Tag Archives: public finance

A few transportation policy updates

The theme of the day is state and local transportation policy, specifically focusing on roads, cars, and bikes.

STATE POLICY:

First, Todd Scott at M-Bike.org alerts cyclists to a couple of poorly conceived bills introduced in Michigan’s Republican-controlled state House:

First, House Bill 5300 would transfer funding from the current Michigan Transportation Fund (MTF) to the Commercial Corridor Fund (CCF) over an 8 year period. The MTF and CCF distribute funds to counties, cities, and villages. The MTF requires 1% of the funding to be spent on non-motorized facilities like bike lanes and sidewalks. The CCF has no such requirement.

So rather than remove the 1% requirement in law, legislators are simply creating a new fund without the requirement and shifting the money… (I)t has been a long standing goal of the County Road Association of Michigan to remove this requirement.

Todd writes of the second bill,

The current road funding is generally distributed based on the miles of roads. House Bill 5303 would change that to distribute funding based on motor vehicle miles traveled or VMT.

Counties and cities that require people to drive more and longer distances will be rewarded. There will be a financial disincentive for counties and cities to promote public transit, biking and walking as they’ll receive less money.

Forecasts from MDOT show the city of Detroit would see some devastating funding cuts as a result… The City has already testified against this change.

Ironically enough, the bill’s sponsor is former City Councilwoman Alberta Tinsley-Talabi.

I’m less than surprised than Todd about Rep. Tinsley-Talabi, who was one of Kwame Kilpatrick’s reliable supporters and, along with Martha Reeves & Barbara-Rose Collins, one of the dimmer bulbs when she served on the City Council.

Todd concludes,

We recommend you contact your state representative and state senator to let them know you oppose removing the 1% requirement and oppose distributing road funds according to vehicle miles traveled.

These bills have been out for more than a couple months now. We can’t afford to keep sitting on the sidelines.

ANN ARBOR:

Turning to local politics, Ann Arbor city councilman Mike Anglin notably dissented from his colleagues on two automotive-related votes at Monday’s city council meeting.

According to the Ann Arbor Chronicle, he was joined only by Councilwoman Jane Lumm on one, “a request to the Michigan Dept. of Transportation to convert the segment of Jackson Road between Maple Road and South Revena from four traffic lanes to three”:

Benefits of the lane conversion cited in a staff memo accompanying the resolution include: (1) safe deceleration in the middle lane for left turns; (2) elimination of lane weaving; (3) uniform speeds and the resultant traffic-calming effect; (4) reduction in number and severity of crashes in a number of categories; (5) potential extra width for bicycle lanes; and (6) potential creation of additional marked pedestrian crossings.

The memo mentions several successful 4-to-3 lane conversions in Ann Arbor: South Main (Ann-Arbor Saline to Eisenhower); Platt (Packard to Ellsworth); Packard (Stadium to Jewett); Huron Parkway (Nixon to Plymouth); West Stadium Boulevard (Seventh to Pauline); and Green (Plymouth to Glazier Way).

In the second, he was alone in voting no on a change to downtown parking regulation:

At its April 2, 2012 meeting, the Ann Arbor city council approved the policy by which the minimum required parking component of developments in the downtown D1 and D2 zoning districts can be satisfied off-site from the development. The city is using the acronym CIL for “contribution in lieu” to describe the option. The idea could be familiar to some readers as PILOP, or “payment in lieu of parking.” The sole vote against the resolution came from Mike Anglin (Ward 5).

If not provided on-site, the policy allows some of the minimum required parking spaces to be provided with one of two basic strategies: (1) commit to a 15-year contract with the Ann Arbor Downtown Development Authority to purchase monthly permits in the public parking system at a rate 20% greater than the ordinary price; or (2) pay $55,000 up front before a certificate of occupancy is issued. [.pdf of parking payment in lieu policy]

From my perspective the ideal reform would be to eliminate the outdated and wasteful minimum parking requirements altogether.  While I’d like to think that was the motivation behind Mr. Anglin’s “nay” vote, his vote against the Jackson road diet suggests a rather old-fashioned protectiveness toward the perceived interests of motorists.  We’ll have to wait for the Chronicle’s full report to fully ascertain his calculus, however.  In the meantime, I’d like to recognize my own Ward 3 council reps, Stephen Kunselman & Christopher Taylor, for what seem like prudent votes on both these proposals.

Apocalypse temporarily averted

It wouldn’t be Detroit if they didn’t all wait til the last possible minute to  do what had to be done.  A new era dawns?

The Detroit consent agreement

While your blogger has been quite busy with his non-blogging pursuits, you may have found yourself wondering when he was going to post on the governor’s proposed consent agreement for Detroit, which hit the Coleman Young Municipal Building earlier this week.

The latest news is that

under a new proposed consent agreement that he and city council staffers privately are hammering out this week… (Mayor) Bing proposes taking over many of the responsibilities of a nine-member financial advisory board that Gov. Rick Snyder wanted to assume control of most of the city’s finances.

I don’t see how concentrating power in the hands of this particular mayor would necessarily constitute an improvement, however.

Consider the response from the Free Press’ editorial board chief Stephen Henderson, who has served as the mayor’s most loyal apologist in local media ever since Bing was elected.  It appears he & the rest of the editorial board have finally had enough:

Council, for its part, seems ready to roll up its sleeves. Several members said Wednesday that they intend to take the governor’s plan seriously but would like to reframe some of the structure. The mayor, however, has responded with surprising pugnacity and a bizarre preening about democracy…

The point is that council has an opportunity to help improve the governor’s proposal if it responds realistically. Certainly, the legislative branch is far ahead of Bing in that regard…

Bing inherited a broken city, campaigned on radical change and has failed to deliver on just about every front. Buses, public lighting, police, EMS — all the city’s basic services fall shorter of effective delivery today than when Bing took office, and he’s still talking about “when” he’ll restructure…

His credibility on this subject is now shot, and his sniping at the governor, who has only been drawn into this controversy because of local inability to solve it, is a cynical and dangerous distraction.

“Cynical and dangerous distraction” aptly describes, as well, the reaction of most of Detroit’s belligerent contingent of full-time obstructionists, led by JoAnn Watson and the heads of the city employees’ unions.  Expect plenty more howling from this highly vocal group and the many residents who take their cues from them.  For this class of Detroiters, victimhood and paranoia is a core part of their identity, an end to itself.  It will remain so up to the minute a final consent agreement is signed,  and beyond.

I highly recommend Jeff Wattrick‘s coverage of the evolving soap opera.  I prefer Wattrick’s witty, gimlet-eyed reporting and commentary to the generally flavorless haiku the Free Press tends to churn out.  Here are a few posts to get you started:

Detroit politics is fun, as long as you don’t draw your paycheck from the city.  Pop some popcorn, sit down, & enjoy the show.

Results from WDET’s “Detroit Move” Survey

WDET conducted a survey last month centered around the question, ‘What would it take you to move to the city of Detroit?’ The station’s analysis of the results of that survey have been out for several weeks now, so I figured it was well past time for me to post on them.

The response far exceeded the expectations of WDET’s staff:

We set a goal of 1,000 responses in seven days. We met that goal in 48 hours, over the course of a weekend. A total of 2,200 respondents were collected at the end of the week, making this the largest known data set of it’s kind.

It’s so rare to see quantitative data on people’s attitudes about moving to Detroit, which up til now have mostly been captured in a jumble of conflicting anecdote.  As the introduction to the summary notes,

The latest iteration of the persistent “Detroit authenticity/Detroit love”  battle shows little evidence of the participants actually engaging with the arguments/ ideas of  the other side. Instead, there is a lot of interaction with existing beliefs, misremembered history,  convenient reformulations of the past and a willful disregard for “live and let live” acceptance.

WDET wisely engaged the services of a social scientist, a PhD candidate at Brandeis named  Sara Elliott, to help design the survey.  The survey questions they developed were concrete and specific, and admirably, Elliott and her collaborators at the station steered clear of extrapolating too much from the results.

Still, when ’84% of city residents said they would be unlikely to move to the suburbs in the future,’ I suggest we’re a bit closer to guessing why, in spite of the conventional wisdom that Detroit is a dying city, over 700,000 residents remain.  Those who survived the exodus of the 2000s are a resilient bunch and have compelling reasons to stay.

Another interesting data point pertains to how Tree Towners and other Washtenaw residents view the city:

Paradoxically, a smaller percentage of survey takers were from Washtenaw County and this group comes to Detroit less frequently than those living in Wayne or Macomb counties, yet this group was the most likely to say they would be likely or very likely to move to the city in the future (50%). The next largest group of respondents who said they would be likely or very likely to move to the city in the future lived in a county other than Macomb, Oakland, Washtenaw and Wayne (outside Metro Detroit) (42%). Smaller percentages of survey takers from Wayne (35%) or Macomb (34%) counties and Oakland County (31%) said they would be likely or very likely to move to Detroit. The largest group of survey takers was from Oakland County, but they were least likely to say they would move to the city in the future.

Responses to the statement ‘I would support a friend or family member’s decision to move to the city of Detroit’ were more positive than I’d have expected:

There is data to back up an observation that I’ve seen made frequently (and have made myself), which is that younger people view the city in a more positive light than older generations:

Over half (55%) of those under 25 years of age said they would be “likely or very likely” to move to the city in the future, compared to one third (36%) of those 26-45 and one-quarter (24%) of those 45 and above. As age increases, likelihood of moving to the city decreases significantly.

And there are some clues for whoever ends up in charge of the city as to what priorities they should focus on:

A few factors stood out as mattering to more of the respondents who said they were likely or very likely to move to the city in the future…

  • Better city services (57% of likely movers compared to 51% of unlikely movers)
  • Better public transportation (60% of likely movers compared to 36% of unlikely movers; this factor rises past lower crime to the #1 issue among the very likely subset respondents) 
  • Increase walkability (53% of likely movers compared to 41% of unlikely movers)

Note the walkability figure;  in spite of pockets like Greektown, Midtown, Corktown and Mexicantown (basically any neighborhood ending in ‘-town’), Detroit lags many of its suburbs in that respect.  Also, the most likely recruits appear to be swayed more by service provision (including both schools and transit) than by “lower taxes” or “better jobs” which are way down the list.

Surprisingly, I haven’t seen reaction to the survey from Detroit’s other media outlets such as the Free Press or the Metro Times.  Perhaps they were embarassed they didn’t think of it first.

For more, check out the summary of the survey results (PDF).

Requiem for Woodward rail

Wow.

A sample of early reactions:

Early reaction

I can understand Megan Owens’ reaction, since the ‘six years of work’ she refers to are, in large part, hers.  And I certainly won’t dispute her characterization of the mayor as  ‘a moron,’ since he’s proven it over and over again more or less since his first day in office (but that’s a topic for another post).

But as readers of this blog may recall, I’m not terribly surprised by this news given that Detroit as an independent political and fiscal entity will likely not exist in its current form within six months.  Nor does it necessarily entail a worse long-term outcome for metro Detroit’s transit riders, especially the vast majority that do not live or work along Woodward south of 8 Mile.  The governor has made it clear that his vision for a new regional transit system centers on bus rapid transit, and that vision, along with the loss of control over its own finances the city will shortly face, was the controlling factor here.

If light rail does eventually come to Michigan, it will makes its debut in one of three places:  1) Ann Arbor (between UM’s North & Central Campuses), 2) the Woodward corridor in southeast Oakland County, or 3) Grand Rapids.

Barlow v. Miller II: ‘I’m a Detroiter, too’

As promised, here’s my follow up to my post on Toby Barlow’s “‘Detroit,” Meet Detroit,’ this time focusing on Rabbi Jason Miller’s response to the Barlow piece.  It’s important to preface that according to Barlow himself, speaking on today’s Craig Fahle Show,* he thinks he & Miller are more or less on the same page.

Miller almost immediately gets off on the wrong foot with me:

Whether Barlow realizes it or not, through his words he has brought the late Mayor Coleman A. Young back to life. Or at least the former mayor’s sentiment. In his twenty years in office, Mayor Young successfully drew a sharp divide between the residents of the City of Detroit and the suburbanites. The race riots of the late 1960s forced middle class whites to flee the city, but it was Mayor Young who kept them away. The polarizing mayor made the Eight Mile border a dividing landmark between the races.

Ahh, yes, the myth of mean old scary Coleman Young who hated Whitey.  White people were scared of Coleman Young, and in retrospect he created a PR disaster for the city, but he was no more responsible for its downward spiral than was Detroit’s white-dominated establishment that picked up and moved en masse.  No mention at all of the executives at all the auto suppliers & ancillary industries who moved their headquarters and factories out of the city, nor of suburban officials like L. Brooks Patterson who race-baited just as gleefully.  There are a lot of older white people who love to perpetuate the myth that it was all Young’s fault because he was a convenient scapegoat and it absolved them of responsibility.  It’s just depressing that well-intentioned people like Rabbi Miller are continuing to buy it and repeat it.

Then there’s the misty-eyed tale of exodus in response to mean old Mayor Young:

Both of my parents grew up in Detroit. They both graduated from Mumford High. Their families left the city, but not because the big homes with big yards in the suburbs were so appealing. They left the city because the city was changing for the worse. They left reluctantly, but who wouldn’t?… I sat with my parents last year as we watched the stage production of Palmer Park, which accurately portrayed the tense race relations in that Detroit neighborhood in 1967. My parents had tears in their eyes (and so did every other native Detroiter of their generation who sat in the theater) because this production brought back the emotionally jarring, difficult times of that period.

My grandparents’ generation didn’t turn their backs on the City of Detroit. They continued to work in the city and support its culture. They were saddened that they had to move out because they didn’t have a choice.

Oh, please.  Your grandparents’ generation — and by that I mean the white people of their generation — left when it was convenient to them to do so.  Mind you, they didn’t owe the city anything and were free to leave when they wanted.   If I’d been a homeowner in, say, Brightmoor, I would have thrown in the towel sooner or later too.  But let’s drop this pretense that “they didn’t have a choice,” that they were hapless victims.

Miller contends,

The people who are paving the way for this renaissance do not live in the city. Yes, these business people are working hard to get young talent to move to Detroit and live affordably in Midtown or Downtown with attractive stipends. But at the end of the day these executives are driving back north to their homes in the suburbs.

Now, this is true.  Metro Detroit’s elites have shelled out tons of money to the city and have for decades;  that’s the only way the DSO, the Michigan Opera Theater, the DIA have stayed afloat.  What they don’t do is live in the city, and there is a simple reason for that:  there is no reputational cachet in a Detroit address for rich people.  There never will be, until there emerges some tiny enclave in Detroit that is prohibitively expensive.  Even the most expensive addresses in Detroit — in Palmer Woods and some of the new developments in downtown and Midtown — are simply not pricy enough yet to provide the necessary cue.  Rich people choose to live in places that signal exclusivity; for that reason, the rich will continue to cluster in a few pockets of central Oakland County, the Grosse Pointes, and, increasingly, Ann Arbor.  Detroiters are never going to get most of these status-conscious capitalists to move to the city, but they’d be imbeciles to turn down the money they are shelling out.

Some of Miller’s talking points make a lot of sense:

Even if the majority of employees who work in Detroit head back home north of Eight Mile at the end of the day, Barlow should be grateful to them. They’re paying income taxes to the City of Detroit where he lives but doesn’t work (a simple Internet search shows that Barlow works for an organization that is based in Dearborn, not within the city limits)…

The City of Detroit is 144 square miles of land that is too big to manage… The old mentality that the City of Detroit doesn’t need or want white suburbanites coming into to “our City” is unfortunately still alive and well (just ask business leaders how difficult it is for them to get city contracts).

Others are such ingrained, oft-repeated conventional wisdom one wonders why Miller bothered to recite them:

For many energetic young people like Barlow Detroit seems like a euphoric metropolis now, but will they continue to reside Downtown when their kids are ready for school? The fact is that Detroit still has a high crime rate. How will that impact these enthusiastic Detroiters’ decision to stay put as their kids get older?

And then there’s the lecture on the great things that have come from the suburban shopping mall:

In his article, Barlow cynically writes that it’s great that suburbanites might know the Faygo song but they probably don’t know about “the College of Creative Studies’ massively incredible new Taubman Center.” Hold on one second. How does Barlow think the CCS got that massively incredible new Taubman Center? Let me explain. From the generosity of Al Taubman. And I wonder if Barlow knows where Mr. Taubman got the money to support such a center that he finds to be massively incredible? He made that money owning malls. Big malls. In suburbs. In fact, since Novi is the first suburban city (of many) Barlow condescendingly mentions in his article, it’s ironic that without Twelve Oaks, the massively incredible mall that Taubman built in Novi, there probably wouldn’t be a Taubman Center at the CCS in Detroit. Barlow writes, “Nothing good ever came out of suburbia.” Perhaps he wants to rethink that one.

I’m thinking, no, he probably doesn’t.  I would not cite enormous shopping malls as one of the key examples of the great things that have come out of suburbia.

And then he concludes by scolding Barlow for his alleged ingratitude:

Rather than criticizing the suburbanites who choose to stay in their suburban homes, Barlow would make more sense if he thanked the suburbanites who work in the City of Detroit and come to the city for sports events, casinos, dining, and entertainment. It’s the money coming from the suburbs that’s going to spur the renaissance for the City of Detroit. No matter how much grocery shopping and dry cleaning Barlow does in the city, suburbanites like Dan Gilbert and Peter Karmanos are the ones turning the city around. And even if they head north on the Lodge Freeway to go home after work each day, they are Detroiters. And so am I.

Well, you are & you aren’t.  As Supergay Detroit explained, you don’t have to put up with the bullshit — the crime, slovenliness, the shitty public services —  from other Detroiters like residential Detroiters do.  And you aren’t shoveling the same amount of tax dollars into the ravenous abyss, never to be seen again, the way (employed) full-time Detroiters do.  (I’m not going to lie, I pay a lot more in property taxes in Ann Arbor, but I feel better about how my money will be spent than I did when I paid City of Detroit income tax.  The buses run on time here.)  So I have to agree with Toby & Supergay that residential Detroiters have a certain earned cachet.  They have certified their ability to put up with the plethora of inconveniences of living in Detroit in a way that people on the outside haven’t, a certification of fortitude (if not necessarily financial savvy).

I have mixed feelings about piling on to this increasingly tired argument.  Innumerable commenters on innumerable posts on Detroityes.com have wasted innumerable hours circling one another, pointing fingers and flinging accusations, and all it does is continue to cement the region’s image as dysfunctional, insular, petty, and racist.  Now metro Detroit’s passion for assigning blame been broadcast nationally via the HuffingtonPost.  There are some nice things about living in Southeast Michigan, but the litigation of Barlow v. Miller (aka Young v. Whitey) has reminded me how this region disgusts me sometimes.

*In which Craig Fahle also, somewhat randomly, flips out on Rabbi Miller at one point, when the latter insinuates that a building he passed was a crack house.  I’m always amused by such outbursts from Craig.  Hot-tempered, that one.

My problem with the Occupy movement

I don’t especially mind the lack of coherence or structure in the Occupy Movement.  Thanks in large part to Dahlia Lithwick’s persuasive column on the Occupation, I have a better understanding of why the Occupiers choose to remain vague about their goals and decentralized in their decisonmaking.

What bothers me are the sites they are choosing to Occupy.  The location of the original Occupation makes sense because it’s on Wall Street, the epicenter of the problem they are trying to confront.  But cities like Oakland, Portland, LA, Detroit, & Ann Arbor are not power centers for Big Finance.  For the most part they are financially precarious municipalities that are already at a disadvantage compared to their neighbors, struggling to provide basic services to their populations.  Their mayors and police forces have enough on their plate without having to worry about crime and sanitation and infection control in a new encampment.

Meanwhile, no one is occupying the suburbs, exurbs and rural areas where most of the affluent live, comfortably shielded from the Occupations and the various externalities they generate on the surrounding neighborhoods.  With the exception of Wall Street and Washington, D.C., none of the encampments are located at sites where they could personally impact people in positions of state or national power, or anybody in the “1%.”

While I don’t understand why Mayor Bloomberg felt it necessary to stage a stealth break up of the Wall Street camp at 1am, I think it’s perfectly reasonable for the mayors of these cities to say enough is enough when those externalities start to disrupt daily life for those who live and work in the city.  (People do actually live and work near Zuccotti Park besides investment bankers and hedge fund managers, after all.)  The Occupy movement still enjoy plenty of good will from Americans, based on poll numbers.  To retain that good will, they will need to adjust their tactics and remain flexible, however.  They should resist letting single-mindedness and conviction become myopia, or allowing self-expression spill over into selfishness.  There is absolutely no reason for the mayors of central cities and OWS to be on opposing sides, when in truth they face common threats.

4 reasons to vote Bob Ficano out of office

Wayne County Executive Bob Ficano has got a lot of unwelcome publicity in the past week due to the enormous hole he dug for himself with the Turkia Mullin scandal.  (If you’re not local, or otherwise need to get caught up to speed on how Mrs. Mullin snagged herself a nice windfall courtesy of Wayne County taxpayers, let me steer you to the Detroit Free Press’ coverage & Jack Lessenberry’s op-ed on the scandal.)

Having read Oakland County Executive L. Brooks Patterson the riot act on this blog on more than one occasion, I figure it only fair to call out Mr. Ficano.  And this isn’t the only reason why Wayne County voters ought to replace him.  Let me recount some others:

1. First of all, it appears the Mullin case is only one of a number of other questionable cases involving separation payments to former Wayne County employees under Mr. Ficano.  For further detail, check out Sandra Svoboda’s story in this week’s Metro Times.

2.  These generous payments to Ficano appointees have taken place at the same time that Mr. Ficano has been laying off and instituting furlough days for rank and file county employees.  I’m not terribly sympathetic to public sector unions, but they have every right to be outraged that Ficano’s appointees are getting lavish payouts when they are being asked to sacrifice.

3.  The Aerotropolis.  Mr. Ficano ‘s been hawking the I-94-centered Aerotropolis for years.   From what I’ve read of the aerotropolis, a concept aggressively marketed by its originators John Kasarda & Greg Lindsay, it seems like a half-baked idea with little evidence that it generates the type of metropolitan economic growth its supporters claim it can.  (See the New York Times review of Kasarda & Lindsay’s book for a more detailed and nuanced discussion on this topic.)

Mr. Ficano’s embrace of the Aerotropolis is part of a bigger problem:

4.  A misguided sense of economic policy, which he shares with former Governor Granholm.  One thing I do appreciate about L. Brooks is his refreshing bluntness.  His initial reaction to state tax incentives for the Aerotropolis was to call them “another example of the never-ending torrent of legislative bullshit out of Wayne County.”  L. Brooks ended up coming around to Ficano’s side on the issue, but I think he was onto something with that characterization.   I think giving tax breaks to businesses to locate in the area around the airport, just because Mr. Ficano got sold on the Aerotropolis idea, is a lousy idea that only contributes to a race to the fiscal bottom between state and local governments.

It’s not just that Ficano has embraced special tax cuts on this particular pet project:  it’s that they seem to be his economic development tool of choice.  A 2009 quote says it all:

“If you’re going to consolidate anywhere in the world, you can now come here, because you are going to get tremendous tax breaks,” Ficano said at the time.

This is not a visionary long-term economic development policy.   Just because it is (sadly) popular among state and local officials across the country does not mean it is smart, appropriate, or good for metro Detroit.  Unlike Governor Snyder, who has waged war on tax incentives, Mr. Ficano has not yet recognized this.

Metro Detroit more than ever needs the best leadership it can get.  Sadly, between Mayor Bing and Mr. Ficano, it’s still not getting it.  Hopefully this will be the straw that breaks the voter’s back and leads to shakeups in the next elections.

The homeownership racket

The Detroit area has the dubious distinction of having lost more home value than any other large metropolitan area in the country.  Metro Detroiters are acutely aware of the consequences:

In metro Detroit home prices… are roughly 38% below their 2000 levels.

Other cities that have home prices below their 2000 levels when the index was set at 100 are Cleveland, which has an index of 98.88, and Las Vegas, which has a 95.6 level. Metro Detroit is at 62.

While other metros are slowly beginning to recover, we are not: “Home prices in metro Detroit were down 2.8% from April, according to the S&P/Case-Shiller home price index. The only other city to see a drop in prices over April levels was Tampa with a 0.6% decline.” And there’s no end in sight:

Detroit home prices posted sharp declines during the first 6 months of 2011, according to a new report.  And the decline is expected to continue during the next 6 months.  Clear Capital reports Detroit’s home sale prices were down 19.8% during the first half of the year compared to the first six months of 2010… Alex Villacorta with Clear Capital… says Detroit’s home prices are expected to dip another 4% between now and end of December.

L. Brooks Patterson loves to crow about how sprawl has supposedly helped Oakland County, but you won’t hear him admitting how overbuilding helped to destroy the wealth of OC homeowners after the housing bubble popped.

It is no coincidence that Detroit’s rate of homeownership was the highest of the nation’s largest metros in the mid-20th century.  Detroit’s culture of homeownership is tied hand and foot to its high levels of segregation.  It has been amply documented how realtors exacerbated white flight from Detroit neighborhoods beginning in the 1950s;  they deliberately stoked fear among white homeowners with rumours that blacks were moving in and would bring down home prices.  They profited from the resulting turnover as entire neighborhoods flipped within the course of a decade.  Other aging industrial metropoli with large black populations, like Chicago and New York City, were protected from such rapid turnover partly by their lower rates of homeownership; renters simply did not have as much at stake financially in their neighborhood, and were less overcome by panic.

Federal housing policy was the catalyzing agent that allowed Detroit’s metropolitan area to sprawl uncontrollably after World War II; it was the Kevorkian that enabled the region’s economic suicide.  And federal housing policy, under both Democrats and Republicans, continues to wreak havoc on Detroit.

But what role exactly does the government play in homeownership?  “The United States spends more than $100 billion annually to subsidize homeowners,” explain NYU business professor Viral V. Acharya and a number of his colleagues in a New York Times op-ed. These expenditures, Acharya et al continue, are a significant driver of the federal deficit: “according to the Congressional Joint Committee on Taxation, these tax breaks add up to $700 billion in lost government revenue over the five-year period through 2014.”  Joshua Green, formerly of the Atlantic, elaborates:

Even before the 2008 financial crisis, the government assumed the credit risk on most loans, which allowed banks to offer better rates, but ultimately left taxpayers footing the bill when the housing market collapsed: $138 billion and counting.

During the crisis, the government became even more involved in the mortgage market by rescuing Fannie Mae and Freddie Mac and agreeing to backstop larger loans… Today, the government backs 95 percent of new loans, leaving taxpayers more exposed than ever.

Many Americans have come to regard cheap mortgages as an entitlement.

And yet it’s not clear this fire hose of money has done much to increase the total level of American homeownership, Acharya et al suggest:

According to data collected by Alex J. Pollock of the American Enterprise Institute, a comparison of homeownership among economically advanced countries shows that the United States is in the middle of the pack, which suggests that subsidizing housing with tax breaks is neither a necessary nor a sufficient condition for a flourishing housing market. Rather, these subsidies enabled people to borrow more than they could afford so they could buy houses bigger than they needed…

Felix Salmon agrees that “there’s not even any real evidence that the deduction actually increases homeownership, rather than just artificially making houses more expensive to buy.”

Yet why is the deduction so popular?  One big problem is that a lot of Americans think they benefit from the tax treatment of mortgage interest more than they do, a belief perpetuated by misguided liberals who claim it helps low-income people attain the American dream. But  according to Adam S. Posen of  the Peterson Institute for International Economics, “This part of the tax code incentivizes speculation and borrowing, rather than investment and saving. It is very regressive.” Acharya et al write,

Renters get no breaks; homeowners get tons of them… homeownership policies and mortgage subsidies in the United States benefit the rich a lot more than the poor. For example, the economists James Poterba and Todd Sinai recently estimated that the benefits from the mortgage interest deduction for the average homeowning household that earns between $40,000 and $75,000 were about 10 times smaller than the benefits that accrue to the average household earning more than $250,000. These policies increase income inequality instead of reducing it.

Felix does a bit more of the math:

Households earning more than $200,000 a year account for less than 10% of the returns, but get 30% of all the benefits. And households earning more than $100,000 a year get 69% of all the benefit. The mortgage-interest deduction might be a middle-class tax break, but realistically it’s an upper-middle-class tax break…

He concludes, “Homeownership, especially during times of high unemployment, does more harm than good.”

If we capped federal loan limits for guaranteeing mortgages as well as the amount of interest that could be deducted, most homeowners would not be affected, only those that spend most lavishly on their homes.  As usual, the homebuilders  lobby for distortionary policy that encourages sprawl.

The banks do their bit to make a bad situation worse:

Lenders historically have treated residents of cities and rural areas as riskier than those who live in the suburbs… Poverty rates are higher in urban and rural areas. Potential borrowers tend to have lower credit scores and less money saved for down payments. In other words, lenders may charge higher rates on average because borrowers in these areas disproportionately pose greater risks.

Professor (Brent) Ambrose (of Penn State) said that determining the value of properties was also a challenge. Mortgage loans are secured by the value of the borrower’s home. The methods that lenders use to judge the value of a home, however, are best suited to the suburbs, where clusters of broadly similar houses allow easy comparisons… (I)n urban areas there can be too much noise in the data – large numbers of different kinds of homes in close proximity. The result is that lenders are less confident about the quality of their collateral…

Contrast our experience with that of Texas.  Slate’s Annie Lowrey cites one ingredient of the recipe for Texas’ economic resilience amidst the rest of the country’s recent contraction:

Texas kept its housing-finance regulations tight. As Alyssa Katz noted last year in The Big Money, Texas has had a longtime commitment to ensuring that homeowners make significant down payments and do not use their houses like piggy banks. The rules bar Texans from taking out home-equity lines of credit worth more than 80 percent of their mortgage. They also ban “cash-out refinancings,” which add to homeowners’ debt.

As a result, Texas never had a housing bubble.

Jonathan Chait echoes Lowrey’s account:

The best explanations for Texas’s success, other than its proximity to Mexico and resulting high levels of immigration, is (sic) genuinely good housing policies. Texas had tight lending requirements that prevented the inflation of a housing bubble, and it maintains loose zoning rules that allow for lots of cheap housing.

Adam Posen suggests other reforms:

Create a national tax leaning against land price swings: Local governments collect taxes already on all real estate transactions. The rates should increase when prices rise faster than population and income growth in an area (and decrease when prices rise slower). The revenue from the additional variable taxes should be transferred from booming markets to depressed communities. This would counteract large swings in housing prices and in local government spending…

Set a minimum mortgage loan-to-value ratio and have it vary over the business cycle: A simple rule that all mortgage lenders must require a minimum 20 percent down payment would restrict both speculation and exploitation of consumers. This ratio should automatically increase in boom times, but never go lower.

There’s arguably a silver lining to this catastrophe.  Kurt Metzger points out that, if nothing else, we now have some of the most affordable real estate in the nation.  What’s terrible for Metro Detroit’s homeowners is potentially enticing for those looking to buy a home here.

Full disclosure:  As I’ve previously noted on this blog, I own my home.

“The Growth Ponzi Scheme”

More and more, I think sprawl is THE underlying problem in American cities, and addressing it as THE solution.  It’s not the only problem, nor are solutions that address it a silver bullet to all the other challenges facing cities.  But to me, it is more central to solving more urban problems than any other single issue.

Unfortunately, it’s an issue that most Americans don’t grasp very well, if they even think about it at all.  There’s a lot of educating, a lot of helping people connect the dots, to be done.  So I was excited when I came across (H/T Charlotte blogger Mary Newsom*) an organization called Strong Towns, and an excellent series called “The Growth Ponzi Scheme.”

In the series, Strong Towns Executive Director Charles Marohn demonstrates, through a number of  examples, how real estate developers’ upfront contribution toward costs are typically inadequate for long-term maintenance.  A generation later, the taxpayer foots the remainder of the bill.  Marohn concludes: “Our places do not create wealth, they destroy wealth.”

In the next installment of the series, Marohn provides a graph showing “(t)he 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… 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…

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.

In the fourth installment, Marohn ties the growth Ponzi scheme in to the debt fueled national economic disaster of the last 40 years:

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…. (W)e 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… 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.

(W)e’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.

His prognosis for the immediate future is pessimistic:

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?…

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?…

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.

There’s a lot more here.  I encourage readers to bookmark the Strong Towns blog in your RSS reader of choice and to read the series in full.  I am not sure how novel Marohn’s thesis is, as he builds upon a number of ideas I’ve encountered in previous literature on sprawl and on the housing bubble.  But it’s a thorough primer, broken up and presented in a way that should be friendly to time-pressed voters, planners, and elected officials.