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Sunday, May 20th, 2012

Correction: OECD Chicago Review

I want to make an important correction to my story on the OECD territorial review of Chicago. Based on previously published reports, I’d said that Indiana had not participated in the study and strongly condemned that. However, it turns out that Indiana did in fact participate in the study, at both the state and local levels. In fact, some Indiana representatives actually traveled to Paris for the initial review of the report. So I’d like to apologize for getting it wrong and set the record straight on this.

Thursday, May 10th, 2012

Will Yet Another Fiasco Finally Convince Rahm Emanuel to Cancel Chicago’s Parking Meter Lease?

Chicago’s parking meter lease is the gift that keeps on giving. Put aside for the moment the fact the parking meters are a bad type of asset for a long term lease in the first place. Even ignoring this, this deal continues to be Exhibit A in What Not to Do for privatization.

Recently the parking meter lessee claimed $13.5 million dollars in compensation for just one year’s worth of allowances for free handicapped parking. Over the course of the lease and with inflation at 3%, that would be over $3.3 billion paid to the vendor just for this!!! Figure in a discount rate of 12%* and that’s a net present value of $173 million. Rahm Emanuel is strongly disputing the payment, but the fact that he’s quietly pushed legislation in Springfield that would end free parking except for the most disabled is almost an implicit admission that the compensation claim is valid.

Now the Sun-Times reports that the vendor is demanding an additional $14 million in compensation for meter closures – and that just for the first nine months of 2011. Just as a refresher, whenever the city closes meters temporarily for construction, a street festival, or a NATO conference, it has to compensate the vendor for lost revenue if the duration exceeds the contractually agreed to closure allowance. Obviously the allowance wasn’t sufficient as this compensation on an annualized basis would be $18.6 million. With 3% inflation over the 72 years left on the contract, that would be $4.6 billion!!! Again, with a 12% discount rate that’s $238 million.

So if these compensation claims hold up, here’s the math for Chicago. The city took an asset that generated $23.8 million in revenue for the city and converted it into one where the city has to pay $32.1 million annual in compensation to the vendor. This is on top of the meter money the vendor gets to collect for the next 72 years.

In return for this, the city got $1.1 billion, which it promptly spent to paper over budget deficits. But even so, given the net present value of $411 million in compensation payments alone to the vendor, the city really only got about $740 million for the meters!

Now the compensation may be adjusted by legislation, arbitration, or negotiation. And these are back of the envelope calculations to be sure. You might prefer different assumptions around inflation and discount rates. But whatever the case, clearly this is a whole huge steaming pile of Bad News for the city.

The Sun-Times also reports that Rahm is talking tough on parking meters and plans to strongly dispute these payments. But they fail to ask the simple and obvious question: Why doesn’t Rahm unwind this disaster of a deal?

Yes, the parking meter deal can’t be cancelled under the terms of the contract. But I’m talking about a negotiated solution, which I’ve written about elsewhere. Whether my plan could work or not, I find it difficult to believe a guy like Rahm, a guy who doesn’t believe in the Can’t Do mindset, who actually is tackling structural problems like the deficit and pensions, couldn’t find a way to get out of this deal if he wanted to.

Why he doesn’t is a complete mystery to me. I’m assuming he must have at least looked at it. But I for one would like to know why he isn’t pursuing it. Especially since the alternative is dealing with the fallout from a disastrous deal for the next 72 years running. Hopefully this latest thorn in his side will convince Rahm to bite the bullet and do the right thing for Chicago by cancelling this lease.

Related:
Can Chicago Get Out of Its Parking Meter Lease?
Yet Another Privatization Debacle in Chicago
Three Years Down, 72 More Years to Go on Chicago’s Parking Meter Lease
Parking Meters and the Perils of Privatization

There is also lots of good parking meter coverage from the Parking Ticket Geek over at The Expired Meter.

* 12% is the mid-point of the range of discount rates suggested by William Blair, the city’s advisor on the parking meter lease, to be applied to meter revenues in valuing the system. So this is a very fair rate to use, though some have argued for a lower discount rate.

Sunday, May 6th, 2012

The OECD Reviews Chicago

Update 5/20/12: This post has been edited to reflect a correction. Please see here for details.

The Organization for Economic Cooperation and Development (OECD) is an international organization that has its roots in the administration of Marshall Plan aid to rebuild Europe after World War II. The OECD was invited by the Chicagoland Chamber of Commerce* to perform a “territorial review” of Chicago’s regional economy. I believe this is the first such review the OECD has ever undertaken in the United States. The results were released a couple months ago. The Chicagoland Chamber graciously sent me a copy. (The report is available online here – thx Jim Russell for the link). I did a read through of this inch-thick, 332-page report and wanted to share a few observations about it. As the quote at the top might indicate, this report, like Rahm Emanuel’s economic strategy, was fairly gloomy. My points will be topical and not an integrated narrative as I did not get to undertake as thorough a review as I might like.

Interesting Statistics

The OECD review amassed quite a bit of interesting statistical data on Chicago and puts them in the context of other major cities in the 34 countries that comprise in the OECD. I think that by itself made the review worth doing. I might suggest other cities take a look at this to determine if such a study would be relevant to them, particularly as international comparisons can be difficult to pull off.

This report is a goldmine of stats and there’s way too much to list here, but a few things that jumped out at me:

• The OECD report benchmarked labor productivity, which is less commonly looked at in economic studies. Chicago’s is above average but growing more slowly than average.
• Chicago has trailed the nation in job growth. Had Chicago simply matched the national average in job growth since 1990, the region would have 600,000 more jobs than it does today.
• There was quite a bit of sectoral analysis of Chicago’s economy. In fact, they actually normalize the sectoral composition of Chicago’s economy when looking at job growth to see if its under performance in job growth was due to concentration in slow growing sectors – but it was not.
• Chicago is known for having America’s second largest business district, but it ranks only fifth out of the top ten regions in America for the percentage of its jobs in the core city. Between 1960 and 1990, over 96% of new regional jobs were created outside downtown.
• There were many other interesting statistics around labor force participation, mobility of educated labor, elderly dependency ratios, educational attainment, poverty, patents, the structure of governments, taxation, etc.

Excess High End Talent

According to the OECD, Chicago suffers from a skills mismatch in its workforce. This is not just true at the bottom end of the economy as might be expected, but also at the top end, where there is a surplus of highly skilled labor:

At the high end, there is a large pool of high-skilled, highly educated workers, in principle more than sufficient to fill the jobs available at that level … at the high-skill end, data for the tri-state region points to an apparent oversupply.

To some extent this shouldn’t be a surprise. Chicago is a desirable city for people to live in, particularly for educated workers inside its heartland catchment area. As with other big city talent magnets, the economy doesn’t always supply the right employment for all the people who want to live there. The many articles about unemployment in Portland, for example, illustrates this, and Chicago is similar. In that regard, you might see the skills surplus as a sign of local strength.

However, the skill concentration in Chicago isn’t producing the type of high end innovation economy seen elsewhere. As the OECD notes, “Indicators suggest that the Chicago Tri-State metro-region does not rank as highly among the US knowledge hubs as one might expect, given the size of its economy and population and its concentration of world-class research universities.”

Also, Chicago may not be as attractive a talent hub as its aggregate numbers indicate. Again per the OECD:

To be sure, the Chicago Tri-State metro-region remains an attractive place for many migrants, but it is less attractive than many of its US metro-region peers. Moreover, if the analysis is confined to highly educated people of prime working age (25+, with at least a bachelor’s degree), then the picture is even more problematic. During 2005-09, more such people moved into the area than left it, but the net gain was relatively small compared with other large US metro-regions. Los Angeles, for example, benefited from a net gain of nearly 80,000 highly educated people in 2009, compared with 3,500 for the Chicago Tri-State metro-region.

When you under-perform as a talent magnet and still can’t put high skilled labor to good use, that’s a definite sign of trouble. This was one thing that was eye opening for me in the study as I’d previously assumed the high end of the market was in pretty good shape and that skill mismatch problems were the result of a large under-educated population vs. open jobs requiring mid-tier skills.

Policy Prescriptions

The OECD’s recommendations were not nearly as strong as its assessment of the region’s conditions. This shouldn’t be surprising as it is easy to look at data and see what may be wrong, but it is not always obvious what to do about it. The recommendations fall into five broad categories:

• Better Skills Matching
• Improving Innovation and Entrepreneurship
• Investments in Transportation and Logistics
• More Green Industry Growth
• More Effective Institutional Arrangements

First off, including “green growth” as one of only five major chapter headings is a joke. The aggregate number of jobs identified as specifically green is small. And as I’ve noted many times, there’s no such thing as green industry. Pretty soon there will just be industry again – it will all be green. So if Chicago and the US aren’t doing well at today’s industries, why would we think they would do any better at tomorrow’s? “Green” isn’t some sort of fairy dust you can sprinkle on and work wonders with. If anything, the acceleration of transition to more green practices will only drive more manufacturing offshore, exactly as it did with light bulbs. The track record of trying to create “green jobs” almost everywhere has been poor and has failed to live up to the hype, so I can’t believe the OECD is doubling down on this snake oil.

For the other areas, the OECD doesn’t break much new ground, though does highlight some interesting international case studies of regions getting it right. The sections more or less regurgitate the laundry list of organizations and initiatives already in place, then tag on “do more and coordinate better.” Examples include, “create region-wide capacity to match skills supply with demand” and “broaden the innovation focus [to include] non-science-and-technology-based innovation.”

By contrast, there was little focus on what counterproductive initiatives might be trimmed. While, for example, the report notes that many of the excessive numbers of local governmental units probably should be eliminated or merged, it doesn’t really look at how many of the alphabet soup of various non-governmental civic development groups might likewise be better off euthanized. Given the unified civic leadership nexus of Chicago, this should in theory be much easier than killing off governments, which are famously resistant to elimination. It’s hard for civic sector leadership to scold state legislatures about the need to consolidate when they can’t even do it themselves. This shows that the OECD had to deal with local political reality, so it probably pulled a lot punches in the recommendations. Statements of raw flattery such as “All key public and private stakeholders are keenly aware of what needs to be done to address these issues effectively” show the extent to which the OECD wanted to avoid ruffling feathers and challenging the Chicagoland status quo, which is disappointing.

I might also take issue with the way the problems were attributed to these structural factors without addressing at any great length many of the clear drivers of Chicago’s under-performance. For example, Chicago is the regional capital of a greater Midwest that has been struggling as a whole. It’s tough to swim upstream against that. (I’ll have more to say on other underlying factors in a subsequent analysis of my own).

In short, this report got it half right in giving us a very good look at the current conditions, strengths, challenges, and international comparisons. Where it lagged was in fully articulating the structural landscape driving the under-performance and developing compelling strategies for turning the ship around. Still, if I were a region out there looking for a good snapshot of where I stood in the marketplace, the OECD would be on my list of people to call.

* Disclosure: I won a competition sponsored by the Chicagoland Chamber in 2009.

Thursday, April 26th, 2012

Common Driver Behaviors

Steve Vance, who co-runs the Chicago transport blog Grid Chicago, is a huge bicycle advocate. He put together the following short video from clips he shot cycling around the city showing how drivers commonly behave on the streets of the city. If the video doesn’t display, click here.

Tuesday, April 17th, 2012

Yet Another Privatization Debacle in Chicago

I have been and remain a staunch defender of privatization done right, but done poorly it can be a disaster. It looks like we are seeing yet another example of this unfold in Chicago.

You are probably familiar with the now infamous Chicago parking meter lease. But prior to that the city had similarly leased parking garages downtown east of Michigan Ave. This transaction hadn’t done anything to raise concerns with me so far. I’m not sure why most city governments would be in the parking garage business in the first place. Put ‘em up on eBay I say.

But as it turned out, the city, in order to goose its returns, had promised the vendor who leased the garages a monopoly on parking. Lots of privatization contracts have no-compete clauses in them that prevent the government from operating a competitive facility for the duration of the lease. I’m not sure that’s good public policy, but it’s not a slam dunk decision either way. But the Chicago garage lease goes far beyond that and promised that the city would not allow anyone to build a garage that was open to the public in the area where the leased garages are. Wow! In effect, the city rezoned the area by contract without telling anybody. (A legit rezoning would have required notifying property owners, etc. as well as getting aldermanic signoff) It looks like the previous administration once again sold off the right to set public policy to a third party – this time for 99 years.

Naturally this has come back to haunt the city. Morgan Stanley, which controls both the meters and the garages, has filed a $200 million arbitration claim against the city. They claim that the city allowed the developer of the Aqua skyscraper to open a parking garage to the public in a restricted area, and this has harmed the value of their lease. If true, this looks like a very straightforward breach of contract.

This new claim comes on top of a $13.5 million claim over the parking meters related to allowances for handicapped parking. That’s a particularly dangerous claim because it could be recurring and if annualized and adjusted for inflation would mean that Chicago would end up owing over one billion dollars over the lifetime of that contract!

Rahm must be going crazy over these deals he inherited. This is what happens when you sign deals that don’t get subjected to proper public scrutiny. The timing is also less than ideal for Rahm as he tries to get his infrastructure bank proposal approved by a skeptical city council.

The Chicago experience should definitely cause other cities to think hard about privatization. Privatization should be about competition, not contractually enforced monopolies. It should not unduly restrict the ability to change public policy to meet future needs. The term should be strictly limited (50, 75, or 99 years is ridiculous). Deals featuring large up front payments should be avoided where possible, and subjected to strict controls on spending the windfall if not. And the contractual terms need a thorough vetting.

More on Privatization
Parking Meters and the Perils of Privatization
Can Chicago Get Out of Its Parking Meter Lease?

Principles of Privatization:
Part 1: Taxonomy of Transactions
Part 2: Value Levers
Part 3: Use of Funds
Part 4: Guidelines for Action

Thursday, March 29th, 2012

The Great Reordering of the Urban Hierarchy

My latest blog post is online over at New Geography. It is called “The Great Reordering of the Urban Hierarchy.” In it, I look at how the relentless expansion of the US federal government and the “spiky world” forces of globalizations are revamping the urban hierarchy of the top tier cities in the United States. While not a definitive view, it seems that New York is going from strength to strength, while Washington, DC emerges as America’s new “Second City.” This has been to the detriment of Los Angeles, Chicago, and Boston. It’s controversial to be sure, but I hope you’ll enjoy it. Comments definitely encouraged on this one.

Update: Richard Florida has more to say on this topic over at The Atlantic Cities..

Sunday, March 18th, 2012

The Chicago Tribune Doesn’t Get It On Regional Economic Development

The Organization for Economic Cooperation and Development recently released a 332-page economic report on greater Chicago. This one, like Rahm Emanuel’s own economic plan, is very candid about the economic and demographic problems facing Chicago. I will be saying much, much more on this subject in the near future.

In the meantime, I want to focus in on the Chicago Tribune’s reaction to the OECD study. They published an editorial about it concentrating on one finding, one that’s absolutely no surprise to anyone who has ever given Chicago even a cursory review, namely that there are way too many units of government in Chicagoland – over 1,700 to be precise.

The Tribune correctly notes that jurisdictional boundaries are often irrelevant to economic geography. But this particular piece caught my eye:

State borders should not matter, the OECD concludes, because the entire Midwest depends on the economic engine of its largest city. What’s good for Chicago is good for Indianapolis. Did you hear that, Mitch Daniels? Or is the Indiana governor too busy recruiting Illinois companies to move across the state line?

While I can’t read the Tribune editorial board’s minds, it isn’t difficult to see why they pick on Mitch Daniels. He has launched a campaign to try to lure businesses from Illinois (and other surrounding states) to Indiana. Indiana also pointedly declined to be part of the OECD study when they were invited, even though Northwest Indiana is clearly part of Chicagoland. In explaining the state’s rationale, economic development director Mitch Roob said, “We don’t do studies, we do deals.”

Far be it from me to defend Indiana’s decision not to participate in the study. It clearly shows a lack of understanding of modern economic geography. The approach of focusing on poaching businesses from surrounding states reveals Indiana’s strategy of trying to be “the best house on a bad block” and is a tacit admission it really can’t compete at the national much less the global level. What’s more, it’s another example of how Indiana hasn’t gotten it on the centrality of metro regions to the modern economic. (See “A New Approach to Regional Economic Development in Indiana for further thoughts on this). Incidentally, Indiana’s strategy isn’t working very well. Since 2004, the year Daniels was elected governor, Indiana actually lost a greater percentage of its jobs than Illinois, and the flow of people moving from Illinois to Indiana has dropped as well.* Underperforming dysfunctional Illinois is quite a feat.

But while there’s plenty of room for Indiana to change its thinking, the Tribune’s editorial isn’t likely to inspire anyone in Indiana or elsewhere to do it. Quite the opposite in fact.

Consider their statement “What’s good for Chicago is good for Indianapolis.” This sounds nearly identical with the oft-mangled misquoting of Charlie Wilson as telling Congress “What’s good for General Motors is good for America.” I wonder if Tribune ever considered the converse of their statement, namely that what’s good for Indianapolis is good for Chicago. Do you think they believe that? Do you think they or any other member of the Chicagoland’s leadership ever spent any time time thinking about what was good for Indianapolis or Milwaukee or Madison or Des Moines or Grand Rapids? I haven’t heard anything to suggest that they have.

If you are the big dog, which in this case Chicago clearly is, and you want other people to work with you, then you need to make the first move to prove your good intentions.

This is perhaps best illustrated by former Indianapolis Mayor Stephen Goldsmith. In Indiana, east-west roads that form a county boundary are the maintenance responsibility of the county to the north. 96th St. is the boundary between Marion County (Indianapolis) and Hamilton County, home to the most rapidly growing and affluent suburbs in the region. (Chicago residents can think “Lake-Cook Rd.” though the analogy is imperfect). There was a critical need to upgrade the corridor and build a new bridge across the White River at 96th St. Under Indiana law, this was Hamilton County’s responsibility, but because the cost of the project was so steep, it went nowhere for a long time. What’s more, plenty of folks in Indy weren’t too keen for it to happen, because they saw it as benefiting primarily the suburbs and enabling them to suck more life out of Indianapolis.

Goldsmith saw it differently. He saw how it would open up land in his own city to development as well. And he didn’t see the suburbs as the enemy. So although he was under no obligation to do so, he stepped up and told Hamilton County he’d pay for 50% of the road project even though legally it was 0% his responsibility. The project got done.

Later, on the other side of the county, it came time to widen South County Line Road. This time it was Indianapolis responsible for the cost. But because he had first paid for 96th St. when he didn’t have to, Goldsmith had the moral authority to go the county south of him and ask them to pay half of the County Line expansion, which they did.

This is how regional cooperation works. The big dog has to step up first. Getting it right on regional questions like this – it also has a regional non-compete where various cities and towns won’t offer subsidies to induce a business to relocate within the region – is one of the reasons Indianapolis has led the way in the Midwest on population and job growth in the last decade.

I absolutely agree that it is in the interest of the Midwest for Chicago to be strong and prosperous. And vice versa. So cooperation is in everyone’s interest. But to make it happen, it is Chicago that is going to have to step up and first and prove to the rest of the region that it is as invested in their success as it expects them to be invested in Chicago’s. Without that, maybe places like Milwaukee and Grand Rapids will continue to pursue closeness to Chicago on their own because they have few other good options, but any broader cooperation of the type the Tribune apparently wants to see happen is likely doomed.

As I’ve argued before, Chicago and Indianapolis are very complementary. (The same is true of various other Midwest cities with Chicago). They are very different and are not good substitutes for each other. Hence they can benefit from specialization and cooperation. What we see instead is opportunistic swipes at each other, such as Indy trying to lure the CME away and Chicago saying it wants to poach sports events that are hosted in Indy. While I actually don’t think these sorts of things are necessarily unhealthy in and of themselves – I don’t want to stamp out inter-geographic competition – they are unfortunately all there is. There should also be more cooperation to create the sort of “coopetition” situation we’ve seen touted as one of the keys to Silicon Valley’s success.

As I said, Chicago will have to make the first move. The first one to make is to get the rhetoric right, which the Tribune clearly didn’t do. Chicago’s media and civic leadership need to show first through their statements that the success of the broader Midwest is important to them personally, and that they see it as critical to the future of success of Chicago. Then they need to figure out how to show they mean it through their actions.

* Total Non-Farm Employment, annual average, 2004-2011. Illinois lost 2.6% of its jobs. Indiana lost 3.4%.

Sunday, March 4th, 2012

Replay: Civic Iconography Done Right – Chicago’s City Flag

I’ve written on a number of occasions on why cities should look to strengthen their visual identity and distinctive character using civic icons or images that can provide a powerful graphical or design representation of the city. For example, I wrote about I wrote about how London’s use of its civic icons – it’s red buses, black cabs, bobby uniforms, phone booths, and tube logo – had assumed an almost totemistic stature there.

In the United States, I’d have to rate Chicago far and away #1 in the use of official civic symbols (maybe the best in the world for all I know), and also note the overall high level of design quality of these objects. Today I want to focus on one particular aspect of this, the city flag and its uses.

The city flag is pictured at the top. I included a border on the image because of the white field. This was rated as the #2 city flag in America by the North American Vexillological Association after Washington, DC. I actually like Chicago’s better, because the aggressive asymmetry of DC’s flag is a bit off-putting to me.

The Chicago flag is also highly symbolic. The two blue stripes symbolize the cities waterways – the top Lake Michigan and the North Branch of the Chicago River, the bottom the South Branch and the I&M Canal – while the three resulting white stripes represent the North, West, and South Sides of the city. The stars also symbolize various things. There were originally only two stars, with the others added later, and there are periodic calls to add a fifth star, though four seems about right to me.

If you come to Chicago you’ll notice that the city flag is ubiquitous. In fact, the first place you notice it is when you arrive at O’Hare, where you see a large row of huge alternating US and Chicago flags at the roadway leading into the terminal. You’ll notice that the Illinois flag is missing. Illinois has, like most states, a lousy flag. While you see it at government buildings and around downtown, it is much more rare than Chicago’s own flag, giving what I think is a powerful sense of how the city likes to think of itself as a standalone entity in its state and region. (The contrast with Indianapolis is an interesting one. Indy also has a fabulous city flag, but one much more rarely used. And despite Indiana also having a somewhat dubious state flag, it is much more common to see in Indy than the city’s own flag. Of course, it is the state capital as well, but I don’t think that is the full explanation).

Here’s a picture of the bridge over Michigan Ave, featuring bold use of flags:

One thing that sets Chicago apart is not just the city’s own use of the flag, but its widespread adoption by others. Here’s one flying over the entrance to Marshall Fields on State St.

An office building Michigan Ave. This will mark our last appearance of the Illinois state flag, so let’s wave goodbye to it.

This extends far beyond downtown, however. Here’s a bank in West Lakeview:

Even this Irish bar on Southport couldn’t resist getting into the act:

But what really puts Chicago into a class by itself is the way that the city and its citizens have embraced the flag imagery to infuse into the design of other objects, and even sometimes themselves.

First the city. Here’s Chicago’s police car livery, which is based on the city flag. It’s also one of the finest police car liveries in the world. I’m not sure how far back this dates, but it’s as least as far the Blues Brothers movie. I don’t recognize the font (though I’m sure someone will post it about 5 seconds), but I love its aggressive blockiness that is perfect for the City of Big Shoulders:

There’s an actual city flag in gold trim near the rear of the blue stripe if you look. When you contrast more current designs with this classic, you can see that in Chicago, as in any number of cities, quality of public design has actually declined in some regards.

Here’s someone who did their bicycle up in city flag style:

Both the Sun-Times and the Red Eye (a free daily distributed by the Tribune) used the city flag for their election day issues:

Local bookmark sharing site the Windy Citizen uses the city flag as the basis for its site design:

If you’ll note the social media sharing icons at the bottom of this post, the one that enables submitting to Windy Citizen is a star from the city flag.

You can even buy Chicago flag soap:

Sorry, I don’t have a link to where you can buy this, but again, I’m sure one will be forthcoming from a commenter.

Here’s one even I think it a little crazy. People are starting to tattoo themselves with the city flag. Here’s a picture of local mixologist Charles Joly I found via the 312 Dining Diva.

I’ve personally seen multiple people in my neighborhood with city flag tattoos on their arms. Talk about pride and loyalty. But I guess that level of fanaticism is what Chicago has managed to inspire.

This post originally ran on March 13, 2011.

Sunday, January 15th, 2012

Replay: Neighborhood Redevelopment and the Downsides of Consolidation

This post is about the downsides of city-county consolidation. Actually, it might better be described as a discussion of some of the pros and cons of “big box” vs. “small box” municipal government. It is similar to business. It seems like every large business is either doing one of two things: centralizing or decentralizing. There’s a sort of cycle of reincarnation about this. Every model has its flaws, and people tend to gravitate towards the other side of the spectrum from time to time when the problems of the current mode manifest themselves in a particularly severe form. As a prologue to this, you might want to read my previous examination of city-county consolidation post, if you haven’t already.

I haven’t read all the academic literature on city-county consolidations, so won’t make any strong claims about the benefits its promoters have touted. But I will make two observations. One, I’m not aware of any city that has gone through a city-county consolidation that has become a civic failure, or which has a severely under-performing region. Most of the ones I’m familiar with seem to be doing ok or better. Two, if you look at the Midwest region, the metros that are doing well almost all feature a core city that either underwent a consolidation or has managed to maintain its ability to annex new territory. Minneapolis-St. Paul is an exception, but it has regional revenue sharing. (Landlocked and unconsolidated Chicago has a thriving core, but the regional numbers are lagging). So my gut tells me that big box solutions at a minimum don’t hurt and probably have some benefit to a region.

But they do come with downsides, and one of them is that it can make neighborhood redevelopment more difficult. The root of the problem is that with a single city covering a large area, there is only one mayor, one city council, etc. These have a large area to concern themselves with and cannot physically devote significant time and attention to each neighborhood. They inevitably spend most of their time dealing with the biggest and most visible challenges, which often means downtown development issues.

Redevelopment in Indianapolis

Indianapolis is a good example of this principle in action. It underwent a city-county consolidation in 1970. Four smaller municipalities were excluded from merger and so are known as “excluded cities”. So we get here both consolidated neighborhoods and some unconsolidated ones we can compare.

Since 1970, downtown Indianapolis has experienced a major resurgence. And Indy has emerged as what is in many ways the strongest performing Midwest metro area. I happen to believe its consolidation was instrumental in setting the stage for that. Many of its urban neighborhood have seen challenges, however. This includes many reasonably upscale areas, and I’d like to highlight two of them.

The first is an area centered around 71st and Binford Blvd on the northeast side. It was an established suburban area annexed under consolidation that started experiencing problems recently, notably with decay in its commercial developments, a common concern in aging suburbs. The population was also aging and not being renewed. This prompted a local woman to found a new neighborhood group called Binford Redevelopment and Growth (BRAG) to try to change the situation. BRAG wants more urban, mixed use development anchored by a transit stop on a future rail line, infrastructure upgrades to add basics like sidewalks that are missing in the area, and help redeveloping the commercial districts. They’ve had some successes, notably attracting investment in local strip centers, with a new Starbucks, CVS, and Kroger. But there has been little city investment.

The other is Midtown, an area encompassing the historically most desirable urban neighborhoods in the city. It includes the Meridian St. mansion district, Butler University, and Broad Ripple, the city’s main bar district. This area is loaded with gorgeous 1920’s era architecture and many independent shops and restaurants. But this area too started to experience problems, with vacant houses, some struggling commercial nodes, increasing crime, a property tax spike, and deteriorating infrastructure.

A group of neighbors here also formed a group called HARMONI designed to change this. They are also promoting neighborhood infrastructure investment, more urban development, etc. As part of this they purchased copies of Suburban Nation and distributed it to all regional elected officials. They even secured pledges of private funding for some infrastructure improvements. However, there has been little city investment in Midtown either.

But turn to the excluded cities and see a different pattern. Lawrence, the largest, inherited part of a closed military base. They created a commission to repurpose this into a new town center area. This included a multi-million dollar extension of 56th St, which involved building a bridge over a double-tracked rail line. That project also featured high quality streetscape treatments along its length. Former officers quarters on the base were renovated, and many other townhomes and other residences built. And there has been significant new commercial development as well, such that this area appears as nice and thriving as any edge suburb in the region.

As the name suggests, Speedway is the home of the Indianapolis Motor Speedway. It is also an older industrial suburb, with gridiron streets and its own Main St. The town really never leveraged the track outside of race days. The Main St. had businesses but was struggling, and the town was at best stagnant. However, the town council has taken on a major redevelopment program that will involve a major street reconfiguration and significant commercial oriented development designed to turn Speedway into a year round tourist destination and hub of motorsports themed businesses. It’s a $500 million plan, and while not much has happened yet, the town is getting ready to issue bonds to finance millions of dollars in road improvements.

A third of the four excluded cities, Beech Grove, is also improving its town center, and has already spent millions rebuilding its main gateway street, Emerson Ave.

So three of the four Indianapolis excluded cities have active town center renewal programs, while the two annexed neighborhoods, even though more upscale than the excluded cities in many ways, have seen little tangible city investment. Why is that?

The excluded cities have their own city governments. So they have elected officials whose sole focus is their own community. They’ve also got the legal powers, such a the ability to create their own tax increment financing districts, that let them control their own destiny without regards to a higher authority.

The annexed areas, by contrast, only have neighborhood groups. These groups have no power to do anything except lobby the main Indianapolis city government. This city government has to cover a huge area and is besieged with many groups wanting things. The mayor has an incredibly limited ability to deal with individual neighborhood issues. For example, he does a monthly “Mayor’s Night Out” in which he visits each township in turn, a different one each month, to answer citizen questions along with his senior staff. But there are nine townships, each one of which would rank among Indiana’s largest cities by itself. And that doesn’t even get to the neighborhood level.

It should come as no surprise that progress is slow. For example, there’s a proposal in the Midtown area at 49th and College Ave. called (interestingly) “The Uptown”. This would replace an old gas station, another vacant commercial structure, and a few single family homes with a three story, multi-use building featuring 75 apartments and storefront retail. It is exactly what the neighborhood needs. It’s a rare example of approved upzoning for density in Indianapolis. And from an urban design standpoint it is the best designed structure Indianapolis has seen in the modern era. Here’s the present view of the site:

The project needs tax assistance to ever get built, but it is looking like it won’t as the project has been on hold for well over a year. If the Uptown were in one of the excluded cities or in an actual suburb, it is almost inconceivable that it wouldn’t get built. The local government would find a way to make it happen. But Indianapolis has higher priorities. For example, a major civic focus is a project on the near East Side in conjunction with hosting the Superbowl. That’s the sort of major event that consumes management time and attention in a large city.

This is not to criticize the mayor. In fact, people from both BRAG and HARMONI have told me the city is very willing to engage with them and that the mayor has been supportive. The problem is structural. No mayor could physically deal with the demand. It’s inherent in the very nature of a large, big box government. It seems likely to occur in any consolidated government or very large city without sub-city level authorities with real powers.

It was before my time, but reportedly Bill Hudnut, a previous mayor, saw this problem and wanted to create more neighborhood level structures in a system he called Minigov (versus “Unigov”, as the consolidated government is known). But that never happened.

Midtown vs. Bexley

Another interesting comparison is the Midtown area of Indianapolis with the suburb of Bexley in Columbus, Ohio. Bexley is more or less exactly the same as Midtown with the exception that it is a separate municipality, though one that is completely surrounded by the city of Columbus. American Dirt ran very interesting profile of Bexley you might want to check out.

Bexley remains a thriving city, especially in contrast with the surrounding areas of Columbus. Its streets largely have up to date infrastructure, including full sidewalks, which Columbus often doesn’t. It has maintained thriving commercial districts, and has had more intense urban infill as well, as this picture will attest:

Why the difference vs. Midtown Indianapolis? Well, the fact that Bexley gets to have its own city school district while Midtown is part of the stigmatized Indianapolis Public Schools no doubt has something to do with it. This keeps land prices high, which preserves a largely affluent and exclusive resident base. This has pros and cons. Of course it means the city can be kept nicer. But it also denies the experience of that to those who can’t buy in. And the overall regional tax base misses out on one of its most affluent areas. This is the problem of all upscale suburbs. Midtown, Indianapolis, whatever its faults, has many well-off homeowners who pay significant money towards the broader community, including the city schools. And it is a much more mixed income area.

Bexley also has its own municipal authority, while Midtown does not, with the implications discussed above.

But another thing occurs to me. Because Midtown is part of a much larger city, it suffers from the problem of a diffusion of responsibility. That is, it can assume the rest of the city will carry the load in some respects. This manifests itself in a strong anti-development NIMBY contingent that is opposed to urbanization. Any proposed development of any kind is greeted by wailing and teeth-gnashing by opponents, who’ve been known to do things like pull their kids out of school to serve as props at mid-day zoning hearings where commissioners are told neighborhood kids will literally die if new apartments are approved.

I don’t know what the sentiment is in Bexley, but they’ve certainly implemented more actual urbanization than Midtown. I suspect one reason is that Bexley knows it has only its own tax base to rely on. If its residents want to keep quality schools, they can either approve more commercial and intense development, or watch their residential property taxes go up significantly over time. That focuses the mind wonderfully.

So I also hypothesize that in addition to making redevelopment more difficult for reasons of the structure of government, big box government also inculcates an anti-development mindset to a greater degree than small box government.

The Chicago Ward System

So how do you deal with this? Chicago is a big box government that has solved the governance problem with a ward system. There are 50 city council members, who more or less are the gods of their ward as a result of a system called aldermanic privilege. This is where the alderman basically agree they will let each other do whatever they want as long as it is in their own ward. Various city agencies also more or less defer to the alderman on almost any decision to do anything. This results in a system where the mayor deals with the big issues of the city and major developments, while the aldermen deal with neighborhood issues.

The Chicago system has maintained many strong neighborhoods in the city, but it has its downsides. Aldermen have virtually unlimited authority in their wards, making it a sort of elected dictatorship. So it should come as no surprise that corruption has been rampant. In excess of 40 alderman have gone to jail for corruption in the last three decades, an astonishing rate. This also makes things like planning difficult, and creates a climate of great political uncertainty around development that contributes to a terrible business climate for small businesses.

The Chicago system is a de facto one, not based on a city charter or anything like that. It would be interesting to see how it developed. But it does show that you don’t necessarily need constitutional change to effect small box government inside of a big one.

Jane Jacobs and District Governance

Jane Jacobs saw this problem of big box government very clearly and dedicated an entire chapter of The Death and Life of Great American Cities to it. (Chapter 21, Governing and Planning Districts). This is not one of the chapters that generally gets a lot of attention these days, and that’s a shame. She says:

The historical changes relevant in this case are not only an immense increase in the size of great cities, but also the immensely increased responsibilities….which have been taken on by the governments of great municipalities. New York is not unique in failing to match such profound changes in circumstances with appropriate functional changes in administrative and planning structure.

I can’t do this chapter justice here, but it is a must read. Her basic solution is that all city agencies – police, fire, planning, parks, etc) would be organized around districts (neighborhood groupings), with contiguous borders, with service delivery coordinated between them and with the input of the neighborhood. Chicago’s ward system is similar to this, with the notable exception of having a district dictator. That might be a cautionary tale about what this sort of thing can turn into.

Implication for Small Box Cities

To me this implies that cities which retain a relatively small and governable core along with a plethora of unconsolidated suburbs might be in an advantageous position from a redevelopment perspective. Cincinnati, St. Louis, and Pittsburgh come to mind. Their many separate towns in the core county have the independent power they need to take matters into their own hands if they so desire. And the core city itself should be small enough to enable more fine grained governance from city hall.

On the downside, it seems almost inevitable that many of these unconsolidated suburbs will turn into complete failed cities, often left ignored and forgotten. There are plenty of beyond dysfunctional suburbs in Chicago just like this. I presume it is similar in places like Pittsburgh. I think it is notable that consolidated cities like Indianapolis and Nashville don’t have any truly failed suburbs. Another benefit of the big box city.

Summing it Up

I think the lesson here is that there are always, always trade offs to be made in governance. The trick is to understand the trade-offs you are making and take steps to try to mitigate the inherent problems with the model your city and region operate in.

Based on this and the previous post, we might say at high level that for big box government, the pros are stronger civic consensus and cohesion, generally stronger regional and downtown growth, a fairer tax base, and a general lack of totally failed central cities and suburbs. The cons are a weaker city neighborhoods, redevelopment challenges outside of downtown, weaker urban identity, and lower quality development.

For small box government is is basically the inverse of this. The pros are a strong central city & urban identity, higher quality development, more redevelopment opportunities. The downsides are civic fragmentation and lack of consensus, the potential for a failed central city, some failed suburbs, and possibly weaker downtown growth.

This post originally ran on February 28, 2009.

Tuesday, December 20th, 2011

Chicago: What’s Changed? What Hasn’t? by Richard C. Longworth

[ After reading this blog post on Richard Longworth's own blog I went out and bought Global Chicago, which I think is still relevant today, even if some of the chapters that are mere compilations of Chicago's global assets won't excite out of towners. I wanted to share his post with you, which takes a look at where Global Chicago stands today - Aaron. ]

A few years ago, The Chicago Council published a book called Global Chicago, with two goals in mind. The first was a wake-up call to Chicagoans that their old industrial City of the Big Shoulders was gone, replaced by a global city with new strengths and challenges. The second was an attempt — probably the first anywhere — to study globalization's impact on cities by looking hard at one of those cities.

I was talking recently with the editor of the book, Charles Madigan, then a writer and editor at the Chicago Tribune (as was I), now Presidential Writer in Residence at Roosevelt University in Chicago. We were exploring what's changed in Chicago since the book came out, and what is unchanged — or still undone.

Perhaps the biggest change is that the wake-up call no longer is needed. The educational job is done. Chicagoans get it. Maybe we can take some credit, but mostly, it's the daily evidence of globalization's effect on the city that has convinced Chicagoans that it's not their granddaddy's economy any more. "Global city" and "Global Chicago" are buzzwords now.

The book listed many problems that absolutely needed to be solved — crumbling infrastructure, an antiquated public transportation system, a school system that fails the majority of its students. The sad fact is that so many remain unresolved to this day. As The Chicago Council and other civic organizations have written since, all these issues are still at the top of the city's agenda.

But one item barely appeared at all: how to pay for all this. The book appeared after the recession of the early Bush years, just as the false boom of the past decade began. Money seemed plentiful. It was more of a matter of fixing civic priorities than of financing them. The keywords of today's headlines — "budget," "debt," "deficit," "employees," "pensions," "taxes," "fees" — appear nowhere in the book's index.

How times do change (and remember, this was less than a decade ago). Urban financing, almost a non-topic then, is the Big Issue now. Chicago still needs to fix its schools, roads, sewers, public transport. But mostly it has to figure out how to pay its bills in an era of big debts and big deficits.

The city is awash now in financing ideas, including the privatization of public services like Midway Airport and a plethora of user fees to raise money. Some of this has already happened, like the privatization of the Chicago Skyway, which seems to be working, and of the city's parking meters, which isn't. But none of these new ideas, including privatization, was even on the civic agenda when the book came out. 

Chicago also is toying now with proposals for a casino or other forms of gambling to raise money. Back then, some leaders wanted a casino, but it never came close to being built. 

When the book came out, Chicago was on an upswing, drawing in people and business from around the world, growing in jobs and output. But decline lay around the corner. Since then, as a new report by Metropolitan Strategies says, Chicago has lagged the national average in economic growth, job creation, population growth, patent output and other measures of economic vitality.

Global Chicago celebrated a global city on the make. I suspect a new edition, published now, would be a more somber book.

Since then, Chicago has tackled two huge projects and succeeded at one, failed at the other. The success was Millennium Park, the huge and glittering downtown park that has given Chicago what it always lacked, which was a Tuileries, a central meeting place where the divided and balkanized city could come together. It also has changed the face of the city by revitalizing the Loop, the tattered old business district south of the Chicago River.

The failure was the bid to get the 2016 Olympic Games to Chicago. The bid itself was anemic and inadequate, not a patch of the Olympics project that Barcelona, for instance, used to remake itself. Perhaps more than anything else, the Olympics bid was the work of a tired old guard that, after Millennium Park, had run out of ideas. It was Mayor Daley's swan song, the last big initiative before he retired.

His retirement and the election of Rahm Emanuel as mayor is the most obvious change since the book came out. The book talked about how Mayor Richard M. Daley had taken the Democratic Machine created by his father, Mayor Richard J. Daley, and adapted it to the new chores of a global city. That Machine still exists, but with new people in charge. No one knows whether they will simply pour new wine into the old bottle, as did Daley II, or will reform Chicago politics from the ground up.

The financial sector of the city suffered back then from the lack of a major locally-owned bank. That hasn't changed. But in 2004, the big LaSalle Street markets, like the Board of Trade and Chicago Mercantile Exchange, were permanent parts of the financial landscape. Now the Merc is threatening to leave town to a more tax-friendly haven.

One question not asked in the book: is it possible to have a first-class city without first-class newspapers? No need to ask the question then: Chicago had two fine papers. The papers still exist but are so crippled by job cuts, coverage restrictions and bankruptcies that no one would call them first-rate.

The book talked about the impact of immigrants on Chicago. Even then, demographic shifts were reshaping the city. Both blacks and whites have moved out of the city. Immigration into the city has slowed (possibly a blip, due to the recession), meaning that Chicago lost 200,000 people between 2000 and 2010: it's now down no less than 1 million persons, or 25 percent of its population, since its industrial peak in 1950.

But there's more to this shift than raw statistics. First, the Chicago region is sprawling, with exurban town and counties growing, mostly with whites. Latino growth is weakest in the city, strongest in the suburbs. White population is shrinking in the inner ring suburbs, but is growing strongly in the center of the city.

What's happening is something that wasn't seen when the book came out — the Europeanization of Chicago. As in many European cities, the center of Chicago is increasingly going upscale, becoming a province of wealthier white global citizens, while both blacks and Latinos are pushed out of the city into the suburbs.

One cause and result of this is improving public schools — for some Chicagoans. There is considerable anecdotal evidence of good public schools in more upscale city neighborhoods, plus private schools for those who can afford them. But all other evidence indicates that schools in less favored parts of the cities haven't improved at all, and still fail to graduate 40 or 50 percent of their students.

The book focused on continued economic vitality but seldom asked: vitality for whom? As urban financing moves front and center, Chicago has to ask itself what kind of a city it wants to be. It clearly wants to be a global city, drawing in the sort of people who can afford to live anywhere. But can it do this without pricing everyone else out of the city? Those census figures mentioned above don't give confidence.

Finally, the question of Chicago's relationship to its region is more vital now than then. This doesn't mean its relationship to the broader Midwest, although this is still important. But rather, in these straitened times, how can the city take its immediate economic region — from Milwaukee through northern Indiana and into western Michigan — and get it work together across state lines, to reinvent itself as a global megacity, as so many other cities and regions around the world are doing? 

Richard C. Longworth is a Senior Fellow at the Chicago Council on Global Affairs, author of the book Caught in the Middle: America’s Heartland in the Age of Globalism, and host of www.globalmidwest.org.

This post originally appeared in The Midwesterner blog of the Global Midwest Initiative of the Chicago Council of Global Affairs on October 25, 2011.

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