To Fight our Cities' Financial Struggles, we have to go Beyond the Budget

Pat Trahan is a founding member of Strong Towns and a resident of Lafayette, Louisiana. The following essay is a response to a presentation given by Charles Marohn and Joe Minicozzi (of Urban3) in Lafayette.

Our problem was not, and is not, a lack of growth. Our problem is 60 years of unproductive growth — growth that has buried us in financial liabilities. The American pattern of development does not create real wealth. It creates the illusion of wealth. Today we are in the process of seeing that illusion destroyed, and with it, the prosperity we have come to take for granted.
— Charles Marohn

No one could have known years ago that the public costs to create and maintain the Suburban Experiment would leave my city of Lafayette, LA so broke.  We just did what most other cities were doing.  In fact, we did it better than most.  Everyone thought we were doing the right thing, and that we would build private and public wealth if we just grew out further and faster. 

The results are in and the long, linear growth model and sparse land use pattern has turned out to be a financial catastrophe.  Our infrastructure grid is too long and spread out too far.  The rising cost of concrete and construction has made it way too expensive to maintain.  To top it off, private development on that grid is too thin to produce enough property taxes to maintain all of the “free” road and sewer infrastructure that was “given” to the Lafayette Parish. 

It is becoming clear now that we have been a victim of the high cost of free money and are actually just digging the Parish into a deeper hole every time we issue a permit for someone to put a bunch of pipe, concrete and asphalt out in a cane field on the edge of the Parish — even when they use their own money.

Lafayette is not alone in this. Your city is probably facing the same set up.

If this were simply a budget problem, we might have solved it by now.  But one of our biggest liabilities — the promises we have made to maintain all of this infrastructure that is given to us — never runs through the budget.  We incur the liability at the moment that we permit these unproductive developments out on the edge, but we never record it on our books.  If we did record the liability at the time that we agree to assume it, we would have seen this insolvency crisis coming decades ago.  Unfortunately, government accounting doesn’t work that way.  We list all roads as assets.  If a road costs us more to maintain and eventually resurface than it produces in property taxes over that same period of time (as nearly all roads out on the edge do) then it should rightly be considered a liability. 

These are massive, unrecognized and unrecorded subsidies to landowners and middle class homeowners out on the edge.  We don’t view them as such, but if they produce private wealth and contribute to public insolvency, then they are subsidies.  These costs are so huge and so well hidden, that we have no way to account for them or manage them in our current system.  Our public investments over the years have generated lots of private wealth and that is good news.  But we have hit the wall and are now at a point where the Parish can no longer make public investments that create only private wealth.  We need to make public investments that have a positive return on investment and add to the public wealth, too.    

This illustration shows the tax value per acre of each plot of land in Lafayette. The green plots in central Lafayette are generating more revenue than they use and the red plots on the edge of town are taking more tax dollars than they are generating. The higher the block goes, the larger the amount of profit/loss.  Read more from this analysis.  (Source:  Urban3 )

This illustration shows the tax value per acre of each plot of land in Lafayette. The green plots in central Lafayette are generating more revenue than they use and the red plots on the edge of town are taking more tax dollars than they are generating. The higher the block goes, the larger the amount of profit/loss. Read more from this analysis. (Source: Urban3)

So, just as one of your biggest liabilities is not recorded properly on your balance sheet and not budgeted or managed, the same can be said for your largest asset. 

The Parish owns lots of assets.  Some are more productive than others.  However, perhaps our largest single asset is one that we don’t own outright and that, again, never shows up on the balance sheet.  The revenue interest that we own in every parcel of privately-owned real estate in the Parish is an enormous unrecorded asset.  Areas of the Parish where there is high value, fairly compact, walkable private development — Downtown and River Ranch — produce revenues to the parish that far exceed the costs to maintain their infrastructure.

These tax revenues per acre are dramatically higher in the walkable core of our municipalities than they are in drive-only areas out on the edge of the Parish.  Yet we make it extra hard to develop places like River Ranch or redevelop in the core of Lafayette.  We know that we can’t run government just like a business, but maybe we could run it more like a farmer.  If we did, we would be planting more seeds in our most fertile soils where the financial yield back to government is tenfold.  

We ought to allow and encourage private investment, and even occasionally make public investments to get high yield, productive growth in places that build true wealth for the Parish and our municipalities.  The places that are most productive tend to be the older core areas of our municipalities (see the image above). These neighborhoods already have the infrastructure required to support new private development that increases revenues to local government, with little to no additional expense. These are huge hidden assets that lie fallow if we don’t plant seeds, or allow and encourage seeds to be planted there. 

So we unknowingly and unwittingly provide massive hidden subsidies for the type of development that requires new infrastructure on the edge and adds to our insolvency, while at the same time we incur huge opportunity costs as we discourage the more complex, compact productive development that makes a lot of money for Lafayette. 

Squeezing the budget harder is not going to get us the results we need, nor will the ideas I suggest here solve the immediate crisis.  We will, undoubtedly, need to raise some new tax revenues.  However, the combination of drastic cuts and new revenues will only buy us a little time if we keep doing what we’ve always done. 

I think we have very little chance of raising additional taxes this side of Armageddon if we can’t demonstrate to the public that we understand how we got into such a deep hole and how we will ensure that we stop digger ourselves deeper.  Why would we ever approve another permit for a development out on the edge that requires the Parish to maintain the infrastructure before determining whether anticipated revenues will provide enough incremental tax lift to the Parish to fulfill that obligation to maintain and eventually replace the infrastructure?

We are just now becoming aware of the illusion of wealth that was created here and in most other places across America.  Now that we realize we have been sucked into a Ponzi scheme that has rendered us insolvent, we need to stop investing in that unproductive land use pattern. 

There is a way out, but it goes far beyond the budget.  Our biggest financial problems are not line items in a budget, they are systemic — the illusion of wealth, hidden subsidies and underinvestment in productive areas.  Not a dime of the cost of the massive subsidies out on the edge or the enormous opportunity costs in the core shows up in our annual budget. 

We need to get serious about determining and demanding land uses and infrastructure investments that produce positive returns and wealth for the Parish and our municipalities, in addition to private entities.  We can do better if we start thinking beyond the budget.

(Top photo by Johnny Sanphillippo)

About the Author

Pat Trahan is a recovering banker, Strong Town enthusiast and downtown activist who lives in Lafayette, LA.