There were so many amazing moments from the Strong Towns Summit that I hate to highlight just one, but that's what I'm going to do today. We're certainly going to be talking about the entire event for a long time, not to mention the fact that there are a lot of attendees working on things that we are, in time, going to highlight here as well. This was an eventful two days; you might tire of us referring to it (or regret you weren't there).
Two years ago nearly to the day, I shared a concept that had been milling around in my mind for a decade or more: the need to consider a ratio between private investment and public investment. I'd danced around it before but never spelled it out as clearly as I did in that article, "The Density Question."
In my Kindle ebook A World Class Transportation System, I share the following two charts which show the relationship between private investment and public investment during the pre-Depression (top) and the post-World War II (bottom) periods of development. In the Traditional Development Pattern, with rare exception, private investment came first. In fact, going back to the Party Analogy first enunciated by our board member, Ian Rasmussen, there was a certain level of private investment necessary before there was public investment. This not only ensured that there was enough wealth in the community to sustain collective services, it created a feedback loop (a good party) where increasing productivity -- more incremental growth -- was a good thing. No NIMBYs here.
Contrast this with the Suburban Experiment where investment (or assumption of liability) comes first from the public sector with the private sector then following. Consider a developer building on a greenfield site. As part of the development process, the developer will build roads, streets, sidewalks, pipes, etc... before the private development is completed or, quite often, before it's even substantially begun. As part of this process, the city then agrees to maintain this infrastructure before there is any substantive tax base to make that feasible. This gets even crazier when the government is building or financing the infrastructure as a way to induce more growth. With such enormous sunk costs, there is a level of desperation among local governments that we've grown used to seeing the private sector exploit. As I've said in the Curbside Chat, build it and they will come is a great movie plot but a horrible economic development strategy.
This brings us to The Density Question, which answered -- for hopefully the final time -- what is probably the most commonly asked question we receive at Strong Towns: What is the right level of density to put in my zoning code so that a Strong Town emerges?
I hate this question. I loath this question. I find this question insulting in so many ways. Yet there it is, over and over, in my inbox from people who are sincere in wanting to use the limited tools they perceive they have to do something positive. Here's what I wrote two years ago:
So instead of density, what we’re really talking about here is a target ratio of private investment to public investment of somewhere between 20:1 on the risky end and 40:1 on the secure end. If your city has $40 billion of total value when you add up all private investments, sustaining public investments of $1 billion (40:1) is a doable proposition. Public investments totaling $2 billion (20:1) starts to be risky with outside forces of inflation, interest rates and other factors beyond your control starting to impact your potential solvency.
Let me explain this a different way. If you own the Empire State Building in NYC, which is appraised at $2.5 billion, finding a few million to fix the street and pipes in front of the building is not going to impair the value of your property. It’s not a deal killer. Push comes to shove, you’ll make that happen. However, if you have a 5-acre lot with a house worth $320,000 and the city comes to you with an $80,000 bill to provide you sewer, water and a street (seen that exact scenario proposed and shot down), that’s going nowhere. It doesn’t make financial sense.
And, at the end of the day, we’re talking about building cities that make financial sense.
Enter the amazing team from Fate, Texas: Michael Kovacs, Justin Weiss and Will Rugely. How these three came together in one small, exurban city on the outskirts of Dallas is true serendipity. What they've done is nothing short of amazing.
Based on the insight that cities need a private/public investment ratio of at least 20:1, they developed a regulatory review system to ensure this happens for new developments. They presented it at the Summit in a workshop entitled, "Scoring! How to Do the Math on Proposed Development in Your City," and I was blown away. There it was -- so simple, so straightforward, so obvious -- and they actually made it happen.
I've time stamped the start of the section on the video I found so brilliant. You're not going to see the numbers on the screen, but you can get a sense of what they've done. Don't fret; you haven't heard the last of this. We're going to get these guys on a webcast and break this down so we can all learn more from it. Stay tuned.
Perhaps the most impressive thing of all was that this team not only took the initiative on this idea, they packaged it and sold it to a council, citizenry and some of their development community that we can all imagine were at least somewhat skeptical. Fate is a growing city. They are not in the desperate financial situation many cities find themselves in. It would have been really easy -- and far less risky career-wise -- for these three guys to simply pad their resumes as masters of prosperity during the growth phase of of the Ponzi scheme. The fact that they chose a harder path makes them heroes to me, much in the same way Toby Dougherty of Hays, Kansas -- whom the Fate team also credited -- is a hero. They make it look easy. It is not.
The Fate approach is not perfect -- how do they overcome second life cycle decline in the housing stock and what do you do if there is another 2008 market correction before the promised tax base appears are just two issues to work through -- but to pull this off in the twenty four months since I wrote that article on density is nothing short of a bureaucratic miracle. I'm really excited to see what continues to come out of this team as they refine this idea with data. And by continuing to ask tough questions of themselves. I also can't wait to see who follows in their footsteps. Based on the quality of the Summit attendees, there are going to be quite a few.