Strong Towns member Andrew Martin is our guest contributor today, sharing an idea for how cities can make the hard decisions about which public resources to invest in. Check out Andrew's previous, highly-discussed article on our site, "Road Funding as a Prisoner's Dilemma." 


Libraries are extremely valuable community assets. More than being mere repositories for books (which alone can be enough to justify their existence), libraries often offer meeting space, community message boards, computer and financial literacy programs, genealogical research resources, internet access, 3D printers, and a host of other benefits, all at a low cost or free to their users. Libraries are indisputably good things for their communities.

But then why are there so few of them around? For instance, my city has about one library branch for every 30,000 residents. If libraries bring so much good, then why should we not have one branch for every 10,000 residents, or even one on every street corner? Intuitively, we already know the answer to this: Our cities cannot afford to have that many libraries. This is a perfectly valid answer, but it deserves a little more depth. So to help me explain, I present the following flowchart.

To begin with, it is helpful, for the purposes of this exercise, to think of cities as businesses. They are incorporated entities, and they provide valuable services (such as libraries) for their customers (residents) in exchange for tax revenues. Furthermore, if they lose money every year, then without outside support (from investors or other governments), they will not last for very long.

Whenever a business makes an investment decision, it must determine the effect of that investment on its bottom line. If the investment will not pay for itself quickly enough, then the business will pass over it in favor of better opportunities. Likewise, municipalities must consider whether adding services will enable them to collect at least enough new tax revenue to pay for the additional costs over the entire project lifecycle. This increase in revenue is the capturable value of the project, which is just a portion of its entire benefit. A library, for instance, can directly affect property values and therefore property tax receipts. If the numbers add up favorably, the city can proceed immediately.

Even if a branch will not pay for itself, though, this does not mean that it cannot be added. Indeed, cities tend to act more altruistically than standard for-profit companies do. They still want to make enough money to pay their bills, but they also want to have happy citizens. So once it has been determined that a project will be unprofitable and could only be pursued on altruistic grounds, a city must take a hard look at its finances.

For instance, rather than just using current cash flows, a city needs to evaluate the lifecycle costs of its infrastructure to ensure that it is setting enough aside for the eventual replacement. Many cities would be surprised at the results. And if it turns out that the city does not have the necessary funds available, then it needs to go back and search more thoroughly for profitable projects, which often require a smaller, less expensive, and more grassroots approach. In this example, a more modest library could be appropriate and pay for itself if it would provide a slightly reduced benefit for a much lower cost.

If the funds do turn out to be available, then cities are often willing to spend money on projects that their residents value, even if a given project will cost more than it brings in. Now, the value that a project brings to citizens is difficult to measure for public services, but it is equivalent to what the residents would be willing to pay for the private sector to provide those services. If I place a high value on libraries, then perhaps I would be willing to pay up to $1,000 per year to have an additional branch, whereas you might only be willing to pay up to $20, for a combined value to us of $1,020.

After estimating what this total among every resident would be using surveys, meetings, and sound judgement, the city should compare that to the cost of the new branch, only moving forward with the project if the overall value is greater. (As a side note, this does not guarantee the project’s completion. A project that is higher-value than its cost, but only serves a small group of people, may create enough controversy to force its cancellation, even if it is otherwise acceptable to the criteria put forth here. An example could be a tennis court in a wealthy neighborhood, while recreational facilities in poorer areas are neglected.) The following chart helps to show this visually.

This chart provides a couple of important concepts. First, total value generally increases (the curve is above zero) when a city provides a new service. The city will be able to capture some fraction of that new value, and its revenues will go up by a smaller amount. This could be thought of in terms of property tax, where if a house goes up in value by $10,000 thanks to a new library nearby, the city might collect an extra $100 per year, with the residents keeping the rest.

Second, notice that the increase in value shrinks with each additional branch. This is due to the fact that library branches are subject to diminishing returns. At the extreme, the curves can even go negative if, for example, a city tears down too many houses in order to keep building more libraries. So in the chart, if the city expects each library branch to pay for itself, it will only build two branches. If the city instead wants to maximize the value it creates for its citizens, then it could open up to four branches, as long as it fully understands its goals in subsidizing those last two.

The secret to a strong city is to have a mix of both revenue- and value-positive projects, while religiously avoiding ones that are not worthwhile by either measure.

Subsidies are not necessarily a bad thing, but just something to consider carefully since they should be focused on maximizing their impact. However, in no instance should the city in this example have five or more branches, since each excess branch would be generating less in total value than it costs the city, thereby squandering citizens’ wealth. At that point, it would be better for the city to just give that money directly to its residents or spend it on another project. As long as a city has enough extra money from projects that bring in more than they cost, then it can subsidize money-losing projects, with the caveat that they must be projects that are sufficiently valued by its residents. The secret to a strong city is to have a mix of both revenue- and value-positive projects, while religiously avoiding ones that are not worthwhile by either measure.

This idea is fairly simple to explain, but it is much harder to implement in its entirety. So my goal in this article is neither to advocate for more libraries, nor is it to get every city to find perfect numbers to justify or reject every project from a tax or value perspective. I just want citizens and civic leaders to insert mental breakpoints, corresponding to the flowchart above, into their thought process when considering potential projects or changes in service. These can be library branches, street trees, fire engines, bike lanes, road expansions, or anything else a government does. In too many instances, our cities have already figuratively built a library on every corner, while neglecting to work on what is truly valuable and profitable. We need to refocus, because better opportunities are waiting.


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ABOUT THE AUTHOR

Andrew Martin is a Midwestern native who became interested in architecture and urbanism while watching his Rust Belt hometown hollow out. Now living car-free in the Washington, DC area, Andrew is a civil engineer with a federal agency. He also develops energy-efficiency software. His long-term goal is to become a builder of infill townhouses with alley-facing accessory dwelling units.