Tuesday, December 10th, 2013
[ Believe it or not, metro LA has fewer jobs today than it did in 1990, making it the only metro in America's top ten that can make that "boast." Today Joel Kotkin shares some of his thoughts on rebuilding - Aaron. ]
If the prospects for the United States remain relatively bright – despite two failed administrations – how about Southern California? Once a region that epitomized our country’s promise, the area still maintains enormous competitive advantages, if it ever gathers the wits to take advantage of them.
We are going to have to play catch-up. I have been doing regional rankings on such things as jobs, opportunities and family-friendliness for publications such as Forbes and the Daily Beast. In most of the surveys, Los Angeles-Orange County does very poorly, often even worse than much-maligned Riverside and San Bernardino. For example, in a list looking at “aspirational cities” – that is places to move to for better opportunities – L.A.-Orange County ranked dead last, scoring well below average in everything from unemployment to job creation, congestion and housing costs relative to incomes.
Yet, Southern California possesses unique advantages that include, but don’t end at, our still-formidable climatic and scenic advantages. The region is home to the country’s strongest ethnic economy, a still-potent industrial-technological complex and the largest culture industry in North America, if not the world.
In identifying these assets, we have to understand what we are not: Silicon Valley-San Francisco, or New York, where a relative cadre of the ultrarich, fueled by tech IPOs or Wall Street can sustain the local economy. Unlike the Bay Area, in particular, our economy must accommodate a much larger proportion of poorly educated people – almost a quarter of our adult population lacks a high school degree. This means our economy has to provide opportunities for a broader range of skills.
Nor are we a corporate center such as New York, Houston, Dallas or Chicago. We remain fundamentally a hub for small and ethnic businesses, home to a vast cadre of independent craftspeople and skilled workers, many of whom work for themselves. In fact, our region – L.A.-Orange and Riverside-San Bernardino – boasts the highest percentage of self-employed people of any major metropolitan area in the country, well ahead of the Bay Area, New York and Chicago.
Policy from Washington has not been favorable to this grass-roots economy. The “free money for the rich” policy of the Bernanke Federal Reserve has proven a huge boom to stock-jobbers and venture firms but has not done much to increase capital for small-scale firms. Yet it is to these small firms – dispersed, highly diverse and stubbornly individualistic – that remain our key long-term asset, and they need to become the primary focus on regional policy-makers.
Immigration has slowed in recent years but the decades-long surge of migration, largely from Asia and Mexico, has transformed the area into one of the most diverse in the world. More to the point, Southern California has what one can call diversity in depth, that is, huge concentrations of key immigrant populations – Korean, Chinese, Mexican, Salvadoran, Filipino, Israeli, Russian – that are as large or larger than anywhere outside the respective homelands. Foreigners also account for many of our richest people, with five of 11 of L.A.’s wealthiest being born abroad.
These networks are critical in a place lacking a strong corporate presence. Our international connections come largely as the result of both the ethnic communities as well as our status as the largest port center in North America, which creates a market for everything from assembly of foreign-made parts to trade finance and real estate investment. Southern California may be a bit of a desert when it comes to big money-center banks, but it’s home to scores of ethnic banks, mainly Korean and Chinese, but also those serving Israeli, Armenian and other groups.
For the immigrants, what appeals about Southern California is that we offer a diverse, and dispersed, array of single-family neighborhoods. Both national and local data finds immigrants increasingly flocking to suburbs. Places like the San Gabriel Valley’s 626 area, Cerritos, Westminster, Garden Grove, Fullerton and, more recently, Irvine, have expanded the region’s geography of ethnic enclaves.
These enclaves drive whole economies, such as Mexicans in the wholesale produce industry or the development of electronics assembly and other trade-related industry by migrants largely from Taiwan. Global ties are critical here. Korean-Americans started largely in ethnic middleman businesses, but have been moving upscale, as their children acquire education. They, in turn, have helped attract investment from South Korea’s rising global corporations, including a new $200 million headquarters for Hyundai in Fountain Valley, as well as a $1 billion, 73-story new tower being built by Korean Air in downtown Los Angeles.
Tech Industrial Base
During the Cold War, Southern California sported one of the largest concentrations of scientists and engineers in the world. The end of the Cold War, at the beginning of the 1990s, severely reduced the region’s technical workforce, a process further accelerated by the movement out of the region of such large aerospace firms as Lockheed and Northrop. The region has roughly 300,000 fewer manufacturing jobs than it had a decade ago, largely due to losses in aerospace as well as in the garment industry.
Yet, despite the decades-long erosion, Southern California still enjoys the largest engineering workforce – some 70,000 people – in the country. It also graduates the most new engineers, although the vast majority of them appear to leave for greener pastures. One looming problem: a paucity of venture capital, where the region lags behind not just the Bay Area, but also San Diego and New York. This can be seen in the relative dearth of high-profile start-ups, particularly in fields like social media, now dominated by the Bay Area.
But the process of recovery in Southern California does not require imitating Silicon Valley. Instead we need to leverage our existing talent base – and recent graduates – and focus on the region’s traditional strength in the application of technology. A recent analysis of manufacturing by the economic modeling firm EMSI found strong growth in some very promising sectors, including the manufacturing of surgical and medical equipment, space vehicles and a wide array of food processing, an industry tied closely to the immigrant networks.
For most Americans, and even more so among foreigners, the image of Southern California is shaped by its cultural exports, not only in film and television but in fashion and design. This third sector epitomizes the uniqueness of the region, and provides an economic allure that can withstand both the generally poor business climate and the incentives offered by other regions.
After a period of some stagnation, Hollywood again is increasing employment. Roughly 130,000 people work in film-related industries in Los Angeles, which is now headed back to levels last seen a decade earlier but still well below the 146,000 jobs that existed in 1999.
At the same time, the sportswear and jeans business in Los Angeles, and the surfwear industry in Orange County, remain national leaders. Overall, the area’s fashion industry has retained a skilled production base – over twice that of rival New York’s – and has been aided, in part, by access to Hollywood, lower rents and labor costs than in New York.
Taken together, these sectors – ethnic business, sophisticated manufacturing and culture – could provide the basis for a renaissance in the local economy. The smaller firms in these fields, in particular, need a friendlier business climate, a more evolved skills-training program from local schools and a better-maintained infrastructure. More than anything, though, they require an understanding on the part of both government and business that their success remains the best means to reverse decades of relative decline.
Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.
This piece originally appeared at The Orange County Register.
Sunday, December 8th, 2013
I was a guest on the show “Where We Live” on WNPR radio in Connecticut this week. The theme was “Suburban Corporate Wasteland” – the increasing numbers of white elephant office campuses in suburbs. Apparently Connecticut has several of these and some buildings are actually being demolished because there’s no demand for them.
The entire program is worth a listen, particularly if you are someone trying to figure out how to redevelop one of these things. Several local officials join to talk about efforts to do that in their towns. If you want to just hear Yours Truly, I’m on for about 10 minutes starting at 38:30. Here’s the audio embed. If it doesn’t display for you, click here to listen.
There are a number of challenges converging to put pressure on suburban office campuses in some places:
1. Decentralization has run its course. There was a massive wave of suburbanization in the post-War era that has finished. That’s not to say things are going to be re-centralizing. Rather, the massive move from the core to the periphery is largely complete. The development pattern of the United States will continue to be decentralized, but it will largely be driven by organic growth rather than relocations. I think something similar happened with driving. The factors driving VMT growth above the rate of inflation – more cars per household, women entering the workforce, and such – are pretty much played out in terms of driving huge additional travel miles.
2. Corporate M&A and industry restructurings have dampened demand in some areas. In Connecticut specifically, a number of the complexes in question were from pharmaceutical and insurance companies. There has been a lot of consolidation in the pharma industry, for example. And with a challenging environment for new drug development, pharma companies are now really focusing on cost cutting and reducing overhead, not building massive new office parks.
3. The nature of work is changing. There was a popular trend for a while towards massive suburban office HQ campuses. For example, Sears moved from its namesake tower in downtown Chicago to a big campus in Hoffman Estates. These campuses had tons of free parking and lots of onsite amenities like gyms, dry cleaners, cafeterias, day care, etc. They also offered an idyllic, almost pastoral setting in some respects. Workers could spend their days cocooned inside the campus. Today’s firms are less vertical integrated and more networked. They are heavily globalized and collaborative. They’ve also figured out that people who don’t get out and engage with the world around them end up cut off from information flows, leaving them a step behind. Workers are also demanding more flexible working conditions. And of course there’s cost cutting pressures. This leads to things like hoteling, co-working, and telecommuting – no massive suburban office park needed.
4. In select industries and cities, there has been a resurgence in the fortunes of downtown offices. This has particularly been the case in high tech. Google’s second largest office is in Manhattan. Salesforce.com’s Exact Target unit employs a thousand people in downtown Indianapolis. Amazon is building a large urban campus is Seattle. Many companies in Chicago have relocated downtown from the suburbs. I’ve probably seen more announcement of these types of moves in Chicago than anywhere else. I’d caution that in most downtowns the trends in private sector employment have remained negative. But in select locales and industries, things have been looking up. In industries where there’s a need for proximity to high end business services or where there are unique clustering or labor force issues, downtowns will retain an appeal.
Put it all together and it’s clear office space demand is weaker than it used to be. Joel Kotkin recently surveyed the same trends and suggests that the US may have hit “peak office”. The idea is not that office space will actually decline, rather that it won’t be growing at the same rates as in the past. This will affect both urban and suburban markets.
It’s easy to see how these trends combined to pound a place like Connecticut. It’s next to NYC, the premier central business district zone in America. But it is also far enough to make commuting to most of it a pain (even the express train to Stamford takes about an hour). And it’s an expensive and business hostile environment to boot. Large scale employers who want a suburban footprint can find many better places.
We are in fact seeing this happen in finance. Goldman Sachs is booming in Manhattan, but has what I believe is their second largest US office in Salt Lake City, presumably housing back office functions. Deutsche Bank is building a big facility in Jacksonville. JP Morgan Chase has a huge presence in Columbus, Ohio, where its former Bank One unit was based. A place like Connecticut is the odd man out. Suburban Chicago is probably set to be another loser. But in smaller cities the suburbs will do much better.
Also, don’t be too quick to write the eulogy for the suburban office campus, even in the tech industry. A recent article in Der Spiegel featured Silicon Valley’s new “monuments to digital domination” – including Apple’s $5 billion Norman Foster designed campus, Frank Gehry’s campus for Facebook, and others for Google, NVidia, and Samsung. In Houston, Exxon Mobil is putting the finishing touches on a three million square foot campus that will employ 10,000 people. But unlike Google moving 2,500 people to downtown Chicago, projects like that don’t make national headlines.
I don’t think there will be a massive back to downtown wave, and the suburban office park is not dead. But there are headwinds facing suburban office space, particularly in expensive, mature markets.
Friday, December 6th, 2013
There’s been so much ink spilled over Detroit’s bankruptcy that I haven’t felt the need to add much to it. But this week the judge overseeing the case ruled that the city of Detroit is eligible for bankruptcy. He also went ahead and ruled that pensions can be cut for the city’s retirees. Meanwhile, the city has received an appraisal of less than $2 billion for the most famous paintings in the Detroit Institute of the Arts.
A couple of thoughts on this:
First, every city in America should be doing a strategic review of its assets, and moving everything it doesn’t want turned into de facto debt collateral into entities that can’t be touched by the courts. In the case of the DIA, the city owns the museum and the collection. Hence the question of whether or not art should be sold to satisfy debts. If it were typical separately chartered non-profit institution, this wouldn’t even be a question.
At this point, I’d suggest cities ought to be taking a hard look at whether they own assets like museums, zoos, etc. that should be spun off into a separate non-profit entity. Keep in mind, the tax dollars that support the institutions can continue flowing to it. But this does protect the assets in the event of a bankruptcy.
In the case of Detroit, it seems inevitable that at least some art work will be sold. Given that worker pensions are going to be cut, it would be pretty tough to say no to selling art. Assuming this is the case, post-sale the museum should be spun off as a separate entity to hopefully reboot its standing the museum world. As the trustees of the group that operates it have been adamantly opposed to any sale, one would hope other museums would not hold any violations of industry standards against them for, particularly if they acquire ownership of the building and artwork away from the city afterward. The city of Detroit doesn’t need to be in the museum business anyway. It has bigger fish to fry.
Secondly, public sector employees will have to start rethinking their approach to retirement benefits. The current mindset has been to grab as much as you can anytime you can because the taxpayer will always be forced to cover the promises no matter what. As the actual results in Central Falls, RI and now this show, that’s no longer a good assumption.
Detroit’s workers don’t have lavish pensions as these things go. But they weren’t shy about abusing the system either. They in effect looted their own pensions by taking out extra, unearned “13th checks”. They also used pensions funds to give a guaranteed 7.9% annual rate of return on supplemental savings accounts workers were allowed to establish. All told these “extra” payments drained about $2 billion out of the pension system.
This was not something the city did through an arm’s length transaction. As the Detroit Free Press reported, Mayor Dennis Archer was alarmed by the practice and wanted to stop it. But “the city doesn’t control its pension funds, which have been largely administered by union officials serving on two independent pension boards.” So he tried to amend the city’s charter to stop the practice. According the Free Press, “Archer backed an effort to block the payments through a proposed new city charter, which actually passed in August 1996. Enraged, several city unions and a retiree group sued and won. Archer tried again to block payments through a ballot initiative, called Proposal T, but it failed.”
The unions could brazenly loot their own pension plan because they felt rock-solid assurance that the taxpayers would ultimately be required to make them whole. This bankruptcy is showing that may not be the case after all. It should serve as a warning to unions everywhere not to get too aggressive with their shenanigans.
They’ll of course appeal the judge’s ruling and may win. But the Michigan constitution says pensions are a contract right. The very definition of bankruptcy is that you can’t pay what you’re contractually obligated to. Bankruptcy is all about breaking contracts. The bondholders have contracts that are not supposed to be impaired too, after all. I’m a fan of local government autonomy as you know, but as Steve Eide rightly points out, any freedom worth its name is freedom to fail. If cities and their various constituencies don’t suffer the consequences of their mistakes, they should be heavily micromanaged from on high.
When individuals fail, we have a safety net (unemployment insurance, for example). Plus we have personal bankruptcy to give people a fresh start. We don’t even worry about whether the person is at fault for their own position or not. We provide that backstop regardless. But that backstop doesn’t allow people to go on living like they did before as if nothing happened. Similarly, cities in trouble shouldn’t be abandoned, but they need to realize that there are genuine consequences for failure. A realization that failure has consequences for pension holders as well as the taxpayer should hopefully promote healthier decisions about how retirement benefits should be offered, funded, and administered.
Thursday, December 5th, 2013
Small scale special service districts in their various forms – such as conservancies, business improvement districts, and management agencies – are increasingly common in our urban landscape. This is part of a trend towards public-private partnerships, or perhaps more accurately in this case, privatized/outsourced government.
Are these a good thing or a bad thing? In my latest post at New Geography I take a look. It’s called “Are Special Service Districts a Bane or a Boon?.” Here’s an excerpt:
In fact, the move towards privatized services in wealthier areas could be a good thing for the rest of the city if it is used to free up funds for use where there isn’t as much private capital available. In this case a city could look to move parks, street cleaning, and other items “off the books” via special service districts in areas that can afford to fund such services largely by themselves. The city would then concentrate public funds in poorer or middle class areas. The tradeoff would be that the wealthier areas might be allowed to purchase higher quality services for themselves, but that would be structured in a way that let service quality be raised for others.
On the other hand, it’s not hard to see how this could evolve as a mechanism for “strategic abandonment” as well. In this case the city would cut general service levels then allowing wealthier areas to buy them back. Critics have charged that special service districts are exactly the legal mechanism that will be used to implement planned shrinkage in Detroit.
In the case of Detroit, the city has no good options and may well be forced by reality to make tough choices like this. But not everyplace has that excuse.
Tuesday, December 3rd, 2013
[ You've heard me tout the writings of transit consultant Jarrett Walker before and his web site Human Transit. Well he's well-versed in many things besides transit. His background in theater and the humanities I think informs a keen analytical eye he brings to the city generally and many other subjects. He attended the recent City Lab conference, and had the following thoughts in the wake of the discussion there. Think of it as additional commentary on local autonomy, in line with my debate a couple weeks ago - Aaron. ]
The "tea party" US House members who currently dominate the news are unlikely allies of urbanists. But on one core idea, a band of urbanist thinkers are starting to echo a key idea of the radical right: Big and active national government may not be the answer.
Last week, I was honored to be invited to Citylab, a two-day gathering in New York City sponsored by the Aspen Institute, the Atlantic magazine, and Bloomberg Philanthropies. The event featured mayors and civic policy leaders from both North America and overseas as well as leading academics, journalists, and consultants.
I expected the thrilling mix of new ideas, compelling stories, and quirky characters, but I got one thing I didn't expect: A full-throated demand, from several surprising voices, for an urbanist revolt against the power of national governments.
Al Gore said it with his trademark fusion of bluntness and erudition: "The nation-state," he said, "is becoming disintermediated." If you're not an academic at heart, that means: "National governments are becoming irrelevant to urban policy, and hence to the economy of an urban century."
On cue, the New York Times published an op-ed on "The End of the Nation-State," about how cities are leaving nations behind. Citylab also featured a terrific interview with political scientist Benjamin Barber, whose new book If Mayors Ruled the World argues for the irrelevance of nation-states in a world where cities are the real levers of economic power. (According to Barber, the full title of his book should have been: If Mayors Ruled the World: Why They Should and How They Already Do.) When I spoke with Barber later, looking for nuance, he was full-throated in ridiculing the US Federal role in urbanism. On this view, all the well-intentioned money that the Federal government doles out for urban goodies should be spent by cities as they see fit, or perhaps (gasp) never sent to Washington at all.
Follow this logic and you might arrive at a radical urban Federalism, perhaps even one that could meet tea-party demands to "Abolish the IRS!" Pay taxes to your city or state, and let them send a bit of it on to central government to do the few things that only a central government can do. Push power downward to the scale where problems can be solved.
You might even separate urban from rural governance in a way that enables both to thrive, each at its proper scale, replacing the eternal struggle between these necessary opposites that makes today's political discourse so inane. The "size of government" debate is just a pointless and eternal struggle between urban and rural experience, both of which are right. Living in cities means relying on government for many things that the rural resident provides for herself, so of course the attitude toward government is different. But what's really logically different is the role of local government. Both urban and rural experience provide good reason to be suspicious of big-yet-distant national government, which can be as unresponsive to big-city mayors as it is to a Wyoming county official who just needs to get a bridge fixed.
At most of the urbanist and transportation conferences that I attend, though, any shrinking the national government role is met with horror. And that's understandable.
In the US, the prevailing local response to declining federal spending is outrage and redoubled advocacy. In Australia or Canada, two countries I work in extensively, working urbanists and infrastructure advocates seem to agree that of course there must be a bigger central government role in everything, with the US often cited as the model. In the US itself, it's easy to see the current cuts in Federal spending as a disaster for urbanism and infrastructure. It is, but it could also be something else: an invitation to governments that are closer to the people to have their own conversations that lead to local consensus about funding and solutions.
If mayors do end up ruling the world, it will be because the city, unlike the state or nation, is where citizenship is mostly deeply felt. A nation's problems are abstract; if they show up in your life you're more likely to think of them as your community's or city's problems. And that, in short, is why the city may be best positioned to actually build consensus around solving problems, including consensus about raising and spending money.
And yet …
Before urbanists join the tea partiers in trying to shrink the national government, they have to grapple with the problem of inequality. As sites of concentrated opportunity, cities are attracting the poor as well as the rich, and are thus becoming the place where inequality is most painfully evident. But no mayor can be expected to solve a problem that exists on such a scale.
In small-c conservative terms, of course, the problem is not income inequality but rather the declining credibility of a "ladder of opportunity" that convinces everyone that reasonable effort will improve their circumstances. One reason to care about transit, walking, and cycling — for many points on the income spectrum — is that transportation can form such a formidable barrier to opportunity.
All through Citylab, hands were wrung about inequality and the need to Do Something about it, against the backdrop of a New York City mayoral election that is mostly about this issue. A rent control debate, featuring New York City Planning Director Amanda Burden and economist Paul Romer, found no middle ground on the question of whether city policy can usefully intervene to help low income people. Income inequality appeared to be one issue where cities can do little by themselves.
When I asked sociologist Richard Florida about this in the North American context, he pointed me to an article proposing that the US create a Department of Cities. He has good ideas about how to keep this from being just another bureaucracy, but if income inequality is the big issue that only national policy can address, it's not clear that it should be tagged as an urban issue at all. Cities are not where the problems are. Cities are just where people see their society's problems most intensely in daily life, because they get out of their cars.
The great city in the wealthy parts of the world cannot just be an enclave of success. It will deserve the self-government that the mayors seek only if it relentlessly inspires, supports, and gives back to its suburban and rural hinterland, creating its own "ladder of opportunity" for access to the riches of urban life. Only a few people can afford Manhattan or San Francsico, so those cities' money and expertise must focus not just on themselves but on making life in more affordable places incrementally more humane. Turning Newark into Manhattan would just make it unaffordable, so some of the urgency must lie in less photogenic intervention that works for each place's price-point. It lies in providing safe places to walk and cycle, and a safe way to cross the street at every bus stop, even in landscapes of drive-through everything that will be what many people can afford, and what some prefer.
That's why I'm happy to be working not just in San Francisco but also in Houston, where affordability is a leading selling point. It's why I'm suspicious of transit planning that defines an elite "choice rider" as the only important customer, including much of the transit-aestheticism that comes out of urbanist academia. Where are the prestigious awards for the best affordable, scalable, but nonsexy intervention that made low-income inner-ring suburbia more safe and functional? How do we build not just the shining city behind a moat (San Francisco, Manhattan, Singapore) but a chain of humane and functional places, at every price-point, that combine safety, civility and opportunity?
Where is the money in that? If mayors ruled the world, I hope that would be obvious. So let's hope they already do.
This post originally appeared in Human Transit on October 14, 2013.
Sunday, December 1st, 2013
Jim Russell and Richey Piiparinen have released a new whitepaper on Cleveland that should be read by anyone looking to reboot the economies of struggling post-industrial cities. Released under the auspices of Ohio City, Inc., “From Balkanized Cleveland to Global Cleveland: A Theory of Change For Legacy Cities” looks at how a lack of population churn has stunted Cleveland’s ability to connect to the global economy.
This paper puts a different spin on talent and the knowledge economy. “Knowledge” is not just facts acquired through education or work experience. It also includes the set of personal relationships and knowledge of other places and social networks that we all carry to some extent. Global cities not only score well on traditional knowledge measures, but because they are destinations for migrants, they excel in this more broader notion as well.
Cleveland is not a global city. In fact, in his book Caught in the Middle, Richard Longworth said, “When I went to Cleveland I found not alarm but complacency. In a city that is being destroyed by global forces…I found almost nobody willing to actually talk about globalization or global challenges…In all my travels through the Midwest, Cleveland was the only place, big or small, that seemed heedless of the global challenge.”
Part of that comes from a lack of migrants coming in to bring global knowledge and connectivity to global networks. Using IRS data from Telestrian, Russell and Piiparinen note that Cleveland actually only ranks 34th in America in its outflow of people, versus being the 28th largest metropolitan area. The city is actually doing a better than average job of retention.
The problem is that Cleveland ranks 47th in inflow of people. Attraction is very weak. Hence population decline, but also an inbred, closed society. About 75% of the people in metro Cleveland were born in Ohio, versus 30-60% in other, more globalized cities. Among large metros in the US, Cleveland ranks 6th in its percentage of the population living in the state they were born. (In fairness, this in part derives from a low foreign born percentage and the fact that the Cleveland region isn’t a multi-state metro).
I did my own analysis to take a look at the in-migration shed of the city. Cuyahoga County (the central county of the Cleveland region) had reported in-migration from 320 counties during the 2000s, with 228 of these sending at least 100 people to Cleveland. I decided to contrast with better preforming Columbus. There, the core county of Franklin drew people from 486 counties, with 335 of them having at least 100 people. Now Columbus is a huge university town, so I also looked at Indianapolis. Indy’s central county of Marion, which is significantly smaller than Cuyahoga in population, drew from 381 counties, including 273 of 100 or more people.
Clearly Cleveland is drawing fewer people from the outside world, and drawing from fewer places, than cities that are performing better, though one could quibble with the causality arrow here.
As a result, we see what is frequently true in such places. Cleveland’s social and power networks have balkinized. They don’t receive much new information or many new people, and what they do receive they don’t integrate well. Hence what Longworth observed. Cleveland needs much more demographic churn to open up these social networks and generate more global connectivity.
That’s the bad news. The good news is that there’s evidence this is already happening. The authors note that several central city areas have attracted newcomers from both inside and outside of the region – and these are disproportionately young. My own analysis showed that Cleveland had surprisingly strong downtown population growth of 4,200 people, one of the best showings in the Midwest.
The authors also note other potentially encouraging trends. A good number of Cleveland’s gentrifying neighborhoods are also becoming more not less diverse. While all they note diversity doesn’t mean people automatically start interacting with each other, it’s a start. What’s more, they suggest that the decline in social capital that results in diverse neighborhoods might paradoxically be a plus, as Cleveland suffers from excess social capital today. Lastly, they note that Cleveland has pretty high churn already with both New York and Chicago, making it one of the few similar types of cities that already has well-established migration paths. They believe this is poised to continue as high costs and “cool fatigue” push people out of many of today’s key global hubs like New York.
The potential for Cleveland in capturing this is significant in their view. As the paper notes, “This scenario, then, that’s unfolding in which coastal talent is arriving, or re-arriving, into the legacy city landscape can foretell an economic sea change…The long-term economic potential for this talent migration rests not in how many microbrews are consumed or condos are leased, but rather how it affects Cleveland’s global interconnectivity. These migrations are re-arranging Cleveland’s historical insular social networks, with the gentrifying neighborhoods acting as urban portals to the global flow of information.”
This was not intended as a critique of microbreweries. Rather, the idea is that luring people is about way more than just boosting the consuming classes, it’s about tangible change in the social and economic structure of the community.
No one should pretend that positive indicators like strong downtown population growth means Cleveland’s problems are solved. I’d describe this more as “green shoots” than anything. But it’s undeniably positive and provides a platform for further growth.
The authors don’t suggest any particular policies in response to their findings. They were more interested in moving beyond the traditional “brain drain” frame of talent and inject both some key facts around Cleveland’s migration patterns and their talent churn theory of civic change into the local discourse. They got a nice writeup in the Plain Dealer, so they are off to a good start there. But more work will need to be done in the future on an effective policy response.
Sunday, November 24th, 2013
Well, that’s not exactly the headline on the front page of the Wall Street Journal last week. The actual one was “Drop in Traffic Takes Toll on Investors in Private Roads” (subscription required). The Journal nails that part of the story, but only briefly addresses the way that the private companies that build these roads have already reacted by shifting to more favorable (to them) contracts arrangements that virtually guarantee their profits.
One of the theoretical benefits of privatizing a government asset or service through a lease or equivalent is that it hedges future risk by transferring it to the vendor. That obviously comes with a price tag, but that’s clearly because it has value. It provides predictability to the government.
In practice, these contracts have proven to be so stacked in favor of the vendor that the taxpayer retains most of the risk. For example, in the case of the Chicago parking meter lease, the city retains the risk resulting from any street shutdowns due to construction or events like the NATO summit. They have to pay the vendor compensation if anything impairs the value of the meter system. Pretty much the only risk the vendor took on was whether or not people would continue to put quarters into the machines. Similarly, when the Borman Expressway flooded and Indiana decided to make travel on the Toll Road free until it was drained, the state had to pay compensation to the vendor for this. The flood risk was retained by the state. This doesn’t mean it was a bad deal. In fact, it remains a great deal – one of the best from a taxpayer perspective. But the degree of risk transfer can be overstated. The price to construct and maintain roads is pretty well understood by the people doing these deals, so the main risk to the vendor again was revenue risk – would people keep throwing money in the toll baskets?
Well, apparently even just the revenue risk was significant. The Great Recession, a traffic drop off instead of increases, and prices stoked by irrational exuberance have put many private road operators in financial distress. According to the Journal, one such operator – American Roads, LLC – is already in Chapter 11. Their bond insurer is alleging fraud from deliberately inflated traffic projections. The Indiana Toll Road consortium may file bankruptcy. The Dulles Greenway is struggling.
Across the country, toll roads are carrying less traffic than projected. The Metropolitan Planning Council put together this chart showing the trends (via Streetsblog Chicago):
For toll roads run by the government, this is a real public risk. But for privately run roads like the Indiana Toll Road, it’s the investors problem. That’s the beauty of these deals and shows that privatization can work. As Indiana Gov. Mitch Daniels said of his state’s toll road lease, it was the best deal since Manhattan was sold for beads, only this time the natives won.
Perhaps predictably, the private road industry has responded by changing contract terms. Instead of these leases where revenue risk lies with the vendor, they’ve decided they can’t take on any risk at all, so they are now doing business with states increasingly under what’s called an “availability payments” model. What’s this? Well, according to AASHTO:
Availability payments are a means of compensating a private concessionaire for its responsibility to design, construct, operate, and/or maintain a tolled or non-tolled roadway for a set period of time. These payments are made by a public project sponsor (a state DOT or authority, for example) based on particular project milestones or facility performance standards…..Availability payments are often used for toll facilities that are not expected to generate adequate revenues to pay for their own construction and operation. In this case the project sponsor retains the underlying revenue risk associated with the toll facility rather than the private partner. Also in this manner, there is less overall risk to the private entity than with a full concession. Rather than relying on achieving certain levels of traffic and revenue, the concessionaire receives a predictable, fixed set of payments over the life of the agreement. The concessionaire also can rely on the public agency’s credit to secure financing rather than unpredictable toll revenue.
A couple things jump out immediately. First, if the road can’t pay for itself via tolls, isn’t that a flashing red light that says it doesn’t make economic sense from a transport perspective?
Second, from the standpoint of the private vendor what’s not to love? You basically have a similar deal structure as before, except that now instead of tolls that might not materialize, you have a contractually guaranteed, predictable revenue stream from the state. They’ve converted a variable revenue stream into a fixed one. In effect, these deals hand the only real risk that was outsourced, the revenue risk, right back to the taxpayer.
This immediately raises the question as to what the actual value of this type of deal structure is from a taxpayer and motorist perspective. It seems to be a sort of design/build/maintain contract with a mixture of funding sources all of which ultimately fall back on the state and its availability payments stream. Why resort to this type of structure which greatly adds to the opacity of the transaction and makes it much harder to tell if the public got a good deal or not?
Some people say that one source of value in these transaction is the fact that private entities don’t have to comply with cumbersome government procurement rules. But it took nearly three years for the Port Authority to contract its Goethals Bridge replacement project based on availability payments. And one of the parties is a major construction company so it doesn’t seem like that’s big deal here. Possibly, as with the previous leases, this will generate a bunch of tax deductions that in effect siphon off a subsidy from Uncle Sam. I don’t know.
In the case of the project to build two new Ohio River bridges in Louisville, Indiana is using an availability payments based P3 for its bridge, while Kentucky is using a more traditional toll finance system for its side. There’s been little discussion of the merits of these approaches. There are certainly questions in my mind. For example, Indiana has talked about saving $225 million. But if savings materialize during the project, who actually gets them? If the vendor has their payments stream locked in, any savings would fall straight to their bottom line. The same should be true of overruns (though with the way these contracts are written, I wouldn’t take that to the bank), but given the limited number of competitors for these mega-deals and the general lack of visibility into the transaction, I suspect that these guys know going in where they can save a lot money to juice their profits. State DOTs routinely bid projects that come in well below the engineer’s estimate, as they rightly try to be conservative on costs. But in this case the actual savings might not actually flow to the taxpayer but to the vendor.
Is that actually the case? I don’t know. Nor have I seen much in the way of discussion on this in the mainstream press. Given the huge dollars at stake and the risk in any government contract that the taxpayers might get fleeced, the use of these not very easy to understand and model contracts with non-obvious value propositions to the public makes it hard for a financially challenged media to really provide any sunshine. I’d love to see the Journal do a deep dive on this issue, because somebody needs to really trace through the value, the money flows, and the risks associated with these deals.
In the meantime, specialty sites like Toll Roads News have provided some interesting coverage. It’s clear the use of availability payments is ramping up. Here’s their piece on the Goethals Bridge project. They also note that “Indiana to take traffic and revenue risk from outset of procurement of P3 for Illiana Expressway.” Illinois appears to be gearing up for an availability payments model on their share of the Illiana.
Their piece call “Illiana P3 meaning stretched by availability payments – P3s 101” raises a number of excellent points. Here’s an excerpt:
Boosters of the Illiana Expressway in the empty countryside south out of Chicago are suggesting by their choice of words that the public private partnership (P3) envisaged puts major risk on “investors”. The Northwest Times newspaper for example had a headline that the governors of Indiana and Illinois were in town to “pitch Illiana Expressway to investors.”
However when a P3 is not a toll concession but an availability payments deal (an AP-P3) it is fundamentally different. Now the P3 operator is entitled to be paid for having the highway available to the state regardless of traffic and revenue. The road has only to be operated and maintained – at rather predictable cost – and the payments roll in. They are quite independent of the traffic and revenue. The state may run a toll operation on the road but it assumes the traffic and revenue risk.
The great bulk of the risk – residing in the traffic and revenue forecasts – is assumed by the state and its taxpayers just as surely as if it was a state tollroad operation. AP-P3s then don’t look for real “investors.” They look for contractors, big contractors with a big contract, but a contract all the same..
Bingo. Public officials are using the lingo “investment” when what they are really doing is creating a very complex and opaque construction contract. It’s very misleading. No one should be surprised when down the road we discover the taxpayers got pillaged on these days. Of course, these contracts no doubt have non-disclosure agreements designed to protect the “confidential” information of the vendor that make it unlikely the real financials will ever be fully known by the public.
In any event, this is emerging area clearly needs much more public scrutiny than it has gotten to date.
Tuesday, November 19th, 2013
[ This week's guest post is from Sam Hersh. I'll hopefully have more of my own perspectives on the de Blasio phenomenon in the future. In the meantime, here's his take - Aaron. ]
When Bill De Blasio won New York’s mayoral election a few weeks ago, it came as no surprise to anyone. His impassioned analogies to New York’s “Tale of Two Cities” and his call for a city that provided not just for the wealthiest one or two percent, but for all, appealed to the growing sense that New York is an increasingly unfair and unequal place.
The angst felt by New Yorkers is not contained only to that city. In Chicago, real estate companies have poured investment into the Loop and a handful of adjacent residential and mixed-use neighborhoods. Yet, whole swaths of the city’s south and southwest side have remained in a state that would rival war-zones and have earned the city a reputation as America’s murder and gang capital du jour. San Francisco’s recent transit strikes, and the ensuing scandal that followed a Silicon Valley tycoon’s less than empathetic statements on Facebook have highlighted that city’s class tensions.
Saskia Sassen pointed out in her 1991 book The Global City that globalization and modern technologies should push wealth and geopolitical power to a small number of globally connected and powerful metropolises. And in many ways, this thesis has born itself out as financial centers in New York and, to a lesser extent, Chicago and Boston as well as technology in San Francisco and “Eds and Meds” in Philadelphia, Pittsburgh and Boston have all “revitalized” these legacy cities that only thirty years ago would have been widely assumed to be dead. Meanwhile, smaller, less connected legacy cities have shrunk in global importance.
Left out of many people’s analysis of Sassen’s writings – an analysis that equates geopolitical power with urban success – is the simple fact that a geopolitically powerful city does not always mean a city of evenly distributed wealth or equality. The urban poor in New York, Chicago, or Philadelphia are not necessarily better off than those in Buffalo, St. Louis, or Detroit. In some ways, the low cost of living in “unsuccessful” legacy cities means that quality of life is in many cases better than in those cities widely regarded as a success.
Given our assumptions about urban success – that it should involve a thriving private sector, a critical mass of wealthy taxpayers, and a sustainable level of investment (as an aside, I know few people who would describe investment in New York as “sustainable” at this point) – it should come as no surprise that the method most commonly employed to realize these goals, economic development, would fail so spectacularly to deliver positive changes in the lives of the urban poor.
While a thriving private sector, a critical mass of wealthy taxpayers, and a sustainable level of investment certainly register among the necessary descriptions of a successful city, urban economic development too often equates better cities with attracting better people at the cost of dealing with the populations already residing within a city. While the last few decades have seen the resurgence of once decrepit metropolises through TIFs and BIDs and tax breaks aimed at capturing employers of what Richard Florida would describe as “the creative class” – engineers, lawyers, artists, and bankers – De Blasio’s win, along with political movements like Occupy Wall Street augur a shift in focus from the technocratic priorities of Giuliani or Daley to a De Blasio-style redistributive view of urban justice.
So far I have ignored a bit of nuance between Bloomberg’s market-oriented (some might say neoliberal) focus on growth in “creative class” (high skill and high pay) sectors, and his classically progressive restraints in other initiatives (smoking, trans fat) and the degree to which other mayors have followed New York’s lead in this type of leadership. While I tend to hope that a market-oriented solution to urban problems can be found, the vehicle for urban revitalization seems almost irrelevant when we consider the degree to which it has benefitted the urban wealthy at the exclusion, and occasionally cost, of the urban poor.
Obviously, inequities in quality of life have been most pronounced in New York where wealth is profligate and new construction has been tightly regulated, pushing cost of living ever upward. Yet, the De Blasio election means less for New York’s poor than it does for the country as a whole. Whether the Rahm Emanuels and Michael Nutters of America’s cities are replaced by De Blasio democrats in the next election will mean a lot for the priorities of development in our cities.
It’s easy to dismiss the De Blasio win as an event isolated to the confines of New York as the logical end to both Bloomberg’s overreaching policies and “quality of life” initiatives which arguably placed a premium on attracting and retaining the wealthy. But, we should not ignore the very real possibility that De Blasio’s win, and the disdain growing for economic development-focused politicians, may lead to a spiral of urban disinvestment wherein wealthier taxpayers leave cities, making cities ever less attractive places to live, thereby further escalating the effects repelling the middle and upper classes from urban cores. The reason we should not ignore this possibility, though it may seem inflammatory at first consideration, is simple: we are still recovering from its effects throughout the last half of the previous century.
Yet, De Blasio is probably not as leftist as right-leaning pundits have bombastically proclaimed in the wake of his election. Hopefully, De Blasio and the growing urban left can pull off a type of development that prioritizes development for all, not just for the wealthiest residents, without falling into the traps of the union-entrenched Democrat machines that oversaw the urban perdition of the last half century. The death of urban economic development may well be upon us, but hopefully if it is, something that provides for the development of the whole city will emerge.
Sam Hersh is currently a student of urban studies at Haverford College in Pennsylvania hoping to use the worlds’ cities to more effectively catalyze human opportunity when he graduates. He can be reached at firstname.lastname@example.org.
Sunday, November 17th, 2013
Not long ago there were pretty clear boundaries between the personal sphere and the commercial one, as well as more clear boundaries between public and private space. What’s more, most things, both personal and commercial, were heavily based on a model of exclusive use. Today these lines are increasingly dissolving in ways that upset current business models and lifestyles. It portends a present and a future in which property is increasingly shared, not exclusive, and where there are a mixture of public, private, personal, and commercial entities intersecting in the same spaces. The key driver of this is technology, which has reduced barriers and transaction costs in a way that enables things like car sharing that would have been impossible not long ago. However, our legal frameworks have often not kept up with this. Some people who benefit from the current models would like to keep it that way. But if we let the marketplace evolve, then institute good rules to fit this new reality, it promises to hold huge benefits to the public.
First an example that’s by now old hat. In an age before cell phones and personal computers, there was a more rigorous separation of work and personal life. People need to be physically co-located in a office. They commuted there every day, worked in a dedicated personal office or cubicle, then went home where work as a rule did not intrude. Today’s workers are checking email every waking hour (and even being interrupted during the night), while also spending much more time on personal things (online banking, fantasy football, or random web surfing) while in the office. The internet has enabled distributed work environments, in which teams collaborate from offices, airports, and homes around the world. Companies increasingly have turned to “hoteling” or other shared space concepts in the office on the assumption employees no longer need dedicated space. Many people have flexible work arrangements or otherwise telecommute. In the latter case, home and office have literally merged.
This has had huge benefits across the board. Companies love it because they can access cheap labor pools overseas, effectively recruit people with a need for workplace flexibility, and reduce their office space needs. Joel Kotkin has said the latter trend may mean America has hit “peak office.” Workers get the flexibility they like, can save on commuting costs, access geographically remote clients, etc. The environment benefits from reduced commuting. The ultimate green commute is one you don’t have to make. I would say that the balance of the benefits here has accrued to business, while workers have sometimes had arrangements they don’t like forced on them. Still, on the whole this shows great promise of being a win, win, win.
The “hoteling” concept and “just in time” delivery aren’t limited to corporate uses. Things like car share are bringing them to the household market. The average personal car is supposedly idle 90% of the time. When you factor in all the additional infrastructure costs needed to support a one person, one car model (e.g., parking), the deadweight loss from all that idle capacity is stunning. Imagine factories that sat idle 90% of the time doing nothing. If a corporate manager had this low a rate of asset utilization, he’d be in deep trouble.
When you sign up for Zipcar or another service, you avoid some of this deadweight loss. By effectively sharing a fleet of vehicles with others, a relatively small number of cars can serve a large number of people, greatly improving asset utilization rates and delivering big value to consumers, even when they are paying a business to manage the fleet for them. It’s a huge form of productivity gain. This also has the effect of converting transportation from a largely fixed cost to a mostly variable one, with signficiant impacts on the decision making process for everything that involves transportation (mostly positive, I believe).
Though having a limited addressable market at present, obviously car sharing in the Zipcar style poses a threat to the entire US car industry, arguably one of the most important employers in the country and one President Obama himself personally intervened to save during the meltdown. Clearly the highest levels of politics in America will defend the car industry, though to date there’s been very little complaint from them about car sharing.
Things have been different when it’s transport service providers who are threatened. Public transit agencies have long been unrelentingly hostile to jitney services. Today car service booking tool Uber and ride sharing company Lyft have experienced an all out regulatory assault from entrenched interests. Lyft is a particularly interesting case. It’s a peer to peer ride sharing platform. Just as 90% of the time a private car is unused, when it is used, 80% of the available seat capacity goes vacant. Again, this is a massive deadweight loss. (The amount of theoretically wasted capacity in the world of private cars is stunning). Imagine an airline trying to make a business out of 20% load factors. It just doesn’t work, yet we as individuals run a “business” like that every time we drive our cars solo. Lyft helps fill up those empty seats, and even get some money – “donations” – in the process.
In other words, Lyft is a business that effectively turns your personal vehicle into a pseudo-livery vehicle. I’ve long argued that we should have “every car a jitney” by legalizing it and having personal auto polices cover ancillary commercial use as a matter of course. Lyft is trying to solve that problem and make it happen. Obviously the traditional “commercial” sector (e.g., taxis), which is highly regulated and subject to many taxes and fees hates this. They feel, rightly to some extent, that there’s a double standard. This is the type of conflict and legal uncertainty are spurred when the boundaries between personal and business, and between exclusive and shared use, start breaking down.
The big kahuna in provoking outrage of late has been AirBnB, an application that lets people rent out rooms in their homes as de facto hotel spaces. Again, the same principle applies. An empty bedroom is deadweight loss just like an empty office or an idle factory. It makes sense to put those spaces to work where feasible. This had been done previously in the form of house swaps and couch surfing. But the rise of commercially oriented AirBnB has raised hackles, especially in governments that have strict rules and high taxes on hotels. There have been a number of media articles of late taking note of or weighing in on the controversy. For example, in the New York Times piece, “The Airbnb Economy in New York: Lucrative but Often Illegal.”
Again, the benefits are clear in the improved utilization of space which is a pure efficiency gain. What’s more, AirBnB was even used by the government during Hurricane Sandy to find temporary free housing for those displaced by the storm. Peter Hirshberg noted that this type of distributed app might be the real killer app for smart cities, and will play an increasingly important role in urban resiliency. But it legitimately does create a set of parallel environments and rule sets, and exposes a world in which ancillary commercial activity at a residence is something that doesn’t really fit into our existing categories.
The list of situations like this are endless. Many zoning laws don’t appropriately allow home based businesses. Fund raising bake sales have been banned because it’s not legal to sell products prepared at home. In some places there have been issues with selling vegetables from home gardens.
Then there’s the disputes arising from the increasing use of public space for commercial purposes, whether that be curb side intercity bus service or food trucks. Pushcart style food vendors, often ethnic, are also often technically illegal (e.g., rogue elotes stands).
In short, traditional barriers are falling and boundaries are dissolving, especially when it comes to those key dimensions of personal-commercial, exclusive-shared, and public-private.
I don’t want to suggest all of the complaints about these are unfounded, though many of them are pure rent seeking. From the standpoint of someone running a fully commercial operation, who complies with massive amounts of costly red tape, it certainly seems unfair that others are allowed to operate what are basically businesses under a lighter tough regulatory scheme. The status quo isn’t necessarily where we need to be.
But let’s take a step back and look at the big picture. Our economy is in huge need of a massive injection of dynamism and new value creation. Many observers have said we need a completely new economic model. Walter Russell Mead has called this “beyond blue”. Richard Florida styles it the “great reset”. But clearly the old ways of doing things aren’t working and we need change.
This new style “shareable” economy based on peer to peer production in a distributed, small scale form is one that promises to provide at least part of the answer. It also renders addressable a huge amount of previously trapped value. Companies reaped huge amounts of gains by eschewing vertical integration in favor of more networked relationships. That’s corporate-speak for peer to peer sourcing. Similarly, things like hoteling, just in time delivery, etc. have let to much greater and more effective asset utilization. The amount of under-utilized assets in the household sector is stunning. This is about bringing to that household sector the same types of efficiency boosting and value creating techniques previously employed only by traditional businesses.
But beyond the sheer efficiency gains, I think it’s under appreciated in developed countries how economic informality can create economic dynamism. Peruvian economist Hernando de Soto noted that lack of property titles and difficulties of the formal economy perpetuated poverty because people in developing countries couldn’t access the system for credit to fuel business, etc. In the developed world we’ve got a similar problem brewing. Our economy has been largely entirely formalized to the point where we are choking in red tape that has produced an economic system that has failed too many of its residents and leading to the creation of these informal economies as a safety valve. And our societies are very ill equipped to deal with that as we’ve become excessively formalized.
We don’t need to establish property titles as we already have them, but we do need regulatory systems that enable entrepreneurship and new business models like peer to peer to thrive. What’s more, I think enabling some level of an informal sector to flourish is actually a good thing, as it’s a de facto “incubator” for new ideas that can later be developed into a more officialized system. Without a toleration of informality, these would never get off the ground. I’ve highlighted how this worked with regards to uncertain property titles on abandoned buildings in Berlin that helped launch the creative scene there. I also highlighted similar trends in Detroit. Those again were born of desperation, but we’re starting to get there in our economy more broadly.
It seems hypocritical to me for businesses to suggest that consumers be prohibited from doing exactly what business does every single day to improve productivity and generate more value. (It would hardly be the first time though. Business love globalization – for themselves. They can buy raw materials in Brazil, manufacture in China, do their IT in India, etc. But you try applying “consumer direct globalization” by purchasing your drugs from Canada or buying an out of region DVD and see how far you get. It’s a completely two tier system designed to free corporations while trapping the consumer in hyper-segregated markets).
This would seem to be one area where the left and right could agree. Free marketers should love light-touch regulation and lower taxes in the new peer to peer economy. The left should like the way it frees consumers from dependency on big business/neoliberalism, sustainability, etc.
Adjusting our rules to make this happen is an imperative. A non-profit called Shareable and the Sustainable Economies Law Center recently issued a report called “Policies for Shareable Cities” that talk about what a lot of places have been doing to make this happen. For example, they explained how Portland updated its zoning code to allow “food distribution” an accessory use in all zones in order to facilitate the development of the Community Supported Agriculture Model. Similarly, Marcus Westbury has talked about the need to update the software of cities in order to help redevelopment, as he helped with in the Renew Newcastle project.
But beyond new rules, maybe we should just go along with no rules for a while, and let this sector develop. After all, that’s what we did with tech. The government took a hands off approach and the feds even prohibited levying taxes. This helped the United States build a massive industry off internet technology, one that has continued to thrive even with the rise of offshoring. We should do the same here to see if we can replicate that success with peer to peer shared production in the household/personal sector.
Thursday, November 14th, 2013
My latest column is in the November issue of Governing Magazine. It’s called “Stopping the Civic Decline Cycle.” In it I urge cities to get a real grip on their problems and restructure for new realities rather than simply managing an endless, painful decline cycle year after year. Sadly, facing fiscal challenges right in the face rather than kicking the can down the road and trying to survive another year has proven to be quite rare. I don’t want to claim this is some preferred solution. But cities are where they are and have to respond to reality.
Here’s an excerpt.
The cycle of municipal decline looks the same in a lot of places. People and businesses leave, which causes tax revenues and quality of place to degrade. That, in turn, leads to tax increases and service cuts, which makes more people and businesses leave. This repeats in an endless cycle as a city slowly dies.
Rather than an endless stream of crisis management, cities should instead take a realistic forward look at their civic trajectory—medium-term revenue forecasting, demographic and economic forecasting, capital asset replacement cycles, and so on—and restructure the services delivered and revenues raised in order to create a sustainable baseline that can be defended over at least the medium term. This would enable cities to provide some degree of predictability to current and prospective residents and businesses about what their tax bills and services received will be. That right there will improve the business climate by reducing uncertainty and the, often correct, belief that most cities just don’t have a handle on their problems.