previous two entries in this series (see #1 – Strategy and #2 – New Urbanism and Parcelization). The next two installments are more speculative. They would require significant development and piloting before implementation, and would likely require state level legal changes. But we can at least think about them.
These two items deal with preventing the accumulation of unfunded liabilities, and how to partially compensate when they do happen.
Portland, Oregon is famous for its urban growth boundary that restricts urbanized developement to the side of an arbitrarily drawn line on the map. This is a solution that has been proposed to control sprawl in many locations, but I’m not sure it is politically practical in most cases. And I think there is a better way to do it, one I call “The Mother of All Impact Fees”.
Impact fees are fees charged to developers, typically residential developers, to help fund the capital expansion needs of public services such as sewers, parks, or roads resulting from the new housing units that will be added. This can be thousands of dollars per house in total. Also, developers are often required to construct 100% of utilities and infrastructure in the interior of their development, donate land for schools or fire stations, or even do localized road improvements. The idea is that the construction of the house creates a muncipal liability that would otherwise be unfunded without the fee.
There are a couple of problems with impact fees. The first is that they are imposed on a locality by locality basis. Competition is good, but competition can also force all but the most attractive towns to limit their collection in order to entice developers. This creates economic development in the short term, but adds to the unfunded liability balance that will ultimately do in the city. The second problem is that these fees are not nearly high enough.
An externality is a cost or benefit (often a cost) that accrues to someone not party to a transaction, I think even most free marketers would suggest that externalities are a problem. In this case, the unfunded liabilities are negative externalities of development. The developer pockets the vast bulk of all of the profits and benefits flowing from his new subdivision. The residents of the whole town, both today’s and tomorrow’s, and even state and federal taxpayers, inherit the bill to make good on these costs.
Think about a typical rapidly growing suburb such as Westfield, Indiana. Westfield had a population of 3,304 in 1990, 9,293 in 2000 and an estimated 20,459 in 2007. Over 10,000 new housing lots have been approved for construction, though obviously the current recession has affected the timing of actual build. Let’s consider some of the growing pains in a town like Westfield:
- Updating the structure of local governance to be suitable to a large town, not a small one. (Westfield just went through a town to city conversion)
- Sewer and stormwater management buildout
- Water buildout
- Parks buildout
- Roads buildout
- Schools buildout
- Fire department buildout and professionalization. (Most rural and small town Indiana areas are served by tiny volunteer fire departments at an ISO rating of 9)
- Police department buildout
- Library buildout
Some of these, such as sewer and water buildout, often are taken care of at the time of building. It’s tough to build a house without sewer or water service. (New subdivisions on septic service are increasingly rare in Indianapolis these days).
But let’s consider roads. Westfield, by its own estimation, is on its way to 75,000 people. But as a town it has effectively implemented no road improvements. Virtually its entire road network consists of unimproved county roads with narrow lanes, drainage ditches, no sidewalks, poor traffic control, etc. It should come as no surprise that traffic congestion is horrible.
The cost of improving even two-lane arterials is significant. Based on what neighboring Carmel has spent, one could estimate $3.5 million per mile without extensive aesthetic treatments. This is hundreds of millions of dollars in unfunded road work.
But that is only half the story. 146th St., the main arterial on the southern border of Westfield, is controlled by the county, which has already spent $100 million or so improving it, with plans to spend another $45 million completing the cross-county widening. Westfield’s Main St. is 176th St., or SR 32, which is controlled by the state. That road requires over $150 million of improvements, which INDOT has not nearly funding it needs to complete. US 31, the main north-south corridor, is also a state road. There is a project in the works to spend $450 million upgrading that to a freeway through Carmel and Westfield. US 31 empties onto I-465 at the south, which also has $650 million in improvements planned, with probably another $450 million needed that aren’t even on the books yet.
It probably isn’t totally off base to suggest that Westfield alone is probably generating a billion or so in road construction needs as a result of its projected buildout. Maybe more. Is it going to build these roads with impact fees from developers? It doesn’t seem likely given that there are over 20,000 people there and we’ve yet to see any serious road improvements. In effect, these developers have been able to get the taxpayers of the future to subsidize their developments to the tune of a billion or more in roads alone, to say nothing of all the other services above. And that’s just to build them, not maintain them.
My proposal is to put a stop to that by charging developers up front the full cost of the total infrastructure buildout their developments create. You could do this in a couple of ways:
- Do not allow new urbanized development until the infrastructure and urban level services to support it – including macro level infrastructure such as freeways – are in place. Perhaps a minimum level of infrastructure plus a credible and funded plan to get to full buildout would suffice.
- Take an area like Westfield (Washington Township), do a comprehensive plan, estimate what a full buildout would look like and cost, then divide by the number of projected units and voila, there’s your impact fee.
Nothing against Westfield, which is just playing by the rules it has been given and isn’t a bad place. (In fact, they know they are behind and are pedaling hard to catch up). But the reason development there looks attractive is, in part, because of the artificially low taxes in the now that result from being able to run up future liabilities. Pull the present value of that forward and tack it on the sale price and things look much less rosy.
And many of the purported ills of the older areas people are moving to Westfield to get away from are nothing more than the debts of previous generations of Westfields that did the same exact thing coming due. If Westfield thinks its fate will be any different in 25-30 years when it achieves full buildout and is no longer the great new thing, it is sadly mistaken. Of course, by the then, it won’t matter to the people and developers who got the benefit of 20 years of deferred liabilities. They’ll be on to the next place when things head south.
A policy that prevented towns from being able to run up huge deferred infrastructure liabilities, and forced developers and homeowners to pay for them up front or over some reasonable implementation period, might prove to be the best limiter of sprawl out there.
Such a policy would likely need to be at the state level. This is where the devil is in the details. One size fits all policies that mandated identical infrastructure, etc. probably isn’t wise. We shouldn’t expect every town to by gold plated infrastructure. We should be encouraging specialization and diversity in our suburbs. Also, with much infrastructure in non-muncipal hands, the process would need some work. I’m sure there are plenty of good policy minds out there who could help develop some ideas to take forward to pilot.
More Reading on the Suburbs