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Monday
Apr302012

Paved with good intentions

How can a country that is so wealthy be in such enormous debt? How can a country that can build such marvelous transportation systems not find the money to sustain them? How can a people that enjoyed decades of unrivaled economic hegemony -- staggering levels of growth beyond anything seen in human history -- be facing such economic turmoil after a couple years of, not even decline, but just slowing growth? The answer to these questions reveal some uncomfortable truths about who we are, how we got here and what options we have for our future prosperity.

I wanted to provide a brief message for our podcast listeners who have now gone three weeks without an update. I'm so sorry. Like our politicians and engineers with our highway systems, I have had the best of intentions. I've brought along recording equipment on our recent trips to California and Memphis but never had the time to put something quality together. There are two answers to this problem. First, I'm going to make some time this week and next week, with CNU, I will have a ton of content. Keep your ears open for that. Second, we need some help around here, and that can only happen with your assistance. We have an amazingly small budget when compared to everything we do. If you are in a position to support our high return operation, we would value your contribution and put it to good work. Thank you for your support.

I'm struck by how strongly our culture associates growth and prosperity with highway construction and expansion. Tom Friedman, a respected left-of-center columnist with the New York Times, had an entire chapter in his most recent book, That Used to Be Us: How America fell behind in the world it invented and how we can come back, devoted to the concept that "our winning equation" is, in part, to invest in infrastructure and then watch prosperity flourish, just like it did in the 1950's and 1960's.

Of course, this ignores that fact that our investments during the first generation of America's Suburban Experiment (1950-1975) were higher return investments that generated a lot of positive cash flow. I like to point out that, when we built the 35W bridge here in Minnesota for the first time, it connected far flung areas of the Minneapolis/St. Paul metropolitan region in a way that had not been done before. Following that investment, new commercial real estate was developed, new residential housing went in and the resulting influx of tax receipts made us feel wealthy. When the bridge fell down and had to be rebuilt, we didn't experience all that new growth, just the costs of construction and delay. Maintenance has an entirely different set of financial metrics than new construction.

Which is why our transportation spending is set up to favor new construction. It is just so much more fun. Maintenance is simply a pain, a local concern. That highway fix it project means nothing but congestion and delays and, when it's all done, all you have is a little smoother ride. By contrast, new construction is so much better. Not only do the politicians get a ribbon cutting scene, but we can all (once again) "solve" congestion while getting a new WalMart, Taco Bell and Quiki Mart in the process. New growth just feels so much better.

How else can you explain what I experienced last week in Memphis? Here is a city with enormous infrastructure maintenance problems having spent untold sums running highways all over the region. Their local transportation board is proposing the region spend $10 billion more, almost all of it adding new capacity on the far flung (new growth) extremes of the network. Maintenance? That's someone else's problem.

How else can you explain a state (Minnesota) that would prefer to spend more on one bridge to aid exurban commuters from the neighboring state than on maintaining all of the state's 1,149 bridges that are currently rated as structurally deficient? We culturally believe in the power of new growth to solve our problems, that investments in highway capacity and combating congestion pay dividends to us as a society.

Unfortunately, we base this belief on the illusion of wealth that was created in the early years of the Suburban Experiment, where the first life cycle of horizontal expansion had produced growth for our economy and that pesky overhang of maintenance was still a decade or more away. We should know better by now, but there are few in a position to change the system that don't benefit, at least in the short term, from it being perpetuated.

The emperor has no clothes, indeed, but we're still in the phase where we jeer and deride the one pointing it out. That will change soon.

What will speed up that change is an understanding of the fact that our transportation investments are not creating wealth, they are destroying it. Now I'm not talking about just the investments where the old Target store at the old interchange is induced to move into the new Target store at the new interchange four miles up the road. I mean almost all of our highway spending. It costs more to build and maintain than it generates in returns and, therefore, will only continue so long as we have the capacity and the desire to delude ourselves.

Let me provide an example. Pretend you were a local elected official and I came to you and said that I had a project that would reduce congestion, allow us to improve traffic safety, create local economic development opportunities and return 2,194% of the cost of the project to the local economy? Sounds good.

What if I then said that the federal government would pick up 90% of the cost, making the local share just $716,000? This is now a no-brainer, right?

Today let's just look at the federal contribution. I did a Google search for a Diverging Diamond enhancement project with a cost benefit analysis and came up with this one from Kentucky Colorado. Yes, I have an obsession with the delusion that is the diverging diamond interchange, but the selection of Kentucky Colorado was just random. The report for the project contains an appendix that has a cost benefit analysis as follows:

You can see that by the time you get to 2030, for the diverging diamond without the added enhancements, the cost is $7.2 million but the benefit is nearly 22 times that at $157 million. That is an AWESOME rate of return. Graphically, it would be presented to public officials like this, which makes it easy to understand why it could be supported.

At this point, we're not going to delve too deeply into what this benefit is. That will come later. Let's give it the most optimistic spin. Nobody is suggesting that this is money that will pour back into the government. What is being suggested here is that transportation investments like these will reduce congestion, increase mobility, create jobs and that will all grow the economy. So the $157.1 figure could be thought of as the increase in Gross Domestic Product (GDP).

Still sound good? Consider that the federal government -- through all means of taxation, including income tax, tariffs, business taxes, estate taxes and even including the gas tax -- currently captures 15.8% of the economy. Put another way, for each dollar of GDP, about sixteen cents finds its way to the federal government. That means that our whopping $157.1 million in GDP growth only returns $24.2 million to the federal coffers. Graphically, it would look like this.

Okay, this still feels like a good project, doesn't it? The Federal government spends 90% of $7.2 million and, over the subsequent 15 years, brings in $24.2 million. We should just do this over and over again because we're just getting richer, right?

Not so fast. It is not like the $24.2 million is going to be spent on transportation, or even that $7.2 million of that is going to be spent on transportation. The Federal government does many things, has tremendous obligations and spends the vast majority of its funds on things that our society deems more worthy of our investment than transportation. In fact, in 2011, the Federal Highway Administration's budget was 41.1 billion, just 1.07% of the Federal budget. If we are only going to spend 1.07% of what we bring in on transportation, that means this project yields just $259,000 in funds that actually pays for transportation investments.

If the problem here is not obvious to you at this point, let me elaborate. We spend money on transportation. We feel wealthy and experience this enormous "return" (more on that in a second). Only a fraction of that wealth is actually cycled back into the system, however, and an even smaller fraction of that will actually be captured to pay for the project. The amount recouped is ultimately nowhere near the amount invested.

The most obvious "solution" to this problem is to devote more of our Federal budget to transportation projects. That would be the solution of the American Society of Civil Engineers and their adherents in the Infrastructure Cult. Okay, let's not bother calculating the time value of money (the fact that the costs are today but the benefits are spread out over many future years), but just evaluate what it would take in terms of an increase in our budget to go from $0.26 million returned to break even at $7.2 million. That increase -- 27 times the current budget -- would make the Federal Highway Administration's budget $1.1 trillion, bigger than the national security budget ($895 billion), Social Security ($730 billion), Medicare ($491 billion) or Medicaid ($297 billion). That's not going to happen.

So what if we just raised taxes and the federal government captured more of the wealth generated by this improvement? The calculations reveal that the Federal government would need to increase its take of GDP from 15.4% to 19.8% of the economy, a tax increase of $640 billion with all that extra money devoted just to roads. Only the true socialists and/or the true believers in the power of the Suburban Experiment will think that is a good idea.

Now let me drop the bomb I've been alluding too: Those "benefits" that we kind of think of as prosperity, wealth or GDP; they really aren't. There are derived from a set of narrow correlations between time saved and prosperity that we witnessed in the early 1950's when we built those initial highways. We connected these far flung places -- places only served by railroads or poorly constructed roadways prior -- and we saw all kinds of economic gains. We then used that knowledge to build equations to justify expansion of the system. Nobody ever questions those equations today (why would they) and nobody stops to consider the diminishing returns of the system.

So there is not actually any money here, just a few seconds of saved time here and there that economists and engineers equate with money when they are trying to justify a project. Do you take home more money, generate more wealth for the economy or spend more of your income when you can arrive at work 45 seconds more quickly? Not me either. These equations are a joke. (If you want to learn more, read our 2010 series on Costs and Benefits.)

So when I say we are going broke, that this system provides the illusion of wealth in the near term but ultimately destroys wealth, that the decay you see around you in our transportation system is not due to a lack of investment but to the lack of financial viability of the system, you can get a sense of how far gone we are. We are literally operating in a totally different paradigm from reality.

When someone like James Howard Kunstler says we need to rebuild our passenger rail system, that the highway era is a transitional phase that is going to come crashing down on us, we all smile and nod to his face and then giggle behind his back because "that guy is a little crazy". Like I said earlier, the emperor has no clothes, but we're still in the phase where we ridicule the guy pointing it out. We need to get past that. Quickly.

Yes, this is just one project, but I picked this project because it is a low cost, high return endeavor. That is the argument that the engineering profession is making and one of the reasons people got so mad at me when I did my earlier posts on the diverging diamond; the diverging diamond makes better use of existing infrastructure and pays a high return, especially when compared to things like adding another lane or building another interchange. Even so, the math on it is ridiculous. Imagine what the math on a project like the infamous St. Croix bridge would be.

In a follow up post I'm going to look at the original construction of our passenger rail system and show how important capturing value to pay for capital costs is to making transportation systems work as well as how such a system naturally resists excessively ridiculous spending, or at least creates systems that break early enough to avoid catastrophe. In the process, I'll explain why funding the highway system with gas tax dollars was flawed but also why continuing to fund it with deficit spending is perilous. I'll also, if needed, address any engineers (or those sympathetic to them) that want to argue that we shouldn't look at the revenue for a single project because it's the system, dude, that generates the prosperity. Yeah, how's that working out?

The time to shift our focus to building Strong Towns is now.

 

Join our conversation by leaving a comment or join us for more Strong Towns content on Facebook and Twitter. If you are interested in having the Strong Towns message brought to your community, sign up for a Curbside Chat and we'll make plans to get together in a town near you.

Friday
Apr272012

Friday News Digest

This week I finally sprung for internet access from Delta Airlines and, in the course of my three flights back from Memphis, actually managed to clear my "new" email inbox (my endless apologies to those of you that emailed me weeks ago and are still waiting to hear back -- I'm working at it). I actually began assembling this Friday News Digest from 30,000 feet. Amazing, really.

After a fantastic week in Memphis where I was able to meet with dozens of public officials and people working to bring about a Strong Memphis, and where I spoke to a huge and enthusiastic audience this past Wednesday, I'm aware that we have a lot of new readers checking us out. By way of a brief orientation.... We publish here typically Monday, Wednesday and Friday. Monday is syndicated in a number of places and tends to be a more weighty article. Wednesday is sometimes shorter but often just as substantive. Friday I like to have a little fun with the news I read and, hopefully in the process, help our readers to digest current events through a Strong Towns prism. Welcome and we hope you enjoy our work enough to share it with others.

Now that we're all friends, enjoy the week's news.

  • The local newspaper there in Memphis ran a story prior to my arrival previewing the events of the week. The usual cast of characters you see lurking around every news source (although not here - our readers are more intelligent than that) was there to spew their uninformed negativity. Well, I wanted to set a tone and so I engaged them in our Strong Towns way and, guess what, it went okay. A follow up article ran Thursday morning after our big public event and, unfortunately, I used up all of my "free" logins engaging on the prior article and am now locked out of the site. Since I am unable, if you all would be so kind, check out the comments and, where needed, shower them with logic mixed with kindness.
  • My wife is going to laugh at me about this one; another television experience (not my favorite medium). The reporter was very nice and, while a number of people have pointed out to me that she didn't totally get it, she got enough of it to start a constructive dialog among people who did not attend the event. While we had a couple of hundred people there, many times more saw this little clip. Let's keep this conversation going, Memphis.

Memphis Too Big for Its Own Good?: MyFoxMEMPHIS.com

  • We continue to hear from friends in California after a series of Curbside Chats we did across that state this month. The latest is a blog piece from our friend, Placemaker Howard Blackson, who not only gave us the high speed chase tour of San Diego but helped organize and host the event as well. Howard will be in West Palm Beach for CNU 20 and, while you can trust him with your rental car, you can trust him even more with designing your Strong Town.

It was refreshing to hear the sobering truth, but Chuck did not end his lecture with any silver bullets; no secret government programs; no books to buy; and, not one tax cut that would cure our disorder. Chuck simply stated that our explicitly suburban pattern of development is a well-documented financial blunder. Instead, he instructed us to stop what we had been doing and fix what is broken with a traditional, more urban pattern of development. We should be rebuilding at a more incremental scale in a way that (re)captures the value of our existing infrastructure and surrounding building stock.

  • This is the most important article I read all week. I had three people send it to me and, when I started reading it I thought **sour grapes** but as I delved deeper I realized that there were some deep insights that parallel the realities we are uncovering about the American pattern of development. Read the entire thing. I'm not sure who Eric Garland is, but he paints an accurate picture of the challenges that people wanting change face today.

Hierarchical organizations have a very different logic than smaller firms. In less consolidated industries, success and failure are largely the result of the decisions you make, so intelligence about the reality of the marketplace is critical. Life is different in gigantic organizations, where success and failure are almost impossible to attribute to individual decisions. Though a given conglomerate might have hundreds or thousands of "executives," each is much more beholden to a complex culture of bosses. Even if people mean well, they're living and dying by a system where the incentives are to seek advancement by pushing responsibility downward and pulling credit upwards. In large, slow-moving bureaucracies, conventional thinking and risk avoidance become paramount, irrespective of how many times a day people at that organization use the word "strategy" or "innovation." It is far more preferable to fail conventionally than to make a daring but uncertain decision without the full backing of the entire organization. Because massive bureaucracies are so much more common than they were even a few years ago, decisions are simply not in vogue right now.

  • The second most important article I read this week was by our good friend, Kaid Benfield. He has repeatedly been kind to us here beyond anything we deserved and, truth be told, has been a mentor of sorts for me personally. He commented last June when we released the Ponzi scheme series about how he had seen our ideas evolving and building up to that insight. Well, I don't want to insinuate that he is anything but brilliant, but I've also seen his thought process evolve over time. His latest, Smart Growth is a start, but it is not enough, contains deep truths for a cohort of people that too often seem all too comfortable with the narrow environmental metrics of success.

But, as I have opined before, the fact that we are increasing dwelling units per acre, reducing vehicle miles traveled per capita, and reducing tons of carbon emissions compared to sprawl does not mean that we are making great people habitat.  We may be creating smart growth, while in some cases doing little for people or doing less for the natural environment than we could be.  I believe that achieving the fact of smart growth, where we have it, is no longer enough, and may not warrant our enthusiasm as much as it did, say, a decade ago.  It is time to focus more on the quality of what we are building.

  • Bloomberg published this article with the provocative headline Why Does U.S. Build Roads if it Can't Pay to Fix Them? A great question, which they fail to answer in spectacular fashion. They suggest that cities can borrow to build new but not to maintain, although anyone who works with cities knows that is not the case. Bonds are issued for maintenance at every level of government as a routine course of business. They also insinuate that local control is somehow the problem and that more centralization would generate better outcomes. This is a dangerous idea as the exact opposite is true -- centralization is what is killing us. The simple answer to their question is both obvious (we need new growth to fuel the Ponzi scheme of local finance we have created) and complex (we have so much inertia to continue this approach embedded in our systems that changing course is extremely difficult). I did appreciate this story, however, which is far too common (and, of course, exacerbated by centralization of decision-making).

“See those lights,” a transit manager in a major American city told me during a tour of an open-air train station, pointing to some bulbs in rusting metal frames hanging over the platform. “It would only cost about $1,000 a year to maintain those well. We can’t get that. So instead, we will wait until they rust out and fail completely. Then we will replace them, at a cost of perhaps $100,000.”

  • Grist shared this video that explains, among other things, the most simple and obvious concept that the average engineer is too intelligent to grasp: induced demand. If I ran an engineering firm, I would lay off half of the engineers and then fill every other cubical with people having a diverse group of degrees. Art, history, humanities, computer science, German, etc... People that are intelligent thinkers, but not engineers. I would then make every project a team project where the engineer had to work with a non-engineer. What would emerge from the initial collapse would have the potential to be amazingly innovative and dynamic.

  • I enjoy the website Zero Hedge, which often applies a good understanding of economic principles to non-economic situations. In this recent article, they look at the impact of natural disasters and point out (while quoting us) that the Suburban Experiment has increased the financial impact of these events.

The Austrian school of economics teaches us that easy money leads to malinvestment. Suburban growth certainly seems to qualify. Our urban sprawl malinvestment has left us with the interwoven problems of unlivable cities, financial crisis, and increased death and destruction from natural disasters.

  • I believe that a drive through prayer service is perhaps a new low and potentially a sign that the end is near. Although, come to think of it, as a Catholic there is something intriguing about doing confession through one of those speakers you order your fast food from. I'll take two Hail Marys, an Our Father and a side of fries, please. Sometimes we are an incredibly pathetic people.
  • At our Curbside Chats, I'm often asked about sales tax revenue. "Okay, Chuck, I see how this suburban commercial property doesn't pay from a property tax standpoint, but it generates a lot of sales tax revenue." Well, check this out.
  • Strong Towns apparently has reached Finland, where the blog From Rurban to Urban has posted an article on Depaving the Stroads to Hell. In my dreams I see Finland as a beautiful place full of beautiful people with beautiful streets and nice country roads. It is a little depressing to learn otherwise, but heartening to know that we have a friend there working to solve the problem. Pitää tehdä, mitä voit rakentaa vahvoja kaupunkeja.

Economics aside, stroads are also very unproductive culturally. The more “highway elements” a stroad has, the less it becomes compatible with a meaningful people habitat.  An urban street (think of cities before suburbanization) is not only limited to act as a space for movement, but also for communication, social and commercial encounter and exchange. It is a public space, a place to do business, a political space, and a symbolic and ceremonial space in the city.

  • I want to close with something a little more serious, which is not what we usually do on Friday, but I feel compelled to this week. I don't know how much the American news (which I generally avoid) has covered the happenings in Norway this week where a radical that murdered over 70 people -- mostly children, shooting them at point blank range -- is on trial. I've repeatedly been humbled and inspired by the gentle, courageous and strong way that Norwegians have reacted to this traumatic event. What more defiant, comforting and affirming approach could a society take than to stand arm in arm and say as one, "We won't allow you to turn us into what you have become; someone who is filled with hate." My grandmother was a Norwegian immigrant -- a kind and beautiful woman -- and this whole thing has helped me to remember her in an even deeper way. I'm amazed with these people and, in my own little space here, want to honor them for the example they are setting for all of humanity.

Have a great weekend, everyone. See you back here on Monday.

 

If you value what you read here, consider a donation to help support the Strong Towns movement. Your support -- at whatever level -- will go a long ways towards giving us the resources and credibility we need to spread this important message. And tell a friend about us. It all helps us spread the Strong Towns message.

Thursday
Apr262012

AuthentiCITY

We're really happy to accept this guest post from one of my good friends, Russell Preston, who is a member of the board of the Congress for the New Urbanism, a CNU NextGen leader, a gifted architect and a brilliant urban designer. Russ is working with a group of NextGen leaders to bring AuthentiCITY back to CNU20. There is still time to enter this contest, the winner of which we will work with to promote to the world, in this space and others. Details below.

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Strong Towns has made the excellent connection between the long term value of urbanism and good design. Since our meeting in New Orleans in 2010, Chuck has offered his thoughtful support of the AuthentiCITY competition. The competition was created to further explore the implementation of the design principles illustrated within the Charter of the New Urbanism and to encourage the competition’s host city to rethink their public spaces and street networks in order to add long term value to the community. At the core of the competition we are helping places start to answer this question: what does creating an authentic place have to do with making a strong town? Submission to this years competition are due next week, and I want to make sure the Strong Town’s network has the opportunity to participate. 

What is AuthentiCITY?

I would like to invite those who are interested in the conclusions outlined in the Curb Side Chat to participate in the competition. AuthentiCITY [ http://competition.creatingauthenticplaces.com/ ] is an open design competition that has been organized in partnership with the Congress for the New Urbanism and the City of West Palm Beach. Our goal is to provide the City with a collection of high quality redevelopment ideas for two key sites. 

Why West Palm Beach?

The 20th anniversary of the Congress for the New Urbanism is being held in West Palm Beach from May 9 -12. We selected the two site because they are key to the health and future of downtown West Palm Beach and it’s adjacent neighborhoods. The Banyan Boulevard site [ http://competition.creatingauthenticplaces.com/?page_id=17 ] is a classic Stroad redevelopment opportunity. The goal of this project is to create a stronger pedestrian connection to Downtown and help make a transition from the business core into this historic residential district. The second site, Belvedere [ http://competition.creatingauthenticplaces.com/?page_id=20 ], is anchored by a suburban style shopping center and several local collector roads that have the capacity to create an neighborhood center for these historic southern neighborhoods. What is most exciting about both of these sites is these projects have the opportunity to illustrate how these areas can take advantage of the great proximity to existing and future transit stations that is planning to start running passage rail on the line again.

Many of the themes that AuthentiCITY is exploring have emerged out of several years of conversation (New Orleans meeting, South Beach meeting, etc.) Chuck and I have had the pleasure of participating in with some of CNU’s emerging leaders: 

1.) It has emerged that an authentic place is cost effective. 

2.) That successional growth is essential to the long term stability of a place. 

3.) The form and function of an authentic place supports the cultural growth of a place.

4.) An authentic place is grown through an iterative and integrated process. 

5.) These places provide spaces, both large and small, for passionate people to be productive and entrepreneurial. 

6.) There should be a compelling reason for people to be there which leads to an authentic place’s support of jobs and the local economy. 

All of these characteristics should come as no surprise to readers of Strong Towns. At the core of this effort we hope this competition can help illustrate how quality investments in our built environment can be made that lead to the growth of a resilient and authentic place.

For more information on registering for AuthentiCITY please visit the website at competition.creatingauthenticplaces.com

Join us at CNU20 for the judging of the competition on May 11. While your at the Congress be sure to make it to Chuck Marohn’s panel. I will also be talking on May 9 about new models of infill development and on May 12 will be part of a panel discussing emerging treads in Tactical Urbanism.

I must thank the Strong Town team for their continued efforts and their ongoing support of CNU. Please do what you can to build Strong Towns and help us illustrate to West Palm Beach how that might be possible. 

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Russell Preston is founder of Principle Group, a design and real estate development firm focused on creating living places. He currently serves as Secretary of the board of directors of the Congress for the New Urbanism and is President of the CNU New England chapter. You can find his thoughts on Life & Urbanism at www.russellpreston.com/blog.