Strong Towns a closer look

The Strong Towns movement was featured in a recent blog post, Making of Place as Economic and Social Engine and wiki page, Place as Social and Economic Engine, which provided a general summary of the organization. The basic position of Strong Towns is that getting a higher return on our public investments requires an understanding of what it takes to build great towns and neighborhoods.

The decision to make Strong Towns an integral part of the Pathways to New Community Paradigms blog with its inclusion on the right hand column makes it important to provide a more in depth look and to be more specific as to where this effort to create new community paradigms fits in with the Strong Towns movement and were it differs. There are so far, no real points of strong disagreement, only some differences in emphasis. A few observations will be made along the way and any points of particular concern will be left for a future post.

To ensure a better and fuller understanding of what Strong Towns is all about this article was posted and tested on the Strong Towns site before being posted on the Pathways to New Community Paradigms site.  I received some kind words from the primary voice for Strong Towns,  Charles Marohn.

This is a very good summary of the Strong Towns philosophy. It is quite refreshing to see the ideas analyzed and put out there in this way. Thank you for sharing this.

This give me confidence that my thinking is going in the right direction.  He went on to say. 

I also appreciated how you disagreed intellectually with some of the approach. I certainly don't have all the answers and would enjoy delving into some of those places where we need to in order to make what we're doing better. A different thread, perhaps...

As I said above, while there are no real points of substantial difference, I appreciate this as an invitation to explore the issues even more.  What I admire about the Strong Towns movement is not that they have all the answers, rather it is that they are asking the right questions.

This post is based upon content of the Curbside Chat Book-LO.pdf, a supplement to the Curbside Chats done live at community meetings across the country. This is not meant to be a substitute for reading the Curbside Chat Book-LO.pdf. or the live Curbside Chats themselves, it is only a synopsis. It is highly recommended that the Curbside Chat booklet be read in its entirety.

The basic strategic economic development advice that communities can take from the Curbside Chat Book-LO.pdf. is, “Stop building to the scale of the automobile”. There is a great deal behind this direct and perhaps not immediately obvious advice that is based on our economic history, current financial situation and a pragmatic recognition as how we can possibly move forward.

While the United States has sustained economic prosperity for two generations, today the economy is stalled. A housing bubble is in the process of correcting along with a corresponding bubble in commercial real estate. The traditional ways we have stimulated the economy in down times—low interest rates and public works spending—have failed to create sustained growth. More drastic measures, such as the Federal Reserve’s quantitative easing program, have also proven ineffective. 

It is time to ask whether this experiment is really working.

Creating or chasing new growth has been the primary means of increasing the local tax base and enhancing tax revenues for communities. The theory has been and continues to be that new growth creates a new tax base which in turn adds new revenue for the local government. The argument is that the overall economic system of a community is large enough that when all factors are fully taken into account including the creation of private sector jobs and tax revenue, the revenue generated more than offsets the community’s investment.

The reality is that cities take on a long term maintenance obligation for a near term (and short lived) cash advantage. It is this very new growth that is created that generates the long term liabilities. The deeper message, the rationale behind “Stop building to the scale of the automobile” is that pursuing growth by means of development scaled to the automobile inevitably means having to assume a long term liability for maintaining the cost for new infrastructure that is greater than the revenue generated.

The current propensity for automobile directed investment also often means that municipal investment is directed to the edge of a community or along highways focusing on automobiles instead of the community’s civic downtown center and its people. It is not only a bad financial decision, it is also a bad placemaking decision.

The problem is that long term maintenance obligations are not counted on public balance sheets. An unfunded liability for infrastructure maintenance means that ever increasing rates of growth are required to cover those long-term liabilities. Things go south when the investment cost exceeds the revenues generated by growth. The question is who is left holding the bag.

Infrastructure financing goes through three Life Cycles for the road or other infrastructure being financed to cover its initial and continuing costs, first pay as you go, second debt because funds have not been put aside in anticipation and the funds must be borrowed and third, if nothing is done, bankruptcy because the ability to directly fund or borrow at a sufficient level becomes unfeasible. The negative affects of these trade offs start to be realized after one life cycle. The result is that many suburban cities are now seeing cash outflows for infrastructure maintenance.

We can no longer afford to maintain all of the underutilized roads, streets, sewer systems, water systems and sidewalks we have built. This is the financial reality we must now confront.

One point of strong agreement is that this problem is not a lack of growth but unproductive growth through the creation of an illusion of wealth. We have ignored the inherent financial productivity of our places. We need to rethink how we reinvest in our communities instead of chasing new growth from the outside based on the illusion that it is a never ending resource.

We need to break that illusion and to do that we need to understand how the illusion arises. To help in explaining and getting off of this hamster’s wheel, the Curbside Chat Book-LO.pdf. provides three major concepts and the reasons behind them.

The Big Concepts of the Curbside Chat program are:

1. The current path cities are pursuing is not financially stable. Cities and other local governments are, for the most part, financially insolvent, despite decades of robust growth in the past.

2. The future for most cities will not resemble the recent past. The financial complexities and challenges of our time will change the way communities address issues relating to growth and development.

3. The main determinant of future prosperity for cities will be local leaders’ ability to transform their communities. The ability of local leaders’ to shepherd their communities through this difficult transition will be the key to future prosperity. I am not quite on the same page with Strong Towns here, but will deal with this further down.

Basically, communities have been on the wrong path, they are still on the wrong path and only they (community paradigms view), or more specifically their leaders (the Strong Towns view) can get them on the right path.

The Curbside Chat Book-LO.pdf. also puts forward four mechanisms that have previously been used to promote this now unsustainable growth in the United States since the end of World War II. It can be demonstrated that these cannot continue in the future providing then the ammunition why we are still on the wrong path. These mechanisms have run their course and will have a diminished influence on the growth of cities and towns in the future.

1. Government transfer payments: money from the state or federal government used to build infrastructure and invest in local growth. Funding local improvements especially maintenance is unlikely to be a high priority going forward, more likely these programs will be cut not only for financial reasons but also political reasons.

However, it could be argued that programs such as HUD Sustainable Cities could be an exception if it can survive in Congress. Big if and how communities collaborate and use the program will be a determining factor in how effective the program can be. The Strong Town principles could form an effective basis for cooperation on a regional level because each community was more self-reliant locally.

2. Transportation spending: public money invested in transportation improvements—such as an increase in traffic lanes, construction of an overpass or bridge, installation of a traffic signal, etc.—that create a platform for enhanced local growth.

This raises questions whether it is possible to fund highways even if based on wise investments on a user fee funded through a gas tax as opposed to a road use tax or other means? There is also the issue of state and federal elect officials diverting transportation funds and other infrastructure funds, especially in California. Tying transportation funding to community growth gave state and federal politicians a means of leveraging community support for their reelection efforts. These concerns though are related to transportation funding and not revenue growth for communities.

3. Public and private debt: the ability of local governments to take on debt has been important to sustain growth, but the private sector’s ability to Finance growth through leverage has been even more important.

Concerning public debt we have to question the reason for that debt, whether to build bridges or fight wars. Also have to question the types of private debt, investment in equipment or in subprime mortgages, still this does not change the current financial reality.

Finally, the municipal Rube Goldberg-like mechanism getting the most focus and which was featured in the previous blog post on Strong Towns is:

4. The Growth Ponzi Scheme which is the form of financing that takes place when the additional revenue generated from new growth is used to pay off unfunded liabilities created from past growth.

This takes us back to the unfunded liability for infrastructure maintenance which required an ever increasing rates of growth to sustain those long-term unfunded liabilities. Unless the revenues are growing at a greater rate, either through continually adding more new outside growth or an internal rate of return, than the cost of the liabilities, it is a Ponzi scheme.

Using revenues from new entrants to pay for the past maintenance obligations of previous developers has all the attributes of a Ponzi scheme. Current development patterns based on the automobile within a suburban landscape fail to create enough revenue within subsequent life cycles to be sustainable, so the Ponzi scheme has to collapse. State and federal governments are also contributing to this Ponzi scheme by their own need to lower costs and raise funds for themselves.

Historical Background

The Curbside Chat Book-LO.pdf provides the historical survey how we have ended up where we are. This is only a summary and you are again strongly encouraged to read the Curbside Chat Book-LO.pdf in its entirety to get the full extent and impact of these arguments.

1. Housing Foreclosures are at record highs. 
2. Housing starts are at record lows. 
3. The bottom of the housing market has not been reached yet 
4. Commercial real estate is also going through corrections and is a more immediate problem. 

Although it could be argued that these concerns have started to turn around, they still point to the disturbing implications of another Spatial Shift in our economy.

The Curbside Chat Book-LO.pdf takes lessons taught by history from the Long Depression of the 1870s and the Great Depression of the 1930s on the fragility and volatility of our economy. The conclusion is that America’s current economic condition is not cyclical but one demanding another correction, what Strong Towns calls a spatial shift, changing the pattern of development from mass suburbanization to one with a higher public return on investment. I term it a paradigm shift for our communities but see it as the same thing.

The Curbside Chat Book-LO.pdf points to the continuing fragility and volatility of our financial systems through Black Swan events.

There are two factors that I would add, one of which is implied but not made explicit and that is that we can never get back to the level of hyper-consumerism through debt that we had before the Great Recession The other is the concept of Disruptive Innovation as put forward by Clayton Christensen. I am of the view that this will become a greater part of the reality for municipal governments feeding into the creation of Black Swan events.

Future Considerations: Job Creation and Growth

Looking at job creation as an economic development measure is according to the Curbside Chat Book-LO.pdf a red herring. Communities often pursue job creation strategies based on attracting a single, new business that will provide a high number of jobs or often in California’s case a stream of revenue, usually sales tax.

The problem according to the Strong Towns approach is that we confuse building infrastructure that is productive with building infrastructure to create jobs. The truth is that we must do both.

Jobs and growth are the results of a productive system, not the proxy for one.

Solutions No, Strategies Yes

There are no real solutions to these problems according to the Strong Town philosophy, just rational responses.

Our local regulatory, planning, financing and engineering systems are designed to work in the Old Economy. If we are to see growth at the local level in a New Economy, all of these systems need to be rescaled to fit the changed reality.

Definitely in agreement with this and believe that we are lagging further and further behind the private sector in terms of technology and application as resources. This does not mean the public sector should be a clone of the private sector, it does though have lessons to learn.

Local leaders need to position their communities for change if they want to be prosperous in the coming decades.

As mentioned above, I am not optimistic about depending upon local government leaders to get us out of this mess. It will be great if they can contribute to the effort but I suspect that even those fully capable of doing it on their own, and many are not, will not be willing to do so taking instead short term political gain through short term financing over any long term community benefit. Those leaders in municipal governments that are capable of doing this and are also willing are likely already doing it. Also have little hope in this changing to the level it needs to by having elections every four years.

When the public is taking on long-term obligations, local officials need to demand that a pattern of development that pays for itself. The indirect public subsidy of unproductive growth needs to end.

The level of investment including long term maintenance of infrastructure and the potential future replacement of that infrastructure must equal the level of return. I am still working out whether this necessarily has to be direct though. While the overall economic pie for a community does have limitations it does not preclude using gain from one part of the economy to cover shortfalls in another for overall community benefit, the devil is in the details. This will be considered further in future posts.

There are concrete steps that communities should take to implement these strategies.

Communities should develop a real Capital Improvement Plan transparently showing the real infrastructure and maintenance needs of the community, not merely a wish list.

Communities should adopt strategies that increase the public return on investment. The return on investment or ROI for the public realm is a function of public cost and tax revenue. To achieve maximization of ROI on a specific block for maintaining infrastructure, the public costs need to be decreased and value of public sector investment (which is what generates tax revenue) needs to be increased. Economic development efforts have to actually add to the community wealth.

There are two means available to local municipal governments to achieve this. One is to implement a Form based code that emphasizes the form and pattern of development in contrast to the more prevalent standard zoning code which emphasizes the separation of uses. The other is to adopt New Road and Street Standards that cease focusing on the automobile and start creating value by enhancing neighborhoods. This means we need to stop worrying about how fast we get somewhere.

This in turn allows for High Amenity Investment that can create a proportional increase in private sector value and an avoidance of investment in low amenity areas that will not.

High Amenity Investment encourages communities to prioritize walking and biking where it makes sense, an approach this blog has already support by way of Bicycles Build Communities.

It also encourages focusing on Placemaking, by coordinating investments in parks and public buildings within a resilient, I would say sustainable, economic development strategy focused on the creation of value for communities and the reason to create community paradigms.

To help achieve this Strong Towns and the new communities paradigm effort both support the concept of Economic Gardening (the concept of economic development that originated in Littleton, Colorado) that asserts that trying to capture growth from without is not as viable as building on growth from within.

Finally, both Strong Towns and the new communities paradigms approach agree that this effort will require the engagement of community neighbors both online and on the ground. For the new communities paradigm approach this means Using Online Communities to encourage Direct Democracy for On-The-Ground Communities.