Are the suburbs a Ponzi scheme?

While Republican presidential contender Rick Perry drew a lot of attention by saying Social Security is a Ponzi scheme, how about viewing suburbs as a Ponzi scheme?

Indeed, my friend Charles Marohn and his colleagues at the Minnesota-based nonprofit Strong Towns have made a very compelling case that suburban sprawl is basically a Ponzi scheme, in which municipalities expand infrastructure hoping to attract new taxpayers that can pay off the mounting costs associated with the last infrastructure expansion, over and over. Especially as maintenance costs increase, there is never enough to pay the bill, because we are building in such expensive, inefficient ways.

This week, Strong Towns has released a substantial new report analyzing data and arguing that we must change our development approach if we wish to end the current economic crisis. In particular, we must emphasize obtaining a higher rate of financial return from existing infrastructure investments, focusing on traditional neighborhoods where large public investments in infrastructure are currently being underutilized…

In particular, in the report and an accompanying press release, Strong Towns calls on local officials to change course and shed the “dead ideas” of the suburban era, including these:

That local governments can grow without considering the public’s return on investment. Being blind to the financial productivity of our places has led to inefficient use of public infrastructure investments and allowed local governments to assume overwhelming, long-term financial obligations for maintaining infrastructure.
That local budget problems can be solved by creating more growth. More growth in the same unproductive pattern will only increase our economic problems. What is needed is an approach that improves our use of existing infrastructure investments.
That attracting a large employer is the key to local economic prosperity. In an age of globalization, this strategy may provide short-term gains for some local governments, but it is ultimately a race to the financial bottom.
That property owners can develop their property as they see fit while at the same time obligating the public to maintain the new infrastructure. This type of indirect subsidy creates enormous long-term financial obligations for taxpayers, increasing local taxes and reducing local competitiveness.

This is not an unusual argument made by those opposed to sprawl: sprawl is paid for by continuous growth. For example, a growing suburb can finance the services needed for new developments in part by the fees paid by developers constructing new developments. When that new development stops, either because of an economic crisis or because the community has run out of land (reaching build-out) or the community is not attracting development, the cash flow associated with new development stops. Then, local communities are confronted with static or shrinking budgets and the rising costs associated with aging infrastructure. In the end, someone is going to have to pay for this relatively cheap living.

By calling the suburbs a Ponzi scheme, the implication is that it will all implode at some point. I’m not sure about that; people have been arguing this for years (gas will become too expensive, there won’t be enough land, home prices will get out of reach, etc.) and it hasn’t happened yet. Since the suburbs have been partly subsidized by the federal government from the start, there are other sources of money beyond local municipalities (though an economic crisis shrinks everyone’s ability to pay). It would be interesting to see what happens if all state and federal money dries up for suburban interests – then what happens to the necessary infrastructure such as Federal interstates? We haven’t seen true contraction of cities or metropolitan regions just yet though it may be coming in harder hit areas like Detroit, Cleveland, and Youngstown.

However, the need for better longer-term planning is needed in many suburbs. If the era of growth is over or at least has slowed, then suburbs need to look at how this will affect development within their boundaries and their budgets. Assuming that there will always be positive growth is foolish even though there is not much room in the American cultural ideal of the suburbs to admit that they won’t simply keep growing and growing as more and more Americans express their innate desires for the suburban single-family home. Planning for a different, more limited suburban future is not exactly the same as planning for a doomed suburban future.

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