Tuesday, June 28, 2011

The suburbs are a Ponzi scheme

I enjoyed this post by Charles Marohn from Strong Towns on grist.org. At our clinic (VLS) we discuss smart growth/smart decline principles and have focused on environmental and social impacts. I'd never heard the Ponzi scheme analogy and think it's a great way to bring cost into the discussion.


"Since the end of World War II, our cities and towns have experienced growth using three primary mechanisms:

  1. Transfer payments between governments: where the federal or state government makes a direct investment in growth at the local level, such as funding a water or sewer system expansion.
  2. Transportation spending: where transportation infrastructure is used to improve access to a site that can then be developed.
  3. Public and private-sector debt: where cities, developers, companies, and individuals take on debt as part of the development process, whether during construction or through the assumption of a mortgage.

In each of these mechanisms, the local unit of 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 just 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.

We've done this because, as with any Ponzi scheme, new growth provides the illusion of prosperity. In the near term, revenue grows, while the corresponding maintenance obligations -- which are not counted on the public balance sheet -- are a generation away."

Read more…

Kat Garvey

http://lawprofessors.typepad.com/land_use/2011/06/the-suburbs-are-a-ponzi-scheme-.html

Budgeting, Finance, Smart Growth, Sprawl, Suburbs | Permalink

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