Strong Towns advocate Charles Marohn maintains that “our post-World War II pattern of development operates like a classic Ponzi scheme, with ever-increasing rates of growth necessary to sustain long-term liabilities.”

… government benefits from the enhanced revenues associated with new growth. But it also typically assumes the long-term liability for maintaining the new infrastructure.  This exchange — a near-term cash advantage for a long-term financial obligation — is one element of a Ponzi scheme.

The other is the realization that the revenue collected does not come near to covering the costs of maintaining the infrastructure. … In America, we have a ticking time bomb of unfunded liability for infrastructure maintenance. The American Society of Civil Engineers (ASCE) estimates the cost at $5 trillion — but that’s just for major infrastructure, not the minor streets, curbs, walks, and pipes that serve our homes.

The reason we have this gap is because the public yield from the suburban development pattern — the amount of tax revenue obtained per increment of liability assumed — is ridiculously low. Over a life cycle, a city frequently receives just a dime or two of revenue for each dollar of liability. The engineering profession will argue, as ASCE does, that we’re simply not making the investments necessary to maintain this infrastructure. This is nonsense. We’ve simply built in a way that is not financially productive.

Every so often, an article comes along that pretty much proves his point.  For example, in the New York Times of Sep 1: Infrastructure Cracks as Los Angeles Defers Repairs.

LAWith each day, it seems, another accident illustrates the cost of deferred maintenance on public works, while offering a frustrating reminder to this cash-strained municipality of the daunting task it faces in dealing with the estimated $8.1 billion it would take to do the necessary repairs. The city’s total annual budget is about $26 billion.

… the sheer size of Los Angeles, its reliance on the automobile and, perhaps most important, the stringent voter-imposed restrictions on the government’s ability to raise taxes have turned the region into a symbol of the nation’s infrastructure woes.

Even fiscal conservatives eventually see the problem:

Kevin James, a conservative talk-show host who ran for mayor last year and was appointed by (LA mayor) Mr. Garcetti to lead the Board of Public Works, said a sales-tax increase was needed to deal with a serious threat to the city’s well-being.

“A lot of people are going to say they feel overtaxed,” Mr. James said. “I’m not saying we’re not. But it means going to the voters, as I am prepared to do on behalf of Mayor Garcetti, to make the economic argument that $26 a year, which is what you would spend on a half-cent sales tax increase, is a lot better than $830 a year to fix your car.”

Unfortunately, they’re still missing Marohn’s point: it’s not failing to make the investment; it’s failing to build the right kind of community that can pay its way in the long run – maintenance costs included.

 

Comments

  1. Well stated. The Achilles heel of democracy: vote yourself benefits at the expense of someone else, such as the yet unborn.
    Unlike Europe though, the US has the capacity to increase taxes, such as gasoline taxes which are ridiculously low or a federal GST. In time, it will come, once things get really bad. Everything publicly run will get worse due to fiscal restraints: healthcare, education, social services, roads, .. and as such more privatization (but also higher taxes or user fees will have to happen here, as we see today in higher education and/or in healthcare which also is not sustainable in the current form.
    it would be good to see a perspective on Canadian cities here as our taxes are generally higher, our cars smaller and many cities denser than US cities.
    Perhaps it is the 2000+ year old European model where we are all headed ? Far higher taxes, far higher healthcare premiums on top of that, far higher EI/CPP/old age acre deductions off your pay cheque, more debt, smaller cars, denser cities, more bikes, far more expensive energy, more public transit, less immigrants ?

  2. LA’s issue, such as there is one, is a fiscal issue and not a development pattern issue. Most of LA is not developed on the low density low intensity pattern that Charles Marohn criticizes. And property taxes in US cities are often much higher than they are here, it’s just that they have to fund more services that are not funded at the state level. Actually the LA statistics mentioned the the articles are not that bad. The deferred maintenance could be spread into a multi-year program at quite reasonable costs.
    Certainly many US municipalities and agencies seem to have run into horrible trouble with pension and healthcare liabilities. Sometimes it was a means of reducing current pay and current taxes in exchange for future benefits. Other times it just seems like the agencies didn’t know what they were doing. Trimet in Portland has a pension and healthcare liability that threatens to eat the transit system for breakfast. Health care cost inflation has recently slowed in the US, but it romped for 20 years, so promises like free healthcare for retirees are way bigger now than when they were made.

    1. Indeed. The articles also do not mention the unsustainable healthcare and pension deficits forced onto tax payers by monopoly public sector unions. it is not all infrastructure / road / sprawl related.

  3. An interesting hypothesis, however it is my understanding that of the Lower Mainland’s major municipalities, the densest, Vancouver, is in the worst financial shape. Please correct me if I’m wrong.
    Furthermore, Vancouver seems the most addicted to the “ponzi scheme” of constant redevelopment in order to generate development fees, CAC’s etc to pay for services.

    1. To buy votes the left-leaning Vision council has kept residential property taxes too low and spending too high. Vancouver really is a “suburb” to more industrial cities with a healthy business base such as Surrey, Richmond, …

      1. The NPA ran Vancouver for most of the last 80 years. They set the residential/business tax split and Vision has actually shifted it slightly toward residents during their time in office. I understand you think it should be shifted far more onto the backs of home owners, but any significant shift would be certain death for the party in power at the ballot box.

  4. Another aspect is the “sexiness” of the infrastructure project.
    Sewers and water mains don’t get as much publicity as healthcare, community centres, transit, beautification projects, roads or schools.
    There has also been a slow creep from taxes paying for the “essential” items to paying for the “nice to have” items – like catering to the “aspirational” shopper.

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