Show of Force Won the Day

Update: At end
Encinitas citizens! It looks like it's showing up in real numbers with clarity of purpose that matters right now.  The Crest Drive neighborhood's more than 2 dozen speakers, the well prepared organization of Kevin Farrell's diligent application, and organizing from several groups, a petition drive with hundreds of signatures and familiar faces from other neighborhoods all contributed to a successful appeal.

The following clips capture most all of the public speakers, grouped with 3 or 4 each. Pass them around the city, send them to organizations you belong to with this optimistic sense of power to the people. This first one begins with Appellant Kevin Farrell, Architect for the proposed Backus Residence.



Rick Backus, owner of 1794 Crest Drive property, Boone Hellmann UCSD campus architect who lives in Cardiff (punched holes in staff report compliance imperatives) and Ron Grimes who heads the Palomares Heights Association gave history of threats to Crest Drive since 1982.



Debbie Barley, Elizabeth Cotton, Charles Smith and Alan Aberhothe (?) all question what is going on with the city staff's lack of service to community. What can't be shown at a council meeting are the months and months of struggling with staff. Only through testimonials like this is a bright light shown on the behind the scenes city processes.



Appellant Kevin Farrell's daughter, L Farrell (?), Jennifer Lutz with her dad, John Lutz and Kyle Malloy speak out. Public Hearing of the appeal of Engineering conditions for public improvements adjacent to 1794 Crest Drive. What a good sign for Encinitas when younger people show up at the city council meeting ready to speak.



Just when you think you have heard all from these activists, they provide more insight into the community. Within the 15 minutes that these regulars activists participated in this one hour long public hearing. Several captured here are Mark Wisniewski, Delores Welty & Sheila Cameron.



Lastly, the issue of costs. Speakers like David (last name unclear), Ted Goldberg and Jennifer Hewitson raised the issue of the exhorbant costs. Ellen Speert spoke about Nature Deficit Disorder while many simply shared their stories of moving from somewhere else and Crest Drive was a place they love. Sandra Goldberg, Elizabeth Gilpin, Jerry Louis, Helen Konig and Mark Scoular.



Apologies for spelling and other name errors.

Update: From Patch article comments:


kevin farrell
10:03 am on Monday, August 20, 2012
As a follow up to my accomplishment for this particular case on Crest, the mandate from the city engineering department for drainage swale, curbs and sidewalks in all parts of encinitas will now change. It is up to all builders, owners and design professionals to question and scrutinize the forced ROW (right of way) items from this engineering department. All old encinitas areas are effected by our 5-0 City Council vote. I would like to thank this City Council and all whom assisted in this
8 month endeavor. My goal is to keep our Community Character in our control, not an overbearing engineer's.

Kevin Farrell, Architect

Tamara Backus
6:13 pm on Monday, August 20, 2012
Thanks you's to everyone who came and spoke at the City Counsel meeting last week! Kevin Farrell put together an incredible petition drive and appeal, and we will be forever grateful! We were so heartened by the number of passionate Crest Dr. and non-Crest Dr. residents who came out and patiently waited for their time to speak in support of this appeal. Crest Dr. is a magical street that should never be changed, and we are so pleased that our Mayor and City Counsel came to that conclusion, as well!
Again, Thank You to all who signed the petition and came to support us in our appeal!
Warmly,
Rick and Tammy Backus

Growth Ponzi Scheme, Crash Course Part 5

In lieu of the regular Tuesday is Dues-day, this is the crash course finale to the Growth Ponzi Scheme.  Rather than just a day for citizen tips, this last week following "Independence Day" has been devoted to the dues of a five comprehensive installments regarding the destruction of wealth in our current development model.  Independence Day is in quotes as is its getting tougher to deny the utter dependence on our current broken economic practices and the effect on our lives.


by  CHARLES MAROHN
There is a fine line one walks when doing a series like this, and I struggle with it myself. On one side of the line, there is a tremendous problem we've identified, it has dramatic consequences that we are largely unaware of as a culture, and I want to yelp at the top of my lungs to make people aware. On the other side of the line is an awareness that the world does not want to listen to a sky-is-falling, doom-and-gloom, pessimist. We tend to call such people "crazy" and, in time, zone them out.

In this regard, I am certain that some people felt my last comment yesterday was unnecessarily provocative. 

Our national economy is "all in" on the suburban experiment. We cannot sustain the trajectory we are on, but we've gone too far down the path to turn back. None of our dominant political ideologies can solve this problem. In fact, there is no solution.

I feel bad, but I am not trying to be provocative. There truly is no solution. This may be disappointing to those of you that have hung with this series -- or by the hit counts on our site, joined mid-week -- because I have no magic bullet, no series of policies and no simple course correction that solves our current financial spiral. There truly is no solution.

Let me pass on an analogy I have used here before. Let's say that a person gets in a car accident. For whatever reason, they are seriously injured -- maybe even disabled -- and they don't have insurance of any type. They are unemployed and have no savings. What's the solution? There really isn't one. But looking at the situation, there are responses that a third-party observer would call "rational" and "irrational". 

America is in a slow-motion car wreck. Lots of people are being hurt by it, some very badly. We've long lost our insurance by accumulating so much debt. We've also relinquished our production capacity. And we have little savings to speak of. What's the solution?

I wish I had one. I really do. I would be a very popular person, indeed. Unfortunately, all I can offer are rational and irrational responses.

For me, the rational response starts with this picture.

This is my hometown as it appeared in 1894. Today this street looks like Dresden in 1945, an empty wasteland of parking lots and low-value, partially-abandoned buildings. But in 1894, this place rocked. Look at it! Look at those buildings -- we'd give anything to have that here today.

Now ask yourself how this existed in the first place. How did we build such an amazing place before the home mortgage interest deduction? How did we accomplish this before zoning? Before the International Building Code? What created this place before we had state and federal subsidies of local water and sewer systems? Before HUD? Before DOT? Before the state highway system? Before Fannie and Freddie and subprime mortgages and collateralized debt obligations? How did we ever accomplish this before tax abatement, tax increment financing, SBA and local economic development? Heck, we did this before the advent of the 30-year mortgage!

Here's the answer, and the key to the correction we need to make: We built places that financially sustained themselves. Do you know how I know this? Simple. If this place did not financially sustain itself, it would have gone away. In 1894, nothing was going to artificially prop it up.

This is not an anti-government argument. In fact, just the opposite. To pull off what my ancestors created -- a successful town in the center of the deep woods of Minnesota -- they had to have excellent government. Their future depended on it.

They had to organize themselves and use their collective resources very wisely. I look at the pictures of the beautiful way in which they maintained our now decrepit parks, the purposeful way in which they placed grand public buildings, the way in which they regulated the public realm and it is clearly evident to my trained eye that these people understood how to wring every penny of value they could out of their built environment. They knew the art of placemaking.

Today we have largely relegated this art to Disneyland and isolated parts of the faux-downtowns we are trying to "revive". We have the New Urbanists to thank for resurrecting the lost knowledge of placemaking, much the same way engineers of the Renaissance recaptured the knowledge of the Roman bridges and aqueducts, an understanding literally lost for centuries. The transition in our understanding has been no less dramatic.

So there's the primary supporting strategy: placemaking. We need to wring more value out of our places and that is only going to happen if we understand how to create value in the first place. This is a monumental task because for two generations we have built our places without bothering to consider how they would be sustained (or whether they would even be worth sustaining). None of our public officials has ever asked the question: Will this public project generate enough tax revenue to sustain its maintenance over multiple life cycles? Try asking that -- you will be amazed.

So a rational response is to start insisting that our places show a positive financial return. That will require a completely different approach to building our cities along with a completely different understanding of growth. If you need help getting started on this, check out our Starter Strategies for a Strong Town as well as our Strong Towns Placemaking Principles. 

In addition to this, there are two irrational responses that we need to acknowledge. The first irrational response is to simply continue the present course until we are forced to change.

I'm astonished and more than a little depressed at the shallow nature of the public debate we are having over this crisis. Do we cut the budget or spend more? Do we raise taxes or reduce them? Does raising the debt ceiling signal fiscal responsibility or a lack of restraint? Do we build rail lines or highways? How do we restore housing values? How do we lower unemployment? And this is a sampling of the more intelligent lines of thought going on amidst the salacious and the ridiculous.

Nobody has acknowledged that a) the bubble economies of tech and housing were not financially real, b) we can not "recover" to a condition that was not financially real in the first place, and therefore c) we need to start focusing on a transition to something close to reality, which is a long ways from where we currently are. (editor emphasis)

This brings me to the second irrational response; Clinging to the belief that nothing needs to really change. 

Yesterday I had someone tell me, "Chuck, I think you are right. I can't argue with a thing you say. But I believe in the ability of the American people to adapt and innovate and overcome any challenge we face."

Let me interpret this statement because I hear it all the time. "Chuck, I think you are right, but I believe that someone, somewhere is going to come up with some trick or gadget that will solve this mess and keep me from having to change my lifestyle too much." I wonder if the Americans of 1870 or 1930 had this same belief (or the inhabitants of Easter Island).

I firmly believe that we have the ability to adapt, innovate and overcome. We will emerge from this a better people. But I don't see a way through this that allows us to keep the same lifestyle, the same living pattern and the same lack of productivity in our places. Like our innovative and resourceful ancestors before us, we'll find a way. But like those ancestors, it is going to involve a lot of painful change. Wishing for a miracle is fine, but depending on a miracle is irrational.

At Strong Towns we are trying to explain our current financial crisis -- and the transition in our living arrangement that must happen -- in a way that local officials can understand and discuss in their own communities. We are also working hard to develop the tools that are needed to help our cities, towns and neighborhoods make this difficult transition. [snip]

by  CHARLES MAROHN
This Crash Course is a product of Strong Towns and use is authorized via  a Creative Commons Attribution-ShareAlike 3.0 Unported License.

Growth Ponzi Scheme, Crash Course Part 4

In today's Myths Encinitas at the Our Mayor Stocks blog, is the mythical strength of described in this crash course. Jerome's Stocks state of the city speech excerpts the perfect illustrations of the growth Ponzi scheme. No, he didn't invent this, but he is unwilling to invite any alternatives. Part 4 follows here.

The great American experiment in suburban development entices communities to take on long-term liabilities in exchange for near-term cash advantages (see Part 1). But as those liabilities cost the community more than the development creates in overall wealth, the approach ultimately results in insolvency (see Part 2). To forestall the day of reckoning, more growth is induced, setting up a Ponzi scheme scenario where revenue from new development is used to pay liabilities associated with old development (see Part 3). This is unsustainable, but that has not kept us from trying desperately to keep it all going.

Much of my thinking in this post was shaped by my reading of Richard Florida's The Great Reset, as well as follow-up research I have done into the causes of the Long Depression of the 1870's and the Great Depression of the 1930's.

While these events defy simple explanation, the Long Depression included an over-development of the nation's railroad system and a corresponding malinvestment in speculative real estate associated with railroad expansion. Also, the increased access for farmers to broader markets helped create a commodity price crash, which was exacerbated by overproduction. Farmers with declining profits produced more to compensate, driving down prices. Price drops were so dramatic that some crops became more valuable for burning than eating.

The depression persisted until there was, as Florida calls it, a "spatial fix". In essence, our capital and productive capacities were redirected from farm expansion and railroad-based speculation into industrialization and building of the industrial city. The result was the Industrial Revolution, a dramatically different living arrangement than the formerly-agrarian America had known up to that point. For many people of that era, this was a painful transition.

Fast forward to the 1930's. Economists and social scientists argue over the causes of the Great Depression as well as the factors that ultimately ended it. What is clear is that the lack of fundamental growth in our real economy was made up for with an expansion in the paper economy. Industrialization had brought huge gains in productivity, production-capacity that actually outstripped our consumption-capacity. Leverage-driven speculation on continued profit gains created a financial bubble that, when deflated, proved destructive.

Years of New Deal spending failed to create enough demand to correct the imbalances. Spending for World War II provided a temporary recovery, but economists at the time were concerned that the end of war spending would send the United States back into depression. What happened next was another spatial fix; suburbanization. We redirected our capital and productive capacities to building suburban America and created the greatest economic advancement the world had ever seen. It was a very painful transition, especially for our major cities.

This is where I (humbly) depart from Richard Florida. It is not that I think he is wrong -- he argues that suburbanization has run its course and that the new, creative economy requires a spatial fix that will favor highly-connected mega-regions -- but that there is a pivot point critical to understanding our current situation.

That pivot point comes roughly one life cycle into the suburban development pattern, the time when the financial structure of the Growth Ponzi scheme starts to have outflows (maintenance costs) in addition to inflows (new suburban growth). This would have been roughly during the mid-1970's, when we were forced to leave the gold standard, had an energy crisis and experienced a convulsing economy characterized by the new term "stagflation". Another new term -- the Misery Index -- was used to measure the painful impacts of high inflation and high unemployment.

Once again, there is a ton of complexity here and I'm not trying to oversimplify things, but ours is an economy that relies on growth and, in the post-WW II era, growth has largely meant horizontal suburban-type growth with all of the related consumption. We embarked on a path that makes us reliant on new growth to generate excess wealth. When that new growth becomes old and starts to cost us money, it puts contraction pressure on the economy that counteracts the near-term, financial benefits of new growth. (See Part 3).

The critical insight today is to understand how we reacted to the end of the first life cycle of suburban development, when those maintenance costs started to come due and cut into our growth-generated wealth. This time there was no spatial shift as seen in the other large, economic corrections. Instead, we made a choice to double down on the suburban experiment by taking on debt.

We used debt to drive additional growth and sustain the unsustainable development pattern for a while longer. A lot of this debt was public debt, but we facilitated mechanisms for increases in private debt as well (for example, Fannie and Freddie early on and then subprime mortgages and securitization later). Here is a graph showing our public and private debt levels since the beginning of the suburban experiment. I have noted roughly the first and second life cycles of those initial investments.

Debt levels post WW II as compared to GDP. Note that the green line is private sector debt, which far exceeds public sector debt..The first generation of suburbia we built on savings and investment, but we built the second -- and maintained the first -- using debt. Unprecedented levels of debt. 

And in the process, we transformed our industrial economy into one based on consumption. As James Kunstler has noted quite often, when you take away the suburban-growth-related jobs from our economy, what you are left with is "heart surgery and KFC workers" (his way of saying highly-skilled professionals and low-skill wage earners).

This strategy is a disaster of monumental proportions for the United States. Not only have we created an entire economy based on a growth model that can't be sustained, in the process we have highly indebted our population. The quality employment opportunities available for the masses rely solely on the perpetuation of this unsustainable model, so we can't even work our way out of this mess. We've tied up our individual wealth into homes -- homes whose value is tied to community infrastructure that we cannot afford to maintain without continued hyper-growth, which we are now powerless to induce. So as our wealth disappears and our economy painfully grinds to a halt, we're left with no options to continue on this path.

And to top it all off, we've tethered our national psyche to the suburban ideal we call the "American Dream", our auto-based, utopia where everyone gets to live a faux version of European aristocracy on their own mini-estate. 

Oh, and by the way, the American Dream, as so defined, is absolutely non-negotiable.

Our national economy is "all in" on the suburban experiment. We cannot sustain the trajectory we are on, but we've gone too far down the path to turn back. None of our dominant political ideologies can solve this problem. In fact, there is no solution.

This is why tomorrow we will offer some rational responses -- ways that communities can begin to prepare for the spatial shift that is coming.

 by  CHARLES MAROHN
This Crash Course is a product of Strong Towns and use is authorized via  a Creative Commons Attribution-ShareAlike 3.0 Unported License.

Growth Ponzi Scheme, Crash Course Part 3

Day 3 in examination of growth with Encinitas in mind. Time to roll out the graphs and charts. The ones in this lesson are from a well run town. Looking closely at facts behind the happy talk we in this town hear at every financial presentation reveals a break down on the horizon or even at our feet.  In a few days we'll be able to challenge this happy talk with some real language from these lessons learned.

So far this week we have examined how the American development pattern of the post-WW II era entices cities to exchange the near-term cash advantages of new growth for the long-term maintenance obligation of new infrastructure. This is a bad trade, because as we also looked at yesterday, the pattern of development costs more to maintain over the long run than it produces in revenue. In short, our development pattern is not productive enough to sustain itself.

A new development goes in. The developer builds the street and then turns it over to the city for maintenance. Houses are built and the city sees its property tax receipts rise. Imagine for a moment that the city took and saved the portion of those new receipts that was to be used for street maintenance. If the city did that every year throughout the life of the street, adding the new tax receipts to those already saved, and then used the cumulative savings to repair the street, here is how the cash flow diagram would look.

Cash Flow Diagram for a single street. Revenues are from collected taxes and expenses are due to infrastructure maintenance costs.Everything looks great until the end of the street's life cycle. At that point, the cost of the repairs far outweighs the revenue collected. If the city were reduced to this one street, it would be insolvent.

But a city is not one street. A city has many Peters to rob in which to pay Paul. For example, if the project modeled above were repeated every other year -- a condition where the city was growing at a steady rate -- the cumulative cash flow diagram changes substantially at the end of that first life cycle. By adding the tax receipts from multiple projects together, here is what it would look like.

The cumulative cash flow of multiple projects in succession.

So growth "solves" the insolvency problem. As long as a city continues to grow, as long as it can continue to exchange near-term cash flow for long-term liabilities, it will be just fine. Or so it may appear at the end of the first life cycle.

Here is what happens during that second life cycle. The model I am using assumes that growth continues at the same moderate pace, with a new development of similar size added every other year. 

The cumulative cash flow of multiple projects in succession over two life cycles.The results are obvious and devastating. When the private-sector investment does not yield enough tax revenue to maintain the underlying public infrastructure, the balance can be made up in the short term with new growth. Over the long run, however, insolvency is unavoidable.

We need to pause here and point out a couple of important things. First, this is actually a model of a well-run city, one that puts money away for future improvements. I've yet to see one that has such fiscal discipline. We can spend all day blaming politicians for wasting money on "big government" or giving unwarranted tax breaks to "the rich". These debates are ultimately tragic sideshows to the underlying lack of productivity in our development pattern.

Second, this model shows the impact of continuous and steady growth. In reality, that is not the pattern most cities experience. Most cities have a phase of rapid growth followed by stagnation and then decline, as described by Jane Jacobs in The Economy of Cities. Superimpose the financial underpinnings of the American model of development and the results are even more devastating - a flood of liabilities all coming due right at the time that growth is starting to wane.

I know I promised "rational responses" for tomorrow, but I need to put that off. [snip]  Tomorrow we will examine how America has responded to the economic reality of our places thus far.

by CHARLES MAROHN

This Crash Course is a product of Strong Towns and use is authorized via  a Creative Commons Attribution-ShareAlike 3.0 Unported License. 

Photo by Kevin Dooley via Flickr


Editor note:  There's some serious disagreement around here about the "sideshow" of tax breaks for the rich. LOL Yet, the point is strong about the fundamental issue of lack of productivity in our development pattern.  Bedroom community or not, resilience demands this. 

The Growth Ponzi Scheme, Crash Course Part 2

We in Encinitas know all too well about street maintenance deferred. The crash course from Strong Towns continues. This part will appeal to the more wonky among us who will have some real numbers to crunch in the examples.

In yesterday's post we pointed out how cities routinely trade the near-term cash advantages of new growth for the long-term financial obligations associated with the maintenance of infrastructure. Cities pay little for new growth, but receive enhanced revenue from the development. In return, the city assumes the obligation -- and the long-term financial liability -- to maintain the now-public infrastructure.

At this point, it is easy for any of us to see the perverse incentives underlying this system. Politicians are generally inclined to worry more about the next year than an event that will occur a generation into the future. The public is likely to join them, discounting the future commitments they are making in favor of added financial benefit today. It is near-sighted, yes, but this type of thinking is also part of human nature.

It is tough to forgo real benefits today for the theoretical enjoyment of an uncertain future. The ubiquitous nature of dieting books, dieting plans, diet coaches and diet foods, all in a land of unprecedented obesity, does a great deal to validate this observation.

Examining the underlying finances of our cities at face value, one must acknowledge the following: In order for our development pattern to financially work, the amount of revenue generated by the new growth must ultimately cover the expenses incurred by the public for maintaining the new infrastructure. If cities are not raising enough revenue to repair and replace their infrastructure, the system cannot sustain itself.

Understanding this, we began to collect hard numbers from actual projects and compare those costs to the revenue generated by the underlying development pattern. This work continues, but in every instance we have studied so far, there is a tremendous gap in the long-term finances once the full life-cycle cost of the public obligations are factored in. Without a dramatic shift of household and business resources from things like food, energy, transportation, health care, education, etc... and into infrastructure maintenance, we do not have even a fraction of the money necessary to maintain our basic infrastructure systems.

The following is a smattering of examples. We link to a further explanation of the underlying numbers for those with a deeper interest in our methodology.

Rural Road

A small, rural road is paved, with the costs of the surfacing project split evenly between the property owners and the city. We asked a simple question: Based on the taxes being paid by the property owners along this road, how long will it take the city to recoup its 50% contribution. The answer: 37 years. Of course, the road is only expected to last 20 to 25 years. Who pays the difference? Click here for this case study.

Suburban Road

A suburban road is in disrepair and needs to be resurfaced. The modest project involves repair of the existing paved surface and the installation of a new, bituminous surface. The total project cost was $354,000. We asked the question: Based on the taxes being paid by the property owners along this road, how long will it take for the city to recoup the cost of this project. The answer: 79 years, and only if the city adjusted upward its budget for capital improvements. For the city to recoup the cost of the repairs from the property owners in the development, an immediate property tax increase of 46% would be needed. Click here to read this case study.

Street Serving High Value Homes

A group of high-value lake properties petition the city to take over their road. They agree to pay the entire cost to build the road -- a little more than $25,000 per lot -- in exchange for the city agreeing to assume the maintenance. As one city official said, "A free road!" We asked the question: How much is the repair cost estimated to be after one life cycle and how does that compare to the amount of revenue from these properties over that same period? The answer is that it will cost an estimated $154,000 to fix the road in 25 years, but the city will only collect $79,000 over that period for road repair. To make the numbers balance, an immediate 25% tax increase is necessary along with annual increases of 3% with all of the added revenue going for road maintenance. (Case study available on request.) 

Urban Street in Decline

An urban street section is in need of repair, which will consist of milling up and replacing the bituminous surface. The development along the street has stagnated for decades in favor of new growth on the periphery of town. As such, over the estimated life of the new street, the City expects to collect a total of $27/foot for road repairs. Depending on the alternative chosen, the cost for repairs is estimated to be between $80 and $100 per foot. (Case study will be posted next week.) 

Rural Industrial Park

A rural town has an industrial park that is stagnating. The park consists of 25 rural lots sized at roughly 2 acres each. As part of an undertaking to encourage more development in the park, the city engineer recommended serving the park with municipal sewer and water utilities. While the city is pursuing a grant to pay the costs, everyone understands that they will assume the maintenance liability, so we asked the question: How much private-sector development is necessary to sustain the infrastructure. The answer: $316,000 per lot. This is more than double the current rate of investment seen in the park. Click here to read this case study. 

Suburban Industrial Park

A suburban industrial park with full utilities was constructed in 1995. Over the years, the park has filled out with a mix of commercial and industrial uses. City officials, pointing to the park as a major success, seek to double its size. We asked the question: If the city could spend the same amount of money today and have the same return in terms of private investment, would this be a good investment. To answer the question, we applied an inflation adjustment to bring the 1995 costs into today's dollars and then compared that against the current tax receipts. If a $2.1 million project immediately induced $6.6 million in private investment, and if all of the income to the city were devoted to paying off a bond to finance the improvements, it would take 29 years for the park to break even. In that time, the businesses in the park would rely on other taxpayers to plow the streets, provide police and fire protection, etc... Of course, the $6.6 million of private investment happened over 16 years and was often subsidized, factors that would extend that payback period significantly. Click here to read this case study - see page 50.

Small Town Wastewater System

A small town received support to build a sewer system from the federal government back in the 1960's as part of a community investment program. Additional support was given in the 1980's to rehabilitate the system. Today, the system needs complete replacement at a cost of $3.3 million. This is roughly $27,000 per family, which is also the median household income. Without massive public subsidy, this city cannot maintain their basic infrastructure. It is, essentially, a ward of the state. Click here to read this case study.

Aggressive Expansion Project

A town that was represented in Washington by a major political powerbroker initiates a project that is designed to essentially double the tax base of the city. The project requires the dredging of a river to create a harbor, the extension of major infrastructure and the repair/replacement of existing utility systems. The projection is for the improvements to induce $32 million of private-sector investment. We asked the question: If the private-sector investment was guaranteed, how long it would take the city to pay off a bond for the project costs (since they are taking on the long-term maintenance obligation)? The answer: 71 years, far beyond the expected life of the improvements. Click here to read this case study.

--- 

The last case is probably the clearest example of the perverse incentives of the American pattern of growth-based development. The city gets $9 million of federal money to induce new growth. It costs them relatively little. If the growth happens, they get the tax revenue. If it does not happen, they are out relatively little. This all works fine until the end of one life cycle, when large-scale maintenance or replacement is needed. At that point, the costs vastly exceed the ability of the city to pay.

And this is where the Ponzi scheme aspect kicks in, because what is the solution to this unsolvable problem? In America of the post-WW II era, that's easy: The solution is more growth.

When more growth is created, the city gets excess cash (in the near term). That cash can then be applied to the old obligations. So long as the city continues to grow at ever-accelerating rates, the system works just fine. But like any Ponzi scheme, as soon as the rate of growth slows, it all goes bad very quickly.

If you want a simple explanation for why our economy is stalled and cannot be restarted, it is this: Our places do not create wealth, they destroy wealth. Our development pattern -- the American style of building our places -- is simply not productive enough to sustain itself. It creates modest short-term benefits and massive long-term costs. We're now sixty years into this experiment, basically through two complete life cycles. We've reached the "long-term", and you can clearly see we've run out of options for keeping this Ponzi scheme going.

Tomorrow we'll look at how we've reacted to this lack of productivity and the position that has placed us in today. [Then] we'll offer some rational responses to this dilemma.

 by CHARLES MAROHN

This Crash Course is a product of Strong Towns and use is authorized via  a Creative Commons Attribution-ShareAlike 3.0 Unported License. 


Strong Towns is a 501(c)3, non-profit organization run by three professionals volunteering their time and resources to change America. If you would like to help us spread this important message, consider making a supporting, tax-deductible donation. We appreicate the support.

The Growth Ponzi Scheme, Crash Course Part 1

No, this isn't about our local man found guilty last year and finally surrendering (?) on Monday for his massive Ponzi scheme. The following isn't even written to specifically describe Encinitas. But, for the next five days this crash course in local government and the financial failures in store are spelled out to describe exactly how Encinitas is structured.

In the great American experiment of suburbanization following World War II, we redirected our county's extensive resources into a living arrangement unseen at any point in human history. We abandoned thousands of years of history, knowledge and tradition in building cities and towns in order to try this new -- and completely untested -- approach.

In a way, this was an odd thing for such a pragmatic generation, having been conditioned on financial depression, scarcity and war, to undertake. I don't think they ever saw it that way, however. The Great Depression had cut short efforts to improve the industrial city. With the automobile offering the promise of mobility for all, it was seemingly within our grasp for each American family to one day live the life of European royalty, complete with a country estate outfitted with all the modern trappings. America's ascendancy and absolutely financial domination worldwide made this dream appear possible. We likely never stopped to think it through.

What is more puzzling -- at least to those that think about it -- is how there has been so little questioning of the logic behind this arrangement. American suburbanization is a grand experiment, but one where the hypothesis -- suburban development provides prosperity -- is never really tested. It is basically a law, not a theory, that has crept into our ethos. It is only the collapse of the housing market, along with the much less talked about but even more consequential collapse of the commercial real-estate market, that has allowed critics of suburbanization to avoid the label "kook".

Suburban development has become equated with the American dream. It's continual propagation is nearly unquestioned. Even those who think we are in a deep financial hole that will take years to correct ultimately envision "recovery" to include a return to building more and more of this same pattern. But is that even possible?

Following World War II, there are four ways that American cities have grown (we call these the Mechanisms of Growth). They are: 

1. Government Transfer Payments
2. Transportation Spending
3. Debt
4. The Growth Ponzi Scheme 

Focusing initially on the first three, they all share two things in common. First, the initial cost to the local government for new growth is minimal. If the state or federal government provides a grant or low-interest loan to subsidize a project -- for example, the extension of a sewer or water line -- the local government may have to pay something, but it is nowhere near the total cost. Where the DOT comes in and builds a highway, widens a road, puts in a signal, builds an overpass, etc... there may be some local funds contributed, but again, the vast overwhelming majority of the money is spent by the DOT. When a developer comes into a community and uses leverage to finance a development project, and then when families or business owners come in and take on mortgages and real estate loans to acquire a property within the development, the local government spends little or nothing to make this happen.

That is the first characteristic these growth mechanisms share: a low initial cost of entry for cities. Even though the city gets local tax revenue from the new growth, it usually doesn't cost them much up front.

The second characteristic they share is that, with each increment of new growth, the city assumes the long-term liability of maintaining all improvements deemed "public". This typically includes sewer and water systems as well as roads and streets, but will also include treatment systems, pumps, water towers, meters and even storm water ponds. All of this stuff ages, degrades, breaks and ultimately needs to be replaced.

Put these two characteristics together and you have a key insight; Cities routinely trade near-term cash advantages associated with new growth for long-term financial obligations associated with maintenance of infrastructure.

To financially sustain itself then, a city or town utilizing the American suburban development pattern and making this tradeoff must believe one of the following two assumptions to be true:

1. The amount of financial return generated by the new growth exceeds the long-term maintenance and replacement cost of infrastructure the public is now obligated to maintain, OR
2. The city will always grow in ever-accelerating amounts so as to generate the cash flow necessary to cover long-term obligations.

Of course, with the suburban model, it is physically impossible for a city of finite dimension to grow indefinitely, let alone at amounts that accelerate forever. Even realtors are now starting to acknowledge that assumption #2 is not true. Later this week we'll show how assumption #1 is also not true, and by extension, why our pattern of development is a classic Ponzi scheme, one that we cannot fix or "recover" from.

by CHARLES MAROHN 

This Crash Course is a product of Strong Towns and use is authorized via  a Creative Commons Attribution-ShareAlike 3.0 Unported License. 

Number of the Day

1,975: The number of charges filed with the US Equal Employment Opportunity Commission alleging that Walmart discriminated in pay and promotion decisions on the basis of gender.

In related news: "Walmart's outsourcing of jobs is driving down wages at American factories, according to a report from the National Employment Law Project." Walmart's garbage employment policies underscore the speciousness of waxing rhapsodic about "job creators" without any kind of qualifications about what kind of jobs are being created.

Walmart's increasingly expansive presence across the nation creates retail jobs—but does so at the expense of US factory jobs. (Not to mention the jobs lost at the smaller and/or independent retailers Walmart drives out of business.) Meanwhile, the jobs Walmart creates lack protections, benefits, and equal pay.

[Encinitas] needs fewer jobs like the ones Walmart is creating, and more like the ones Walmart endeavors to destroy to maximize profits. Source