Tuesday, September 2nd, 2014
This is the third installment of my series on corruption (see part one and part two). Today I’ll share a few of my thoughts on the matter, particularly with regards to US cities. Please consider these incomplete and a work in progress.
Corruption seems to be incredibly durable where it has taken root. I mentioned before the continued drumbeat of scandal in Illinois, despite a slew of high profile prosecutions there. Chicago is also the homeland of community organizing, but despite all of the tactical successes of Saul Alinksy and his many followers over the years, little durable change has been produced.
But in many cases reform isn’t even attempted seriously. This is for several reasons. Many urban areas have no real partisan political competition. Single party systems (which can include Republican suburbs as well as Democratic big cities) remove a check on abuse. That’s why even though I’m a supporter of local autonomy, I recognize that state oversight is important. Also, in places with lots of corruption, the parties can tend to be more like business partners than competitors. In Illinois, columnist John Kass has appropriately labeled this general environment “the Combine.”
A tough commentator like Kass isn’t always around either. Molotch noted back in his growth machine paper that the local newspaper was part of the growth machine nexus. This means local media is often more civic cheerleader than watchdog. Fiscal distress in the newspaper industry has left most papers a shell of their former self in any case. This is also putting pressure on reporters and columnists to be working on their exit strategy by writing favorable coverage of the establishment in hopes of a job later. So there isn’t necessarily a tough, strong media on watch.
Local prosecutors are elected officials who are part of the political system and are thus not motivated to change things. What’s more, aggressive corruption prosecutions at the local level always have a partisan air about them. Far better would be more disinterested federal prosecutors. However, federal prosecutors are political appointees, and by tradition are selected by senators from the states. This often neuters them as well. (It’s notable and no surprise that it was maverick independent Republican Senator Peter Fitzgerald who picked Patrick Fitzgerald (no relation) as Chicago area prosecutor. Has a more establishment Illinois Republican held that seat, there’s a good chance Blago and Ryan might not have ended up in prison).
Add this up and there can actually be few voices or players of significant influence who want things to change. How do we make progress in that case?
I think there are two key pieces of preliminary research that need to be undertaken:
One is to create a power map of the city. That is, identifying the power players in a community and the relationships between them. This can be time consuming, but there are ways to do it. For example, looking at interlocking board relationships is a common strategy. Sean Safford did something like this for his famous “Garden Club” study of Youngstown to show the social networks of Youngstown and Allentown. A leftist academic named Dan La Botz used the technique for a study called “Who Rules Cincinnati?” looking at that city. We want to unearth who the real players are (which is not always obvious), what their relationships are, and how decisions get made. As part of this you are filtering out so-called “NINAs” – people with No Influence and No Authority. (Most bloggers are NINAs, for example).
Two is to do the historical analysis I’ve advocated elsewhere. This is important because a lot of political relationships go way back, and you need to get a sense of how the urban regime functions over time. Also you want to understand a bit of the city’s culture, which is fundamental to any change.
Armed with this information, you analyze the system to determine its weak points and design a disruption strategy. I’m not sure what exactly this would look like – it obviously depends on the research findings – but I’ll give three levels of response types: avoiding naivete, avoiding co-dependence, and building a political effort for change.
1. Avoid Naivete. I think too often we urbanists are naive when it comes to politics. We tend to be motivated by some personal vision of the public good, and so assume other people must similarly be so motivated. That’s not always the case. And you can’t take what political people tell you at face value. They excel at telling people what they want to hear or mouthing some of the right words, but don’t necessarily assume they mean them or that if they do they will expend personal capital on the behalf of what they say. My rule of thumb here: judge political people and power broker types by what they do, not by what they say. And then ask what Occam’s Razor suggests about the reasons why they did what they did (which is often self-interest).
2. Avoid becoming co-dependent. A lot of times I listen to people complain about bad decisions or this and that about their local community, but they don’t ever speak out publicly or challenge what’s going on. Their theory seems to be to prioritize their standing in the system (maintaining the relationship if you will) on the idea that this gives them the ability to be an influencer and help nudge things in the right direction. That’s not necessarily wrong. But we see a lot in personal relationships that sometimes we do the same with people who have addictions or other behavioral problems, and then before we know it, we aren’t helping them, but rather we’ve become co-dependent enablers of bad decisions and immoral behavior. I think we need to look at many of our cities as the civic equivalent of alcoholics who refuse to get help. You may still love them, but engaging in their dysfunction is not beneficial. Instead, stand aside let them reap the harvest of what they are sowing. Don’t put your stamp of validation on it. Realistically this is a difficult decision for a lot of people because they aren’t in a good place to put their job at risk, etc. But until there’s a price to be paid for the way people are doing business, don’t expect any change. It may well be that any one individual or organization is of no importance, but you have to start somewhere.
3. Create a political movement for change. Ultimately, change in the political system will require a political movement. As the power broker class is as a rule uninterested in change, this will need to be a populist type movement. I see three templates of this.
One is the insurgent outsider candidate who wins election and proceeds to start cleaning house. An example here might be the election of Antanas Mockus as mayor of Bogota. The documentary about him that I previously linked is well worth watching. Mockus was quite a character, but he had some ideas about eliminating corruption and changing societal expectations that were effective, if unconventional. For example, he fired the entire police traffic squad and replaced them with mimes. The problem is that you need a candidate who can get elected, has high moral fiber and strength of character himself, and who has the chops to make change. Generally speaking, insurgent candidates seem to fail on one of those points. It’s especially hard to govern as an outsider, as you don’t have a posse to bring with you to the job, and so end up dependent on the usual suspects to run things and quickly get turned into their pawn.
Two is some type of grass roots movement. I think it’s clear that the most effective grass roots political movement in the US in recent years has been the Tea Party. It may be that their goals and policies aren’t shared by some, but you can’t deny their impact. This makes them a useful case study.
I happen to believe that the intransigence which is so bemoaned by many is actually the secret to their strength and effectiveness. They are willing to burn down their own party’s house rather than compromise. I once had a senior staffer from Ron Paul’s presidential campaign tell me point blank, “Better a Democrat than a RINO” (Republican In Name Only).
Because of this, the Tea Party has to be taken seriously by Republicans. By contrast, Occupy Wall Street got taken out like the trash and was a completely impotent movement. Nor have we seen any legitimate leftist populist insurgency at the national level. Why not? It’s simple: no progressive is ever willing to defect from the Democratic reservation if it would mean a Republican would win. No matter how much they may refer the President as “0bama” (zero-Bama), they will have his back in any conflict or scandal with the Republicans. Hence, they lose the game of chicken every single time. You only see real progressive movements in places where the Republican threat is non-existent, like New York City, for example.
The lesson in my view is that a local reform movement probably needs to be pretty hard core. But it also needs to intelligently attack the structure based on all that research I talked about earlier, and put some thought into how to effect systemic change and how to effectively govern if it obtains power. Though in this case the ultimate agenda may not be electoral control. The Tea Party seems to have been largely beaten back, but they certainly achieved their goal of shifting Republican policy to the right. The fact that there’s even a debate about reauthorizing the Export-Import Bank shows their influence, for example.
The third template would be some type of lawfare approach. Michael Shakman’s lawsuits over patronage in Cook County, Illinois are a good example of this. This would obviously require a large bankroll and a lot of patience. I tend to as a rule dislike approaches like this as anti-democratic, but clearly lawfare tactics can be effective.
These are just some musings. As I said, I don’t have a fully thought out program in mind, so please share your thoughts.
Friday, August 29th, 2014
A whimsical fairy tale convenience store in Kokomo, Indiana
Bruce Katz at the Brookings Institution likes to talk about a paradigm called “cut to invest.” The idea is to cut spending on operations and lower priority items in order finance investments in higher priority infrastructure or other projects. Nice theory, but who is actually doing it?
One example is Kokomo, Indiana. It’s not the mythical tropical island paradise you may have heard about from the Beach Boys. Instead it’s a small industrial city of around 57,000 people about 45 miles north of Indianapolis. After I posted a piece from Eric McAfee about Kokomo’s intelligent rail trail design, someone from the city reached out and invited me to come for a visit. So that’s what I did this week.
What I discovered is that Kokomo has done a lot more than just build a trail. They’ve deconverted every one way street downtown back to two way, removed every stop light and parking meter in the core of downtown, are building a mixed use downtown parking garage with a new YMCA across the street, inaugurated transit service with a free bus circulator, have a pretty extensive program of pedestrian friendly street treatments like bumpouts, as well as landscaping and beautification, a new baseball stadium under construction, a few apartment developments in the works, and even a more urban feel to its public housing. Like Eric, however, I wasn’t just struck by the projects themselves, but they obvious attention to detail that went into their design. And especially by the fact that they’ve done it almost all by paying cash – no debt – in a city that went through an economic wringer during the recession.
A lot, though not all, of this has been pushed by Kokomo Mayor Greg Goodnight, who’s gone from factory worker to politician during his career. He also appears to be an urban planning geek, as the stack of books behind his desk shows.
I sat down with the mayor and chatted about how the city pulled off this program of investment. After the jump I’ll visually walk you through a number of the projects. If the audio player doesn’t display for you, click over to Soundcloud.
Now let’s take a look at what’s going on. I mentioned the pedestrian bumpouts. Here’s an example of one:
Pretty much every downtown intersection has a treatment like this, including landscaping. Taking a page from other cities’ playbook, Kokomo has invested in beautification, including not only landscaping of pedestrian bumpouts, but also hanging flower planters we’ll see later. These were actually put into place by Goodnight’s predecessor and were a huge source of controversy at the time, though seem to be well-accepted by now.
Here’s another example on a street heading out of downtown.
I’m actually of two minds about bumpouts. They do facilitate pedestrian crossings, but also can force bicyclists out of the curb lane into traffic. I’ve generally found them obnoxious when bicycling. The street widths through the bumpouts look ok here, but I didn’t put it to the test. A number of streets have painted bicycle lanes, where this is definitely not a problem.
Eric’s blog post was about the Industrial Heritage Trail. Here’s a shot of that through downtown:
I think this is really attractive. It reminds me of a red brick version of the Indy Cultural Trail. This section actually has a separate sidewalk from the biking trail, but that’s not the norm. Kokomo has really made a point to include some ped-bike protection wherever possible. So the landscape buffer is narrow, but effective and attractive. (It doesn’t use bioswale type green stormwater detention like the Indy Cultural Trail, though). There’s also ample street lighting and street furnishings.
As one nice touch, note the back side of the stop sign. It’s black to match the color of the other items, not just plain galvanized steel. This treatment is done throughout downtown and adds a bit of refinement.
Here’s another shot of a segment a bit south. Note the bespoke bike rack.
There aren’t people in these photos, you might have noticed. I was doing this walking tour on a Tuesday morning, and it wasn’t super-crowded but I did see multiple people out biking and walking on these trails.
On the south side of downtown, the IHT crosses and east-west path called the “Walk of Excellence.” I love the name because reminding Hoosiers that a focus on excellence is an absolute must to survive the brutal global competition. Here’s a shot:
Again, very attractive. And again, a narrow but nice buffer between the trail and the street, even though the roadway is little more than an alley or driveway. This is very consistently done, in another place even where the trail just passes through a parking lot. That’s what I mean by attention to detail. There’s a stream running to the left of the trail which adds to the pleasant effect of walking along it.
Here’s a street crossing:
The trail has its own traffic control signs, as well as a street sign near bicycling eye level to tell users what street they are at. In my experience, that’s too rare in trail design. You can also see bumpouts here along with large concrete planters that add beauty and make the crosswalk and street narrowing very visible to drivers.
Here’s another crossing example, showing the different crosswalk shading as well:
Here’s a bike route sign, with the city seal on it. That’s another nice touch and one that shows a certain pride of place versus a generic sign.
Moving on, here’s a median treatment on a major street. This goes on quite a distance:
Not only is this very nice, including more flowers, decorative street lights, etc, but the metal railings are especially unique. The railings were actually custom fabricated by the high school’s shop class. Not only was this great real world practice for the students, but the city paid for the railings and the students are all ending up with $1,000 scholarships to college out of it. I’m told this was the superintendent’s idea. (Kokomo’s superintendent grew up in Corydon in my county and his wife actually still works part time in Laconia, the tiny town where I grew up!)
Eric mentioned the school district’s International Baccalaureate program. But I don’t believe he mentioned that they also run an exchange student program. IIRC, students from 15 countries attend high school in Kokomo, and a number of them are actually housed in dormitories in downtown Kokomo. This injects life into downtown and creates a more international flavor in the city. I didn’t take pictures, but the school district is also renovating a 1914 vintage auditorium back to its original design that will be very cool (and also paid for without recourse to debt).
Trails and bumpouts have a fairly limited cost, but the city is also doing some bigger ticket items including two recently-constructed fire stations, a million dollar renovation of city hall, a parking garage, and a baseball stadium. Pictures of those in a moment but it’s worth ask how the city was able to pay for them without debt.
The first is that there was no legacy debt. I’m not anti-debt in all cases, but if a mature city like Kokomo is saddled with heavy debt repayments, that’s not good. By not having any legacy debt, the city’s tax base isn’t encumbered by repayments. A good part of our federal deficit these days is simply interest on our gargantuan debt load. That’s a dynamic Kokomo avoided. (The city does have some utility debt, but it’s revenue bond type stuff).
Secondly, the mayor says that he was able to reduce the city’s workforce by close to 20%, going from 521 employees just before he took office to only 415 today. That’s a significant reduction, especially given the fact that during that time the city annexed seven square miles and added 11,000 new residents (though some of them were already receiving some city services). Some of this was achieved through efficiencies. For example, the city went to single side garbage pickup, where all garbage is collected on one side of the street, eliminating the need for trucks to traverse each street twice. The mayor, council members, and department heads have also had a pay freeze during that time, with at least some time in there in which all city employees had their pay frozen during the recession. Keep in mind, the city experienced a severe revenue crunch during the auto bankruptcies, and Chrysler, the town’s largest employer, failed to pay its tax bill. This created an urgent need for cuts.
It’s possible the cuts and freezes have gone too far. I don’t know the full history of what has happened to services. But I speculate that having something like this can potentially act like a forest fire. It allows for longer term, healthier growth, whereas continuous growth in employees and compensation over time leads to serious fiscal problems.
In any case, these reductions freed up cash flow as the city recovered, letting Kokomo allocate a decent chunk of its revenues to capital investment. This is running at about 5% of the overall budget, plus an additional sizable sum (for a city of that size) from an economic development tax. This is an example of the cut to invest strategy in action. Without the cuts and tight budget management, there would be no money to invest. Indeed, some other Indiana community have found themselves asking questions like “what fire station should we close?” as they feel the sting of decline and tax caps.
Here are a few more photos, then some additional observations. Here’s that parking garage I mentioned. (This was originally debt financed, but the city paid off the bonds early when it decided to borrow for the baseball stadium).
This supposedly has some all day free parking, designed to attract downtown employees. There’s also going to be apartments on the top floor. It looks like there’s no ground floor retail, however, which will create a bit of a dead zone.
Here’s the YMCA construction site across the street. You can see the old Y in the background:
A painted railroad viaduct on Sycamore St. heading into downtown:
An alley treatment:
The baseball stadium under construction:
Here’s a picture of an older style public housing building. There’s nothing wrong with it, but it’s done in a traditional duplex style reminiscent of early suburbia.
Here’s a new development in a more urban form next door:
I think the fenestration is poor which gives the design a public housing look. Nevertheless, I appreciate that the city is even thinking about the design of public housing downtown as part of its strategy. After all, why shouldn’t public housing residents get to take advantage of high quality urbanism downtown like everyone else?
Overall, I think they’ve done a number of good things, and I especially appreciate the attention to detail that went into them. You clearly get the feel of them walking downtown streets. I would say the commercial and residential development lags the infrastructure, however. That’s to be expected. They do have an Irish Pub, a coffee shop, a few restaurants, and other assorted downtown type of businesses. This will be an area to watch as some of these investments mature.
When I talked to the mayor about this he took the long view, saying that Columbus, Indiana has been at its architecture program for decades, that Indy’s sports strategy is 40 years old, etc. Substantive change takes time. For example, Mayor Goodnight says it isn’t realistic to think that older workers who commute in to Kokomo will uproot themselves out of their established lives in other communities and relocate. But he’s more hopeful that as workers retire and are replaced, he’ll capture the “next generation” labor force.
That’s obviously a more realistic ambition. But will an impatient public buy it? We’ll see. Clearly Goodnight has his critics. More than one of them has dubbed him the “King of Kokomo.” A newspaper article fretted about gentrification (level of realistic concern about that: zero). I didn’t do a deep dive into the other side, so keep that in mind reading this. But the baseball stadium would appear to be the most controversial item as near as I detect.
Regardless of any controversy, when you look at the downward trajectory of most small Indiana industrial cities, the status quo is not viable option. Kokomo deserves a lot credit for trying something different. And regardless of any development payoffs, things like trails and safer and more welcoming streets are already paying a quality of life dividend to the people who live there right now. It’s an improvement anyone can experience today just by walking around.
Wednesday, August 27th, 2014
Last week’s episode of Monocle 24 radio’s show The Urbanist was about independent cities. If you’ve listened before, you’ll know that their episode themes are applied loosely, but there are a couple of specific segments on “city-state” type of constructs, one is the very first segment, which is a hypothetical discussion about London, and the second a short commentary about Singapore starting around 30:00. If the embed doesn’t display, click over to Monocle’s site to listen.
Other segments include a piece about a Liverpool discount program for independent businesses, a segment about Istanbul that immediately follows the Singapore one, and a look at New York’s Bed-Stuy neighborhood starting at around 43:00.
Sunday, August 24th, 2014
This is the second installment in my series on corruption. You can also see last week’s post on the city as a decline machine.
This week I’m taking a look at a book Richard Layman turned me onto. It’s called “Corrupt Cities: A Practical Guide to Cure and Prevention.” Written by Robert Klitgaard with assistance from former La Paz Mayor Rondal Maclean-Abaroa and H. Lindsey Parris, and published under the auspices of the World Bank, this book is a must-read on the topic of corruption even if, sadly, many of the recommendations are not directly applicable to the type of corruption many US cities experience today. It’s only 150 pages and highly readable.
The book talks about the nature of corruption and how and why it is often so resistant to efforts at reform. We can easily see this in the US, where, for example, despite former federal prosecutor Patrick Fitzgerald sending Illinois politicians in prison at a fearsome rate (including the previous two governors), the drumbeat of scandals in the state continues unabated.
The authors’ basic formula for corruption is simple: C = M + D – A. That is Corruption = Monopoly power + Discretion by officials – Accountability. Resultingly, as they put it:
A strategy against corruption, therefore, should not begin or end with fulmination about ethics or the need for a new set of attitudes. Instead, it should look cold-bloodedly at ways to reduce monopoly power, limit and clarify discretion, and increase transparency, all the while taking account of the costs, both direct and indirect, of these ways.
There is another crucial point in designing an anti-corruption strategy: Corruption is a crime of calculation, not of passion. People will tend to engage in corruption when the risks are low, the penalties mild, and the rewards great. This insight overlaps the formula just mentioned because the rewards will be greater as monopoly power increases. But it adds the idea that incentives at the margin are what determine the calculations of corrupt and potentially corrupt official and citizens. Change information and incentives, and you change corruption.
Much of the book consists of practical steps cities can take in this direction, using two principal case studies: La Paz, Bolivia, and Hong Kong. They also briefly discuss New York City’s successful efforts to root corruption out of a school construction program. Some of this gets quite detailed, such as their description of anti-corruption workshops the authors have run.
The book is also notable for being against what would appear to be one of the most popular responses to incidents of corruption, namely adding more rules. This often just makes it easier for corruption to flourish. As they put it, “Corruption loves multiple and complex regulations.” We also see in the US that more regulation increase the rent seeking returns to corruption and leads to regulatory capture, either by regulated industries or activists (or some combination of both).
They also say that corruption shouldn’t be looked at in isolation or as the sole aim, but rather that anti-corruption efforts should be seen as a tool for reinventing and improving the delivery of public services:
We do not recommend an approach to corruption that emphasizes more controls, more rules, and more bureaucracy. These can simply paralyze administration, and in some cases they can foster new and more deeply embedded varieties of corruption. Instead, especially in cases of systematic corruption, we advocate both restructuring city services and making institutional reforms that improve information and create new and more power incentives and disincentives. A major theme of this book is that fighting corruption in the right ways can become a lever to achieve much broader ends, not only financial survival but also remaking the relationship between the citizen and local government….Fighting corruption should not be considered an end in itself but an orienting principle for reforming urban administration. [emphasis in original]
Among their recommended approaches in the fight against corruption are having a point person with a high profile and public accountability for delivering results, creating an independent anti-corruption office (such as an inspector general type organization), starting by picking low-hanging fruit, eliminating the perception of impunity by “frying big fish” via prosecuting senior officials , working with and not against the bureaucracy, and many other things. They also spend time talking about the downsides of potential reforms.
As one example, they talk about how in some cases a single bidder taking over a contract can obtain so much proprietary information as a result of running a service that they de facto have a lock on future rebids since no one else has enough information to effective compete. Dual source contracting is one possible approach to maintaining long term competition, but has its own limitations such as potential added costs as well as incentives to collusion.
I’d be remiss if I didn’t highlight a few weaknesses. One is that because they used largely foreign examples, some of the solutions aren’t applicable to the US. For example, some countries have so-called “unjust enrichment” statutes by which public officials who appear to have wealth far beyond what their salary would enable them to have obtained legitimately have to prove that they obtained it legally. This doesn’t appear to be a big problem in the US, and that sort of “prove you are innocent” approach wouldn’t fly here in any case.
In another case, La Paz actually implemented a property tax reform with a lot of superficial appeal: self-assessment. My old boss in Indy has long been an advocate for this. The idea is that you declare the value of your own property for tax purposes, but that value constitutes a binding offer to sell at a premium of 10-15%. I get the appeal of this, but it’s easy to see the problems it introduces. La Paz used the soft threat of the state acquiring the property, but never actually followed through, and the courts declared the scheme illegal in any case.
The more important problem is that the book focuses on traditional type corruption of the bureaucracy. It assumes that in fighting corruption there’s a senior leader such as a mayor or governor who is motivated to eliminate it, and their recommendations are pitched at that person. For example, the mayor of La Paz obviously had a passion for ending corruption in his city. The governor of Hong Kong was motivated to clean up corruption in the police department by unfavorable press causing embarrassment back in the UK.
In America today I’d argue that situation is inverted. Local level government employees are by and large honest – you can’t easily bribe your way out of a speeding ticket these days, for example – but the political leadership is corrupt. And the corruption is right out in the open and takes the form of transactions that aren’t illegal.
For example, a transaction to shove millions of dollars into the pockets of a crony is often done completely in the open. It’s championed by the political leadership and often the press as well. (Molotch showed how local newspapers and such were part of the growth machine, and in general these days daily papers often continue to give off the impression of being corrupt institutions themselves who are in cahoots with the politicians). It’s duly voted on by the city council. There was no quid pro quo transaction involved, only campaign contributions, hope for future employment, or various personal connections, thus nothing illegal was done. It’s the same with some (though certainly not all) privatization contracts, various laws and ordinances prompted by lobbyists, etc.
Francis Fukuyama describes this very phenomenon at the federal level in an article in the current issue of Foreign Affairs called “America In Decay:”
The trading of political influence for money has come in through the backdoor, in a form that is perfectly legal and much harder to eradicate. Criminalized bribery is narrowly defined in U.S. law as a transaction in which a politician and a private party explicitly agree on a specific quid pro quo. What is not covered by the law is what biologists call reciprocal altruism, or what an anthropologist might label a gift exchange. In a relationship of reciprocal altruism, one person confers a benefit on another with no explicit expectation that it will buy a return favor. Indeed, if one gives someone a gift and then immediately demands a gift in return, the recipient is likely to feel offended and refuse what is offered. In a gift exchange, the receiver incurs not a legal obligation to provide some specific good or service but rather a moral obligation to return the favor in some way later on. It is this sort of transaction that the U.S. lobbying industry is built around.
Reciprocal altruism, meanwhile, is rampant in Washington and is the primary channel through which interest groups have succeeded in corrupting government. As the legal scholar Lawrence Lessig points out, interest groups are able to influence members of Congress legally simply by making donations and waiting for unspecified return favors. And sometimes, the legislator is the one initiating the gift exchange, favoring an interest group in the expectation that he will get some sort of benefit from it after leaving office.
Rules blocking nepotism are still strong enough to prevent overt favoritism from being a common political feature in contemporary U.S. politics (although it is interesting to note how strong the urge to form political dynasties is, with all of the Kennedys, Bushes, Clintons, and the like). Politicians do not typically reward family members with jobs; what they do is engage in bad behavior on behalf of their families, taking money from interest groups and favors from lobbyists in order to make sure that their children are able to attend elite schools and colleges, for example.
We see the same at the local level. In fact, today you almost have to be an idiot to engage in old school bribery. (It’s a mystery to me why it seems to remain so popular in places like Illinois and Rhode Island). You simply write campaign checks and at the appropriate time taxpayer money will come your way. Or you’re a journalist carrying water for the power brokers (or a candidate) who expects to be taken care of later. Or you’re on the government side of a privatization deal and later on take a job with the contractor via the revolving door. Or you run a non-profit that collects bigtime government grants with the unstated expectation that you won’t cause trouble. (I know multiple personal examples of non-profits who had grants revoked or threatened to be revoked by governments in retaliation for having the temerity to tell the truth about some boondoggle). None of these are illegal. They are generally done right out in the open. And the top power brokers and politicians are generally involved and hence have zero interest in reform.
This produces a much more challenging environment for change to say the least. I won’t pretend I’ve cracked the code on it, but will post further thoughts next week on how I might approach the problem.
Sunday, August 17th, 2014
Today I’m kicking off what’s probably a three part mini-series on corruption. In my view, whatever the structural problems resulting from suburbanization or globalization or whatnot, an overwhelming and under-examined barrier to success in our cities, and especially to reviving the fortunes of the urban cores of post-industrial cities, is corruption.
When we think of corruption we tend to think of a shady character passing an envelope full of cash under the table to a crooked politician in exchange for a a zoning variance or something. But that’s just one form of corruption, and arguably one of the least important. Much more important is systemic corruption, including many practices that are actually legal.
The book Corrupt Cities, which I’ll look at in depth in a future installment, defines corruption this way:
Corruption means the misuse of office for personal gain…Corruption means charging an illicit price for a service or using the power of office to further illicit aims. Corruption can entail acts of omission or commission. It can involve legal activities or illegal ones. It can be internal to the organization (for example, embezzlement) or external to it (for example, extortion). The effects of various kinds of corruption vary widely. Although corrupt acts may sometimes result in net social benefit, corruption usually leads to inefficiency, injustice, and inequity.
And regarding systemic corruption, the authors say:
Systematic corruption generates economic costs by distorting incentives, political costs by undermining institutions, and social costs by redistributing wealth and power towards the undeserving. When corruption undermines property rights, the rule of law, and incentives to invest, economic and political development are crippled. Corruption exists in all countries. But corruption tends to be more damaging to poor countries.
And, one might add, poor or struggling cities.
America has been experiencing problems with corruption at all levels of government. I want to focus on the local level, however.
Cities have long been known as hotbeds of corruption and political machines. They were certainly much more corrupt in the past than they are now. However, because the scope and control of government was so much less in those days – for example, there was no zoning in Gilded Age America – the impact was arguably less than now where the impact of government is pervasive. The Progressive Era brought reforms that cleaned up government to a certain extent, but we’ve seen in the contemporary era an uptick in government corruption. This is not necessarily in the form of petty corruption, but rather the corruption of the instrumentality and aims of government itself.
Even in my own lifetime I’ve seen a tremendous increase in corrupt activities. Sure, cities were always “growth machines” and had “urban regimes”. Some level of corruption may even be necessary for political life to function. It’s generally necessary to build coalitions to get things done, and the types of horsetrading that enables this is often distasteful. I don’t want to pretend that we can ever have squeaky clean politics. And of course cronies of the party in power have long benefited from patronage.
But there’s a big difference between logrolling, or even some crony getting his beak wet through a somewhat inflated price tag for something that more or less needed to be done anyway, and the types of things we see today, in which the levers of powers are used in ways that are often obviously manifestly contrary to the public interest.
I won’t fully support it in this post, but my belief is that increasingly the urban power structures have exchanged traditional growth machine policies for a system of extraction in which crooks, cronies, and criminals are enriched under the guise of the “revitalization” of a community in decline. The principal vehicles for this are a) publicly subsidized real estate boondoggles, b) corrupt privatization and professional services contracts, and c) public employee union featherbedding.*
This looting of our cities in the name of revitalization has been made possible by a severing of the historic link between the economic fortunes of a community’s elite and broader community prosperity. I’m going to show today how that link got severed, and why that has led to subsidized real estate boondoggles as the preferred form of civic “revitalization”, by revisiting and updating a post I originally ran in 2009.
Ed Morrison once wrote that “Cleveland’s leadership has no apparent theory of change. Overwhelmingly, the strategy is now driven by individual projects. These projects, pushed by the real estate interests that dominate the board of the Greater Cleveland Partnership, confuse real estate development with economic development. This leads to the ‘Big Thing Theory’ of economic development: Prosperity results from building one more big thing.”
Morrison could have been describing any number of other cities here. Why is it that so many cities have turned to large subsidized real estate projects to attempt to restart growth, , turning away from strategies that previously made them successful?
The answer lies in structural economic changes resulting from the nationalization and globalization of industry. Up until the 1990′s, many businesses, such as retailing, utilities, some manufacturing, and especially banking operated on a regional or local basis. The meant that the civic leadership of a community was heavily dominated by businessmen, again, especially bankers, whose success was dependent on the overall macroeconomic health of the particular city or region they were located in.
For example, up until the 1980s or so, most states severely restricted banking such that every city pretty much had its three major locally owned banks whose CEOs were the major power players in town.
Because these banks were limited to their own region, often only their home county, they could only increase their profits by seeing their hometown grow with more people and businesses, and thus more depositors and borrowers. If the CEOs of those banks decided to loot the city at the expense of overall civic prosperity – or let anyone else get away with so looting it – it would undermine their own businesses. Hence they had an alignment between corporate (and thus personal interest) and the civic interest. They could only prosper to the extent that the community prospered.
It was the same in many industries. The Public Utility Holding Company Act more or less led to every major city having its own electric utility. That utility could only make more money to the extent that more people and businesses moved to town and thus generated new demand for power. The interests of the company and its CEO were aligned with that of the city as a whole. If the city sickened, the company’s business would sicken with it. Many if not most cities also had their own department stores, drugstores and other retail establishments.
This created what Harvey Molotch called a “land based elite” and underpinned a model he called “The City As a Growth Machine.” He saw the “land” in question as physical land and thus also talked to the primacy of real restate development, but I see “land” as much more representing the constrained operating geography of a wide variety of industries that are not necessarily related to land per se. While growth as a strategy has its problems, you can certainly be stuck with worse.
With banking and utility deregulation, we saw large numbers of hometown banks merged out of existence. Industry after industry has been subjected to national or international level roll-ups as changes in the economy and regulatory environment gave increasing returns to scale. So today we have a handful of major national banks like JP Morgan Chase, major utility conglomerates like Duke Energy, and dominant national retailers like Macy’s, Walgreens, Wal-Mart, and Home Depot, often part of a “two towers” type rollup.
Why is it that “real estate interests” dominate in a local economy like Cleveland? Because, to a great extent, they are among the only ones left. Consider the local industries that have not been as subject to roll-ups. Principal among these are real estate development, construction, and law (though we are starting to see rollups in these industries too).
This means the local leadership of a community is now made up of executives in those industries, and they bring a very different world view versus the previous generation. There are two major differences between these types of firms and the previous types of firms that generated community leaders: the nature of the businesses themselves, and the fact that their profits are not dependent on the success of the community.
Consider the difference between a banker and a lawyer. Banks make money on the spread between what they pay for deposits or wholesale funding, and what they charge for loans. This means the CEO of a bank is making money while he plays golf at 3. He’s got a cash register back at the office that never stops ringing.
By contrast, lawyers get paid by the hour for work on specific matters and transactions. The law partner is only making money on the golf course if he is closing a deal. It’s similar between many other “operational” businesses that were previously prominent in communities, and the “transactional” businesses that are now often dominant.
Not only has the drying up of local and regional operating businesses led to a business leadership community unbalanced in favor of transactionally oriented firms, the loss of those local and regional operating businesses robbed many of the transactional companies such as law and architecture firms of their principal local client base. Large national businesses employ national firms for advertising, law, architecture, etc. If they use local firms, it is in a subsidiary role. (Or, if a smaller firm is fortunate enough to land a contract, it is servicing a client on a national, not local basis).
Richard Florida described this in his Atlantic Monthly article on the financial crash:
As the manufacturing industry has shrunk, the local high-end services—finance, law, consulting—that it once supported have diminished as well, absorbed by bigger regional hubs and globally connected cities. In Chicago, for instance, the country’s 50 biggest law firms grew by 2,130 lawyers from 1984 to 2006, according to William Henderson and Arthur Alderson of Indiana University. Throughout the rest of the Midwest, these firms added a total of just 169 attorneys. Jones Day, founded in 1893 and today one of the country’s largest law firms, no longer considers its Cleveland office ‘headquarters’—that’s in Washington, D.C.—but rather its ‘founding office.’
Where then is the source of transactions these firms can turn to in order to sustain their business? The public sector, of course.
I would hypothesize that many local transactionally oriented services companies have seen the public sector take on a greater share of billings than in the past. With the old school bankers and industrialists mostly out of the picture, the leadership in our communities consists increasingly of the political class and a business community dominated by transactional interests.
When you look at the composition of this group, it should come as no surprise that the publicly subsidized real estate development is the preferred civic strategy. Politicians get to cut ribbons. Cranes always look good on the skyline. Local architects, engineers, developers, and construction companies love it. And there is plenty of legal work to go around.
This is not to say these people are necessarily acting nefariously. And nor were old school bankers and industrialists always acting purely altruistically. But there’s a very different world view between people steeped in operational businesses and those in transactionally oriented one.
On the other hand, that’s not to say that they aren’t acting nefariously, either. Which brings us to the second difference. These newly dominant firms and their leaders no longer have fortunes tied to the overall health of the community. Unlike an old-school banker or utility executive, these transactional companies like law firms can exist on a narrow client base. Thus they can continue to thrive if the community is struggling or even impoverished. If the driving force of the business is government, which can extract significant tax revenues during both good times and bad, this can go on indefinitely, so we see that even in bankrupt Detroit the state stepped in to pump $400 million in subsidies into a new hockey arena for a development backed by a local billionaire.
In fact, what we see is that these firms and their hangers on can even profit from community decline. Why is this? Well, when the community is struggling, that means Something Must Be Done. And it just so happens that this group of people has Something in mind – namely shoving taxpayer cash into their pockets so that they can “invest” in “saving” the city. Somewhat perversely, to the extent that a community is thriving and doing well, the justifications for all those subsidies become harder to make. Thus The Powers That Be actually have a stake in civic failure.
Call this the “City As a Decline Machine” model, as our once-proud urban cores have been strip-mined for subsidies by cronies as population and job levels have collapsed in the greater urban core.
This helps explain why, despite the endless talk about “talent, talent, talent” not many places actually do much that suggests they are serious about attracting it. Why might that be? Because, as I’ve noted before, outsiders are the natural constituency for the new and an inherently disruptive force. That’s the last thing cronies want. Instead what they actually want is to use the pretense of talent as a Christmas tree ornament to decorate arguments in favor of their latest subsidized boondoggle.
But regardless of intent, the personal interest and long term community health of the community elite are no longer strongly linked. Which is why where once local business/civic leaders put money into the community – such as when Melvin and Herb Simon bought the failing and money-losing Indiana Pacers back in the 1983 – today they are more likely to be taking it out via these types of projects.
You might object that some cities kept their banks or have other large companies that are still present. Perhaps. But even where the hometown bank or company did not get bought out, it likely escaped that fate by getting big itself and making large numbers of acquisitions or otherwise expanding. This means those institutions are less dependent on the health of the particular local market they happen to be headquartered in than they are overall macroeconomic conditions. While no doubt they want the headquarters town to be successful, they can afford to take a portfolio view of local markets.
It’s similar for many other companies, such as the tech startups every city seems to be focusing on. These are attractive to a great extent because they can thrive in downtowns of cities where the majority of the urban fabric is struggling because they don’t consume much in the way of services, have a live and let live ethos that has historically been disconnected from and indifferent to government (and so won’t upset the cronies’ apple cart), and sell to a national or global marketplace in most cases.
Interestingly, one place where it seems like the structure of local real estate helps the city is New York City. My understanding is that there are still quite a few local power players whose personal fortunes are deeply tied to the value of Manhattan real estate. Certainly local developers sometimes receive eminent domain assists and such, but the volume of activity necessary to support the real estate industry that is still very key to the city’s viability can only come from genuine market demand. When you combine this with the fact that there aren’t good substitutes for New York, this suggests at least a significant segment of its elite will be highly motivated to see it navigate the formidable fiscal and other challenges it faces.
Most other places aren’t so lucky. Once this type of system gets established it is difficult to uproot, and it acts like kryptonite to outside investors who know they will be operating at a severe disadvantage versus the cronies. That’s why out of town bidders have been taking a pass on bidding on the I-195 land in Providence, for example.
Commercial real-estate developer Richard Miller, of The Pegasus Group, visited Rhode Island in 2011 and again this spring; he liked what he saw enough to pick a potential parcel on the western side of the river near Chestnut Street. But in the end, his team chose not to submit a proposal to the Route 195 Redevelopment District Commission, which controls about 40 acres in the heart of the city, 20 of which are available for development … “I don’t want to get snookered in here where all of a sudden they start hitting you up with fees and you put a bid in and you start meeting with politicians, and the more you invest in the town, the more you’re in the game, and I didn’t get the sense that they want you to make a fair return in the town.” … In other cities, such as New York, he says that there “is a very clear policy about new development. And it’s not subject to a political process in order for you to make a project work. Either you abide by the rules and make a buck or you don’t.”
I’m sure you could tell a similar tale in many cities. As someone once told me, “Political risk is the only risk in real estate development, if you know what you are doing.” Many cities today are nothing but political risk for anybody but cronies, which is one why there’s so little market interest in developing there. But don’t worry. Your friendly local campaign donors and insiders will be there to help “prime the pump” – with a little assist from the taxpayer of course.
Pete Saunders once recounted his family’s prescient observation about Detroit that it “would not rebound until all value was extracted out of it.” This is the process we sadly see unfolding in many post-industrial cities.
* If you require evidence just ask how many urban core real estate projects in your city have been done without subsidies to political donors.
Sunday, July 27th, 2014
One of the more highly touted concepts in the urbanism world is the idea of “smart cities.” Wikipedia says of the smart city: “A city can be defined as ‘smart’ when investments in human and social capital and traditional (transport) and modern (ICT) communication infrastructure fuel sustainable economic development and a high quality of life, with a wise management of natural resources, through participatory action and engagement.” The basic idea is “better urban living through technology”.
That smart cities has captured a huge amount of media and mindshare is unsurprising, given our technophilic society and the sums of money being spent by major corporations to promote it. But the smart city has proven to be elusive in practice and slow to materialize. What is it a city is actually supposed to do to become smart? And why haven’t we seen more of it?
As I said, smart city tech vendors have been making a major marketing push and so they are a fixture sponsors of conferences. Last month at New Cities, I saw several tech firms present their ideas on the topic, and it helped me understand more about why smart cities has proven elusive.
It’s already been observed that the citizen perspective is all too often missing in the smart city discussion. But listening to the providers in the space, it became clearer why. Namely because all of them are B2B companies who sell to the corporate C-suite and its public sector equivalent. They do not have a consumer heritage and thus they don’t have a lot of experience or heritage in end user applications, hence by default don’t see the city from the citizen perspective.
Think about a company like Cisco. Cisco sells most of the gear that makes the internet run. The people who buy their stuff expect it to work, all the time. They have to have carrier grade five 9′s reliability. These systems have to have the so-called traits of reliability, availability, and serviceability. They also have to be efficient and predictable in their operations. The idea is sort of like the Maytag repairman mentality. It just has to work.
This produces an operating model that would be, from the standpoint of a person, stifling or even dehumanizing. So it shouldn’t be any surprise the public and politicians by and large haven’t jumped in with both feet.
I want to stress that there’s actually huge value potential in this B2B, carrier grade type model. Not just Cisco’s business customers but all of us absolutely expect our phone to work and our internet to be up. All. The. Time. Comedians like Louis CK have skits mocking our entitled, unrealistic expectations about our technology (“I hate Verzion!”) The minute our home internet goes down, what do we do? Pick up our phones and start Tweeting about how much we hate AT&T/Comcast/Cox/etc. One reason we are so annoyed by them is that outages are so rare. Thank folks like Cisco for that.
Similarly, a Bombardier rep was talking at New Cities about his firm’s desire to sell managed services, not just trains, into the public transit market. If they were able to make trains run as reliably as phones work, there would be huge public benefit there.
So I don’t want to downplay the importance of that kind of stuff. In everything from water to 911 emergency dispatch, we need a whole lot of stuff in our cities to just work and work reliably. This necessitates the type of approach to gear and its implementation and management that comes from the B2B, sell to the CIO or operations manager mentality. It’s mission critical to public safety and quality of life.
On the other hand, that’s not the only type of application there is. Unfortunately, the smart city dialog has been dominated by it, with the exception of the open data movement, which I don’t generally see labeled as falling under the smart cities domain.
One thing I might suggest that these major vendors explore in trying to better capture the public imagination and drive uptake is to create a connection to the citizen by getting into some consumer businesses. Now this would be problematic strategically I know. Investors would probably hate it. But at least something small scale might be interesting. There’s probably a lot that could be learned.
Google is a B2B and B2C company, but one predominantly focused on software. They’ve been diversifying into hardware however, both by creating their own products like Google Glasses, and buying smart thermostat maker Nest. The latter I find particularly intriguing as these are in a sense a type of smart city application, but focused on the person in the city instead of back end infrastructure. Google is trying to learn the hardware space to be sure they don’t end up outflanked in the “internet of things.” (They are also getting into the infrastructure business as well though things like Google Fiber).
Potentially something like buying a Nest type vendor could be something these major smart city companies could do to put their toes in the water of the consumer space. Obviously any deal has to make sense from an investor perspective, but the idea here is that this is almost an R&D operation to create a pipeline of knowledge about the citizens of the city and what they value and how they live and create their lives. That then informs the smart city vision beyond efficiency and RAS, notably the “participatory action and engagement,” which is something you definitely don’t want on your router configuration.
This raises an interesting competitive question: will the majority of the profits in say the application of smart city ideas to energy efficiency go to someone like the smart meter vendor or to someone like Google/Nest? If I were the vendors in the space conventionally labeled smart cities, I’d be working hard to make sure the answer to that question was “me”. In the meantime, building relationships to citizens/consumers can help to shape the smart city idea into something with more marketplace uptake and public resonance.
For further perspectives on smart cities, see my previous post with my thoughts after I moderated a technology panel at Barcelona’s Smart City World Expo in 2012. Also, Adam Greenfield took a very negative view of the idea in his eBook that gives a different perspective on the issue.
Tuesday, July 22nd, 2014
[ Kokomo, Indiana is a small industrial city about an hour north of Indianapolis. It is one of the rare ones whose industry remains largely intact, with two large auto-related plants. This makes them different from the type of community that really has deindustrialized. Yet they fret that those who earn decent incomes in their town too often decide to live in the Indianapolis suburbs. Hence a program to upgrade quality of life in the city. It should be noted that while they've managed to do this without incurring debt, Kokomo arguably benefited more than any city in America outside Detroit from the massive federal auto bailout. Their civic improvements have in a sense been financed by a unique external windfall unavailable to others. Nevertheless, lots of places have received windfalls and spent them poorly. Cities may not be able to control our circumstances, good and bad, but they at least have some control over how they respond to them. This piece from American Dirt takes a look at Kokomo's response. Keep in mind it ran in 2012 and there are likely some anachronisms by now - Aaron. ]
Across the country—but particularly in the heavily industrialized Northeast and Midwest—smaller cities have confronted the grim realities of the unflattering “Rust Belt” moniker, and all of its associated characteristics, with varying degrees of success. With an aging work force, difficulty in retaining college graduates, and a frequently decaying building stock, the challenges they face are formidable. Cites from between 30,000 and 80,000 inhabitants typically boomed due to the exponential growth of a single industry, and, in many cases, the bulwark of that industry left the municipality nearly a half century ago, for a location (possibly international) where the cost of doing business is much cheaper. Essentially, everything the smaller Rust Belt cities had to offer is completely tradable in a globalized market; the resources that provided the town’s life blood are either depleted or are simply to expensive to cultivate further.
Reinvention is the only condition likely to save many of these cities from persistent economic contraction, but, with an overabundance of retirees and older workers, these towns lack the collective civic will that could be expected in larger communities with more diversified economies. An absence of young people intensifies (and, to a certain extent, justifies) the low level of civic investment in one’s own community; after all, if a resident is six months from retirement, how likely is it that he or she would support public investments intended to improve quality of life for twenty or thirty years into the future? For that matter, how likely will a population of retirees remain engaged to encourage or challenge major private sector investments as well?
By no means am I intending to denigrate needs and ambitions of the senior population; I’m merely observing that a stagnant Rust Belt city with this demographic profile will demonstrate vastly different priorities from a city rife with young families. While every Rust Belt city large and small must avoid obsolescence that results from the spoils of globalization, the smaller cities—which have tended to be dominated in the past by a single thriving industry—are less likely to claim alternative sectors and labor pools if their primary manufacturing lifeblood fails. A dying city of 80,000 may not exert the same impact within a region (particularly in the densely populated Midwest and Northeast) that a city of 500,000 would, but it is far more of black eye for the state than a town of 2,000 that has lost its raison d’être. This conclusion is obvious. Many of these small cities must reordering of their economies comprehensively; while the state, the county, or private foundations may offer some outside help, the constituents of these cities themselves are typically the best equipped to understand how their city should evolve. Unfortunately, many of these communities aren’t yet even aware of the need for this reinvention, let alone which avenue to pursue in order to achieve it.
It is with no small amount of reassurance that I can assert that Kokomo, Indiana is not one of these latter cities.
No Rust Belt complacency on display here in the City of Firsts. Though as recently as 2008 it was on Forbes’ list of America’s Fastest Dying Towns, a recent visit shows much more evidence than I’ve seen of some comparably sized cities in the region that the civic culture is neither resting on its laurels nor wringing its hands about how much better things used to be. In fact, one of the Indianapolis Star’s leading editorialists, Erika Smith, recently visited the city, and, after receiving a tour from the Mayor, was pleasantly surprised by how proactive it has been in implementing precisely the type of quality-of-life initiatives largely perceived as necessary to help a historically blue-collar city stave off a brain drain or descend into irrelevancy.
I, too, recently received the Kokomo tour, followed by a meeting with Mayor Greg Goodnight, and I can also recognize some of the city’s most impressive achievements at shaking off the post-industrial malaise that saddled the city with double-digit unemployment rates as recently as a few years ago. Since then, the city has introduced a trolley system at no charge to users; prior to this initiative, the city had had no mass transit for decades. The Mayor pushed successfully to annex 11 square miles in the town’s periphery, therefore elevating the population by about 10,000 people. The Mayor’s team worked to convert all one-way streets in Kokomo’s downtown to two-ways, recognizing that accommodating high-speed automobile traffic in a pedestrian-oriented environment only detracts from the appeal. The team has restriped several miles of urban streets to incorporate bike lanes, and it has converted a segment of an abandoned rail line into a rail-with-trail path, branding it by linking it to the city’s industrial heritage. They have deflected graffiti from several bridges and buildings through an expansive and growing mural project. They have upgraded the riverfront park with an amphitheatre and recreational path. They have introduced several sculptural installations, the most prominent of which is the KokoMantis, a giant praying mantis made entirely of repurposed metal and funded privately. And my personal favorite: with the support of the City, the school superintendent has integrated a prestigious International Baccalaureate (IB) program to the public school system, including an international exchange program for young men from several foreign countries (a girls’ program should arrive in the next year or two) who live in a recently restored historic structure in Kokomo’s walkable downtown, attending demanding courses that bolster their chances of admittance in a coveted American university. Most impressively, the City of Kokomo has achieved all of this without incurring any public debt in the past year.
Obviously the individuals offering me this tour are going to make sure their Cinderella is fully dressed for the ball, and I recognize that not a small amount of the securing of certain infrastructural projects and transportation enhancement grants requires a political savvy that the current civic leadership has in abundance. And I don’t want to rehash Ms. Smith’s article, which more than effectively chronicles this approach at a macro level. In addition, Erika Smith recognizes, as do I, that very few of these initiatives (the IB foreign exchange program notwithstanding) are really particularly earth-shattering. But when most other similarly sized cities in the Midwest seem to be engaged in a race to the bottom, luring new industry through generous tax breaks (often initiated at the state level), Kokomo seems to recognize that a town lacking any amenities outside of low cost of living has to compete with dozens of other cities in Ohio and Michigan and Pennsylvania, and elsewhere in Indiana, that offer the exact same brand. Whether this investment yields a long-term return remains to be seen, but it certainly demonstrates the right gestures necessary to instill civic stewardship in a place whose decades of job loss have seriously scratched its mirror of self-examination.
What ultimately struck me about Kokomo—which Erika Smith only touched upon—was the level of design sophistication evident in some of these civic projects. I need only focus on a single location in the city, in which two particularly laudatory techniques are on display. At the intersection of Markland Avenue and Main Street, just south of downtown, the Industrial Heritage Trail begins its journey southward. Here’s a view as the trail terminates at its junction with those two streets, looking northwestward:
Here is a view in the other direction:
Continuing a bit further in this direction, one encounters this painted wall:
And, pivoting slightly to the left, another mural that is still in progress:
This photo series identifies two amenities that stand out for the astute decision-making that apparently took place during the implementation. The Industrial Heritage Trail clearly operates in a railway corridor, but it is not a rail-trail. Unlike the more common rail-trail conversion, this Kokomo trail did not incorporate the removal of the original rail infrastructure. The Rails to Trails Conservancy would label this approach a rail-with-trail, indicating that the trail shares the railway easement, typically separated by fencing. Rail-trails such as the Monon Trail in metro Indianapolis are still the more common practice. However, a growing number of communities are embracing rail-with-trails, not only because they obviate the need for costly removal of rails, ties, and ballast, but they reserve the rail infrastructure for the possibility that a railroad company may reactivate the line in the future. If the sponsors of Kokomo’s Industrial Heritage Trail had removed the infrastructure, the possibility of ever reintroducing rail along the corridor would be virtually nil. As it stands, the only conceivable disadvantage to rail-with-trails is that, in the event a rail company reintroduces train service, its close proximity to the path may prove hazardous to bicyclists or pedestrians. Otherwise, the decision to retain the railway not only helped to diversify options, it most likely saved a considerable amount of money.
The other smart decision was the site selection for those murals. The ones featured in the photos above are part of a growing mural campaign that the City of Kokomo introduced, and every one that I recall shows real foresight in the locational decisions. What makes them so good? The murals in the photos above front a public right-of-way, minimizing if not completely precluding the chance that later development will conceal them. I blogged a few years ago about an excellent mural in Indianapolis that showed wonderful care and craft in the entire implementation process…except where the conceivers chose to locate it. Not only did they paint on a cheap, cinder-block building that will likely tumble down if market pressures encourage new development in the neighborhood, but the mural also faces a vacant lot which is large enough to host a new structure that would block it completely, no doubt frustrating the community and pitting them against a developer.
Compare this to Kokomo’s murals. Here’s one a little further south on the Industrial Heritage Trail:
Again, it fronts the trail itself—not a chance that a developer will try to block it. And here’s another along a bridge underpass for the recently completed trail along the Wildcat Creek:
The original intention of the mural was to repel vandals at spot that previously suffered from it frequently; this approach has proven successful in locations across the country. But it also sits in a park along a new greenway, so it should remain in perpetuity. Granted, Indianapolis has plenty of murals along retaining walls and buildings that front the aforementioned Monon Trail. Those, too, should survive far into the future. But in recent years, the City of Indianapolis has encouraged countless murals on the side walls of commercial buildings—sites where a blank wall faces a parking lot, where a building once stood. While these bare walls often scream for some ornamentation to help distract from what used to be there (another adjoining building), in many instances the parking lots will likely fall under increasing development pressure in upcoming years. Will the locals thwart development in order to save the mural? This remains to be seen, and I don’t want to base too much of an analysis on speculation. But it’s hard to deny that these public art investments seem less astute than the once I witnessed in Kokomo.
One could argue that Kokomo is merely taking advantage of the fact that it is jumping into the game relatively late; it benefits by learning from the mistakes of others. But decisions that stand the test of time also contribute their fair share to foster civic goodwill. Taxpayers are rarely too forgiving of poorly conceived projects, and several successive blunders, no matter how small they may be, demonstrate poor accountability. Only time will determine the return on investment, but Kokomo certainly has a leg up on many of its competing small cities. My suspicion is, if these projects stimulate the discussion and enthusiasm for proactive leadership that they suggest (Mayor Goodnight was re-elected last year by a landslide), the citizens of Kokomo are only beginning to stoke the fire.
This post originally ran in American Dirt on November 16, 2012.
Wednesday, July 16th, 2014
NYU Economist Paul Romer gave a great talk at last month’s New Cities conference in Dallas. Called “Urbanization as Opportunity,” it’s now online and I’ll embed below. The first 2-3 minutes are warm up then it really gets going. Great stuff around crime, public space, etc. If the embed doesn’t display for you, watch on You Tube.
There are large number of additional New Cities videos online should you wish to browse them.
Sunday, July 13th, 2014
Justin Katz, writing at a web site called the Ocean State Current that appears to be published by a libertarian think tank in the state, is unhappy with my proposals. In fact, he’s giving a point by point rebuttal to my six part toolkit, which you can read here, here, here, here, here and here. I think it’s fair to say he thinks Rhode Island needs much more radical change than I prescribe, and can’t rely on a gradual approach among many other complaints.
Right or wrong, here is my thesis. A free market agenda along the lines of a Tennessee or Texas is dead on a arrival in Rhode Island. It’s simply not possible to pass. Among other reasons, this is because the people of Rhode Island by and large have some degree of progressive orientation. That’s very different from say Indiana, where every other person you meet on the street has Tea Party sympathies, and it takes a lot of police possibilities off the table. I also believe that most progressives in Rhode Island genuinely want to see a better economy in the state. Hence my pitch is aimed at providing analysis and policy recommendations that might have a chance at appealing to the Rhode Island electorate, and thus have some hope of getting implemented or affecting how people think about the issues. If Katz & Co. prefer a different approach, I’m all in favor of the marketplace of ideas.
By the way, even if you go on Atkins or some other rapid change program of weight loss and are successful, the weight seldom stays off as we know. Slow and steady changes in lifestyle are the best way for sustainable change.
Today I want to give a starter set of policy ideas for changing the trajectory in Rhode Island. I won’t claim these are a panacea or represent a comprehensive to do list, but you have to start somewhere. This is an expanded list from my City Journal piece.
Taxes and Fees
1. Seek a “grand bargain” on revenue neutral tax reform. Here the idea is not necessarily to reduce tax revenue overall, but to adjust the levers to make the system less onerous on entrepreneurship and small business. One conceptual idea – and I stress this is a hypothetical – might be to raise the income tax on top earners making over say $500K/yr (a shibboleth of the left) to eliminate the 7% sales tax businesses pay on utility bills. I’ll be returning to the matter of utilities again as it’s an important issue.
2. Repeal the $500 minimum corporation tax. Rhode Island shouldn’t add insult to injury by making a business that loses money pay a tax on top of it just for the privilege of existing. I know at least one person who killed off a side business just for this reason. To be sure it was a hobby, but hobbies sometimes germinate into actual full time businesses.
3. Waive permit and other fees for the first year for new businesses. So many startup businesses don’t even last a year. Why not wait until we see until there’s at least baseline viability before socking them with a bunch of fees? You could easily implement this by charging in arrears. Obviously you’d have to be careful to avoid burdening the system with people getting “just in case” permits such as creating tons of shell companies, but I think this can be managed.
4. Reform unemployment insurance. Benefits are too high and ideally Rhode Island should be closer to the national median. But this would be hard to achieve and a start at reform can be achieved without it. The focus here would be eliminating market-distorting cross-subsidies that favor frequent users of the system, and revisiting business successor rules that punish people for buying and saving failing or bankrupt businesses.
Regulations and Mandates
5. Reform temporary disability insurance (TDI). This is one that wasn’t on my radar until I heard Republican gubernatorial candidate Ken Block call for reform. But when I looked into it this appears to be an even bigger problem than he suggests. Rhode Island is one of only five states with mandatory TDI. The others are California, New York, New Jersey, and Hawaii, all states with fortress industries and such that make them most definitely not Rhode Island’s peer group. It has the second highest benefit levels. It has a state run monopoly system. It allows employees to double dip. And I believe Rhode Island’s program is one of only two along with California that has a temporary caregiver leave component. I’d completely repeal mandatory TDI. But again, reform of some sort should be possible without triggering political nuclear war. Eliminate the state run system and tell businesses to buy coverage from the marketplace. Eliminate double-dipping. Make temporary caregiver leave a one time only or one per decade type benefit instead of annual recurring one. Put a lifetime cap on weeks of benefits and beyond that claimants should utilize long term disability coverage. Again, whatever we think about the idea of this system, Rhode Island is a huge outlier here and has little leverage to lead the way on this.
6. Perform a post-Obamamcare health insurance mandate review. Rhode Island has more items of mandated insurance coverage than any other state. Coming from Illinois – a blue state mind you – I was stunned at how much individual health insurance costs in Rhode Island. Obamacare seems to have largely standardized coverage and I would suggest defaulting to its coverage guidelines. If Rhode Island has items that go beyond this, it should eliminate any where at least ten other states (including at least MA and CT) don’t already mandate it.
7. Pass a clean semi-monthly payroll act. Until last year, Rhode Island was the only state in America that required companies to pay their employees weekly. That was changed to enable bi-weekly/semi-monthly payroll, but only for businesses whose average pay is twice the minimum wage and can post a surety bond, get the written permission of any unions affected, and recertify with the state every four years. You know what I call that? Progress. That’s good news. But in keeping with the continuous improvement theme, the legislature should follow-up with a clean semi-monthly payroll bill.
8. Create a “most favored nation” regulatory policy with regards to Massachusetts and Connecticut. It’s hard to argue that neighboring states have different core values. So their regulatory systems should be considered prima facie adequate for Rhode Island. Unlike California, a big and rich state, businesses are not going to jump through hoops for the privilege of serving small and economically challenged Rhode Island. So to make it easy, I suggest harmonizing regulations with Massachusetts (and if possible Connecticut) to create a mini type of EU style common market effect. This could be implemented via a most favored nation policy saying that “If it’s legal in MA or CT, it’s legal in Rhode Island. If you’re licensed to do it in MA or CT, you’re licensed to do it in Rhode Island.” Rhode Island is really subscale to be running its own regulatory system anyway, so outsource it.
This doesn’t even scratch the surface of what’s needed on the regulatory front. Many of you probably saw the recent Thumbtack survey that ranked Rhode Island the worst state in the country for its small business climate, as rated by small businesses themselves. Metro Providence was ranked the second worst metro. Fixing this is actually much more critical than taxes in my view, but also harder as many of the worst regulations around land use and such are at the local level. So this is where local reformers should focus.
When I spoke to the Rhode Island House of Representative earlier this year, the other speaker was a representative from CVS sharing his perspectives on what that company looks for in places to invest. One item he mentioned as important is utility costs. Hence my thought about utility taxes above. But beyond that, Rhode Island’s electric bills are among the highest in the country and gas prices are high too. There needs to be a focus on bringing those down. Lowering electric rates doesn’t deprive the treasury of much and actually saves money on government electricity purchases. Unfortunately, as someone pointed out to me, in Rhode Island it works just the opposite; because it doesn’t appear to be a tax, the legislature feels free to pass laws that send rates through the roof.
9. Kill Deepwater Wind by any means necessary. Deepwater Wind is a crony capitalism fiasco of epic proportions involving an offshore wind farm. Billed by some as the “next 38 Studios”, it’s actually even worse as the price tag will be hundreds of millions of dollars. IIRC, the increased cost to governments alone from purchasing inflated electricity will be $1.5 million a year. The environmentalists I know don’t even like the project. The only plus side to anybody other than cronies appears to be reduced electric rates on Block Island. Well, I may have cheaper electricity, but I don’t get to live on an amazing island. Nevertheless, if it’s important to bring those rates down, then direct subsidies would be cheaper.
10. Partner with other New England states on increasing gas pipeline capacity into New England. A while back City Lab ran a story talking about a new gas pipeline under the Hudson River into New York City. As you probably know, gas is dirt cheap right now because of plentiful supplies from fracking in places like Pennsylvania. But that doesn’t help if the gas can’t get there. The Northeast has been under-pipelined. But as you can see, New York City is seeing the infrastructure investment to bring this online. New England isn’t. Here’s the money chart showing the price spikes this produces:
I’m not sure why no new pipelines have come into New England, but I’d certainly make it my business to find out. By the way, some residents do heat their homes with natural gas. I did when I lived in the state. So beyond industrial customers, think about what that chart means to struggling Rhode Islanders’ winter heating bills.
Sadly, the state seems to be moving in the opposite direction as the legislature passed more laws this year that will at first glance raise rates still higher.
11. Cut to Invest With a Major Infrastructure Bond. Bruce Katz at the Brookings Institution likes to talk about a principle called “cut to invest.” That means making cuts in current spending in order to invest in critical items like infrastructure. Rhode Island’s infrastructure is in rough shape so that approach is needed here. Interest rates are rock bottom right now so there’s no better time to borrow. As the Fed dials back on quantitative easing, the window may start closing on this. Rhode Island needs to identify cuts in ongoing spending sufficient to finance payment on a major infrastructure bond targeting roads, bridges, and schools. I’m not talking about adding any new road capacity here, just doing things like rehabbing or replacing the existing crumbling bridges and obsolete school buildings.
As the Sakonnet River Bridge debacle shows, this money is going to be spent one way or another. Better to do it now on the state’s terms instead of later when it will cost a whole lot more to, for example, fully replace decayed structures that could have been saved if they’d only been properly maintained.
Under no circumstances should Rhode Island issue a bond without the full necessary funding stream for repayment allocated up front.
12. Investigate shared startup/co-working facilities. Instead of paying companies to set up shop in Rhode Island, invest the sales effort into luring operators like TechShop to create locations in Rhode Island. These types of co-working facilities can reduce the cost of capital and risk of entrepreneurship. I’m not a big fan of government building these directly, but they are a key part of the startup infrastructure of a community these days.
13. Build more Quonsets. NYU economist Paul Romer has advocated for a “charter city” concept in developing countries along the lines of a charter school as a way to bypass dysfunction. Rhode Island already basically applied that concept at the former Quonset naval base. Quonset is everything Rhode Island is not. They’ve invested in first class infrastructure. They have a single zoning classification, business friendly performance-based development standards, pre-permitted sites, a single point of contact for approvals, and a 90 days to groundbreaking pledge. Port users even have a tax advantage in that they are exempt from the Army Corps of Engineers import duty because the state instead of the feds paid for the port improvements. The result: 9,000 jobs, including 3,500 created in just the last few years.
Why not replace this model elsewhere by partnering with towns to create more Quonsets? When I pitched this idea at a RIPEC event, an economist with Beacon Hill Institute in Boston wasn’t a big fan. He critiqued it on two basic points. One is that the businesses who located there probably would have been elsewhere in Rhode Island. The other was that the $10,000 a job in infrastructure investment was too high.
I think the first criticism is fair and must be true to some extent. Additionally, some of the jobs are directly port related and there isn’t another deepwater port handy that I’m aware of. However, there’s no hard data on this and my assumption would be that at least some of the non-port jobs must represent a net gain to the state. In any case, Quonset is the best thing going in the state right now, so why not give the model another chance? Also, keep in mind that a state like Tennessee paid $250,000+ per job for a VW plant. $10K/job – not in subsidies, but infrastructure – is small potatoes as these things go, particularly in state where the infrastructure is decrepit. I’m pretty sure if I told the legislature they could create middle class jobs at $10K a pop in infrastructure, they’d sign checks all day long.
At Quonset, the state is the developer. For new sites, I’d look to partner with a private developer, with a state authority as infrastructure partner and approval provider a la Quonset.
I won’t suggest this list is anywhere near where the state needs to be. It doesn’t address key issues as the local level like regulations that hobble building, or the corruption/cronyism issues. But hopefully this provides at least some tangible first steps that could get the state pointing in the direction it needs to go.
As with my guiding principles list, some of these items were originally suggested by other people.
Thursday, July 10th, 2014
Sunday I described how Rhode Island’s fundamental economic problem is that it has been acting like it’s selling a premium product from a structurally advantaged position when in reality it’s selling a commodity product into a highly competitive global marketplace. Unsurprisingly, it hasn’t gotten a lot of takers.
Before giving my starter set of action items, I want to provide a brief decision toolkit in the form of a set of guiding principles or questions to help people evaluate any proposed solutions. I won’t pretend this is a totally comprehensive list, but clearly these ought to be front and center.
Here are six questions that should be asked in evaluating policy:
1. What does this proposed policy mean to us, considering our competitive context?. This is where Rhode Island has to swallow hard and recognize that it is not a premium location for business and has start behaving like and making decisions like it’s in a competitive market. That’s gonna be tough, but it’s imperative.
Another way to think of this is my question about how to best embody the values of Rhode Islanders into a contextually appropriate policy set. It may be that in some cases, economic development takes a back seat. For example, Rhode Island is a “must shelter” state for homeless families. That is, families have to be given a place to stay, even a hotel room, if they are homeless. I’m sure this costs a lot of money, but I don’t care. I’d personally be willing to sacrifice some economic growth for this purpose (assuming someone made the case that eliminating this mandate would affect that). On the other hand, is it really necessary for people on temporary disability to be able to double-dip from both their employer and the state administered benefits fund? I don’t think so.
Rhode Island has to ask what the results of a policy will be in the Ocean State, not just how well it worked out in New York, San Francisco, or Seattle. Again, like it or not, the state border is never more than a few miles away, and in today’s globalized economy, localities are at the mercy of the market. As progressive commentator Ramsin Canon put it regarding Chicago:
What we’re feeling viscerally, but seeing from too close to appreciate, is the logical end of decades of neoliberalization of government, which has transformed a managerial state into an entrepreneurial one. Our Mayors are now “entrepreneurs-in-chief,” and the result is that governance has been transformed from a participatory process of pooling resources and regulating behavior for the public good into one of government by private negotiation and enticement of capital through competition between states, cities, and even neighborhoods.
Why not raise property or luxury taxes, or institute a city income tax, to make up the deficit? Why not divert money from the TIF districts? See above; Chicago is no longer a political community, it is an economic entity that is in competition with other cities in the region, in the state, across the world. In that mental framework, tax is cost, or price. You raise prices, you drive away your clients.
Read the full piece for his prescription for change – again from a staunch progressive. Regardless of what we think of current conditions, anyone left or right has to start with an acknowledgement of reality.
In my view this means that in most cases Rhode Island needs to be a bandwagon jumper, not a bleeding edge innovator, on things like green energy and social service levels. Let California experiment with cap and trade or other things, succeed or fail as the case may be, and once there’s a proven model that’s economically efficient, jump on board. It’s like how flat panel TVs were originally the province of the rich, but eventually got perfected and prices collapsed down to where they became the norm. Similarly, when it comes to mandated benefits, if there’s one the state wants, rather than being one of the top five early adopters, wait till a tipping point gets hit (say 25 states) and join in then. Or think of it as a “pick your battles carefully” approach. But always be aware of the competitive context.
2. Is Rhode Island continuously improving at a rate faster than its competitors on a long term, sustainable basis? A second factor to consider is that it took a long time to get into this situation, and it will take a long time to get out. It’s just like losing weight. There is no silver bullet. There is no quick fix. There is no magic pill. We need to make lifestyle changes over the long term to get us where we want and need to be. As local consultant Kevin Hively once put it, “Rhode Island needs to change its diet, not take a shot of 5hr Energy.” And that’s dead on.
The guiding principle here should be: “Continuously improve at a rate faster than your competitors are improving over the long term.” And that’s the second way to evaluate policy proposals. Are they part of a sustainable program of change? Or are they just a flash the pan? Are they a gimmick? And are they improvements that are outpacing the improvements we know every other state is striving to make? Just because it’s better than the state’s past doesn’t mean it isn’t still falling further behind. Rhode Island needs to keep a finger on the pulse of the competition and what it’s doing. But it’s a journey and it’s lifestyle change.
And it needs to be maintained for the long term. Short term upticks can lull us into complacency. For example, as the national jobs picture improves, Rhode Island’s unemployment rate has fallen. But we’ve seen this movie before. Back in 1984 when the Greenhouse Compact failed, its opponent did a jig on its grave when Rhode Island’s economy had a moment in the sun. But it quickly faded and look where the state came to decades later. Rhode Island has to see evidence of improving strength across business cycles, not just following along in the footsteps of the national economy.
3. Is Rhode Island addressing the areas where it is worst in class or otherwise particularly disadvantaged? Since it is a long journey, Rhode Island has to know where to start and where to go next. The state should start where it’s worst in class or where it has things that are particularly causing competitive problems, the things that are directly a burden on job creation and economic growth.
For example, I hear about people wanting to eliminate the estate tax. I’m not a big fan estate taxes, and there were some particular problems with the so-called “cliff” that the legislature did something about this year. But is the estate tax the biggest thing discouraging people from starting a business in Rhode Island? I don’t think so. You have to have earn your estate first before you worry about paying taxes on it.
Similarly, the Republicans have really focused on the sales tax. Rhode Island’s sales tax isn’t low, but it’s not nearly the highest in the country either, especially when local taxes in other states are factored in. It’s almost 10% in Chicago, for example. In response to my City Journal piece, one local free market type said that his reason for advocating a sales tax cut was border arbitrage. But “beggar thy neighbor” policies and border wars are seldom positives over the longer term and generally indicative of “5Hr Energy” thinking. That’s doubly true in this case when Massachusetts has way more ammunition to fight with. The sales tax needs to be looked at competitively, but in a broader context and at a the right time.
On the other hand, Rhode Island has the worst rated unemployment insurance system in the country. That’s a direct burden on business. Places like that are where to start.
4. Is Rhode Island moving toward or away from the right balance between consumption vs. investment spending? Rhode Island government as a whole only spends 4.8% more per capita than the national average. But Rhode Island is well above average in spending on consumption items like social services and very below average in spending on investment items like infrastructure and higher education. Rhode Island spends 52% more per capita on human services than the national average. But it’s 47th in per capita higher education spending and has the 4th worst rated bridges in the nation.
I believe the state has to rebalance away from consumption towards investment. I’m not suggesting that Rhode Island gut its safety net. I’ve personally received government benefits and can attest to their importance. I won’t even say Rhode Island needs to have below average social services. But on a whole range of items it’s in the top five states in America. That’s simply not realistic given the competitive context, financial condition of the state, and the dire need for longer term investment.
But whatever your take, you should come up with a point of view on the right balance, and evaluate policies based on how they adjust the dials towards or away from that target balance.
5. Is Rhode Island promoting and de-risking entrepreneurship and the scaling of local businesses inside the state (vs. targeting large corporations and luring businesses from elsewhere)? Rhode Island needs to remember how it made its money in the first place. It did it through mostly through home grown businesses. It’s the same with other places. The Big Three were founded in Michigan. Most firms in the Bay Area started there – Google, Intel, Cisco, etc. Facebook may have moved, but it was tiny at the time.
So the state needs to adopt that mindset again. It’s going to have to grow its own success stories, and focus on creating an environment that’s conducive to that, not convincing fickle firms from elsewhere to pick it in a site selection. Post 38 Studios, I think that should almost go without saying. And again, the state doesn’t have enough financial ammo to get in bidding wars for business in any case.
CVS is an interesting case study here. It does get subsidies from the state, but fundamentally why is CVS in Rhode Island? Because, although it was originally started in Mass, the founders were from Woonsocket. So they grew it there and now the company has a huge headquarters in the state. Rhode Island needs to build more home grown success stories like that over the longer term.
6. Is Rhode Island setting policies and making investments like an integrated urban region (a city state)? Rhode Island is the city-state. People there say it a lot, but don’t act like it. Instead, all of its 39 cities and towns are treated similarly, and as completely autonomous independent entities, not part of overall urban or metropolitan region.
In the 21st century economy, it’s metropolitan areas, and particularly metropolitan areas of greater than a million people, that are the hubs of economic activity. That’s Rhode Island (aka Metropolitan Providence). That’s good news. That is a structural advantage, but the state isn’t taking advantage of it because it doesn’t make policies like it’s an urban region. Its policies today seem more like it thinks it’s collections of villages in the English countryside.
For example, when the state extends the T to Wickford Jct. and proposes to extend it all way the Westerly, that’s not investing like an urban region. When I hear people pounding the table for why agriculture is so key to the state’s future, that’s not thinking like an urban region. Clearly the tradition of New England towns isn’t going away and that limits what can be accomplished, but it’s important to ask what can be done to move the needle in the right direction.
So those are six questions to ask when assessing policy. In my final installment, I’ll give some specific suggestions for how to get started moving forward.
Full disclosure: I took a couple of these ideas from someone else who I’ll leave anonymous so he or she doesn’t end up guilty by association with me.