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Why Your City Might Be the Next Detroit

Peter Katz / Aug 02 2013

For Release Friday, August 2, 2013
Citiwire.net

Peter KatzThe headline on Time magazine’s cover story on Detroit’s bankruptcy poses a simple, scary question: “Is your city next?”

Most of us can think of reasons why our community is different from Detroit. Unless you’re in an older industrial city, Detroit probably doesn’t look much like where you live: The largest of America’s Rust Belt cities, Detroit’s aging infrastructure is visibly crumbling as nature retakes empty factories and once-proud neighborhoods. Haunting images of such decay accompany much of the recent web coverage about Detroit’s fiscal woes.

Yet the picture on Time’s cover shows something different: It’s the top of General Motors’ fortress-like headquarters, known locally as “RenCen.” The futuristic slice of 1970s architecture would be a great backdrop for “The Jetsons” and their flying cars. Unfortunately, the flying cars never arrived for GM, and the company sank into the largest bankruptcy in U.S. history. So it stood to reason that the city of GM might eventually succumb to the same fate.

It’s ironic that the obsolescence that companies like GM built into their cars now permeates our thinking about place. Just as many drivers regularly trade in their old ride for a new, shinier one, generations of Rust Belt residents have traded in their gritty hometowns to retire in the warm places where they once vacationed. Expectations that the trend would continue prompted massive growth-related outlays in Sunbelt municipalities. But the 2008-09 downturn wrought havoc north and south: slashed retirement accounts and stalled home sales locked many older workers into jobs and housing they couldn’t afford to leave; Sun Belt communities faced huge bills with too few residents to pay them.

Another well-publicized cause of GM’s downfall – its enormous pension fund obligation to retired workers – was also a significant factor in Detroit’s bankruptcy. Such “legacy costs” are not unique to GM, Detroit or other recently bankrupt cities such as Stockton and San Bernardino, Calif.; they’re a growing concern for municipalities everywhere.

But whether it’s Rust Belt stagnation, legacy costs, or other financial missteps by municipalities under stress, the big “duh” is that the money needed to operate local government is greater than the current revenue coming in. In my opinion, the primary reason for this shortfall, and the common thread connecting Detroit, Stockton and your community, is that the low-density settlement patterns municipalities have adopted over the past half-century make it virtually impossible for new growth to pay its way.

Unfortunately, the chief cause of the problem, use-based zoning, goes unrecognized by most residents – and the journalists who cover cities because the regulatory practice is both ubiquitous and highly technical. Since zoning is mostly about dealing with impacts, with the result of most conflicts being a reduction in density or scale to appease neighbors, the amount of revenue that results from new development is also reduced. Increasingly, the tax base – the private property that government assesses to pay its bills – has shifted from high-value, close-in, compact and mixed-use downtowns and city neighborhoods that are thrifty in their use of municipal infrastructure and services, to land-hungry, low-density, single-use sprawl that generates a weak return in relation to the huge costs that governments take on to accommodate such growth.

During the boom years, the problem was easy to ignore. But in the lean times since, such issues are increasingly important to cash-strapped municipalities. Yet unlike pension fund liabilities that can be negotiated downward in a bankruptcy, there is no avoiding the future maintenance and service costs of low-density development.

Recognizing the problem, some municipalities assess impact fees on new development. But such one-time fees are long gone when aging infrastructure needs replacement. With insufficient tax collections and few other resources to fund such expenses, government must look to local assessments or higher taxes – problematic because steep increases are restricted in some states, and unpopular everywhere.

The issue is one I wrote about in Planning magazine in 2010. The article detailed the dramatic results of a tax revenue study we conducted when I was director of smart growth and urban planning in Sarasota County, Fla. Among its findings was that a single mixed-use downtown building on less than one acre was generating more tax revenue, on a per acre basis, than two of the county’s most prominent shopping centers. Those two developments, more than 50 acres combined, require much more in government services and infrastructure than the single downtown building. Looking at actual taxes paid, the single building brings in $350,000 more a year than the two centers.

Such tax disparities are the focus of a recently released national study by Smart Growth America called Building Better Budgets and extensively discussed in a just released special issue of Government Finance Review. The special issue documents the problem of shrinking revenues from multiple viewpoints; my article, “The Missing Metric,” (available for download at the link above) suggests a different approach to granting development approvals for communities seeking to expand their tax base.

With municipal budget woes dominating media headlines, it’s not surprising that some local governments are taking a fresh look at the financial impact of projects they approve. But exploring new options is easier than actually getting such approaches adopted. With local planning matters increasingly dragged into polarizing red/blue  debates, “following the money” may be the best way to find common ground for smart growth activists who fight sprawl for social and environmental reasons, and fiscal conservatives who fight it to safeguard precious government dollars.


Peter Katz is an author, lecturer and planning consultant who focuses on emerging best practices in community development. Author of The New Urbanism: Toward an Architecture of Community, he was the founding executive director of the Congress for the New Urbanism and a cofounder of the Form-Based Codes Institute. Reach him at pkatz@place-first.org.

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2 Comments

  1. Cave Johnson
    Posted August 2, 2013 at 11:29 am | Permalink

    “With local planning matters increasingly dragged into polarizing red/blue policy debates, “following the money” may soon become the shared focus for smart growth activists who fight sprawl for social and environmental reasons, and fiscal conservatives who fight it to safeguard precious government dollars.”

    I hope you are right about this, but I’m not optimistic. I’ve encountered too many self-described fiscal conservatives who do not think this way. Fiscal conservatism does not mean running government finance well, it means lowering expectations, providing few services and asking little in return. Privatization and service reduction are not for the purpose of saving money, they are the whole point. Whether its actually in the long-run financial interest of the community is not really the point.

  2. Posted August 3, 2013 at 5:42 am | Permalink

    Well stated, Peter. Fiscal pressures on local governments are intense and unremitting. Governing bodies need to adopt new paradigms of fiscal management. Lean government, pension reform, smart-city technologies are all part of the toolkit. But I share your view that, in the long run, the most important tool is adopting analytical perspectives like those you describe so city councils and boards of supervisors can make more fiscally sustainable land-use decisions.

    I do not share Mr. Johnson’s pessimism regarding fiscal conservatives adopting these changes. The problem today is that almost all elected officials are locked into a devil’s choice of raise taxes-or-cut spending. What has been lacking heretofore is the analytical breakthrough that Peter describes. It will take some missionary work in the local governmental sector, but those ideas will spread precisely because they do offer a way out of the dilemma.