“A dirt road leading to one of Spokane’s oldest neighborhoods near Kendall Yards will be paved this fall using fees collected from motorists throughout town.
The Spokane City Council voted unanimously Monday afternoon to approve the roughly $300,000 project, which will pave a 900-foot span of dirt road leading down from Kendall Yards to the Lower Crossing neighborhood, a small cluster of nine homes. Residents said the street became rutted in the spring and winter, preventing access for trash trucks and snow plows. There were also concerns about fire danger.”
Shortly after we moved to Spokane last summer, the above article in the local newspaper caught my attention for three reasons. First, the project is only a couple of blocks from our home, so I was actually familiar with the location in question. Second, it’s unusual to see or hear about dirt roads in such a central, urban location. Third, paving a dirt road has a clear connection to the kinds of things we talk about here at Strong Towns.
In terms of the overall city budget, this project is pretty minor. Its impact is also very isolated, so it was never likely to get much scrutiny from local media or advocacy groups. Although there were some objections raised during the approval process, the unanimous council vote indicates any dissent on the part of decision makers was minor—certainly not an indicator of a philosophical split in the city’s body politic. To quote Strong Towns founder and president Chuck Marohn: “Our cities struggle not from the lack of a cultural consensus, but because of one.”
A Cultural Consensus
Reading through another news report reveals a lot about the cultural consensus Chuck refers to. Proponents made their case based on very real concerns about safety and fairness. The benefits for fire prevention, stormwater runoff, and improved access are unquestionably good things. It’s easy to see why any opposition to the project quickly melted away.
And yet, there was one topic left undiscussed during the whole episode: what is the impact of the project on the city’s long term finances? No one has done the math. The math, in this case, is a simple calculation of the tax revenue generated by the isolated properties served by the project. Does the tax revenue from the Lower Crossing neighborhood justify the expense of paving the road?
This case is an interesting one in part because the costs and benefits are so neatly isolated. The road in question exclusively serves local traffic for the few properties at the bottom, so the benefits of the project are not widespread the way those of an arterial road or highway project might be.
Before we dive into the numbers, I have no doubt some observers will point out the project was paid for out of car tab fees, a separate revenue stream from property taxes. This is technically correct but fails to take a broader view of the fiscal issues. To begin with, the initial construction is only part of the total cost to the city. This road will now require regular service and maintenance. One day, it will need to be replaced completely. Where does the money come from to pay for that? In fact, this road is actually a liability on the city’s overall finances. (This is true regardless of what the accountants are allowed to show on the balance sheet.) In any case, whether any of the costs are paid out of one municipal fund or another is like whether I pay for a hamburger with cash or with a debit card—it’s a reduction in my overall balance sheet either way.
Doing the Math
Now let’s do the math that didn’t make its way into the conversation this summer. The total assessed value of the 15 properties in the neighborhood based on 2017 tax records was $2,860,340. The total 2017 tax revenue was $33,697.39. The accompanying table shows the tax revenue for each parcel. For those of you interested in doing the math in your own community, this is all public information I looked up on the Spokane County assessor’s website. Most cities and counties make this information easily accessible.
Let’s consider these numbers in the most absurdly generous light possible. Let’s assume that these properties incur no additional costs to the city in the future: no emergency services needed, no school children to educate, no use of other roads in the city, no use of water or sewer infrastructure... you get the picture. In this impossible scenario, the $330,000 invested in this area will be repaid through tax revenue in about 10 years.
Think of it this way: We, the voting shareholders of the corporation known as the City of Spokane (did you know cities are technically corporations?), are investing over $330,000 in a depreciating asset that will generate about $1 million in tax revenues over its useful life of about 30 years, at which point without further investment we’ll be left with a virtually worthless pile of rubble where the road used to be, and the accumulated cash from taxes levied. That’s an annual return of about 4% on our initial investment of $300,000. And that’s the most absurdly, unrealistically generous scenario.
Thankfully, we already have a useful calculation that covers a more realistic scenario. Our target ratio of private investment to public investment should be a minimum of 20:1, and preferably closer to 40:1. Translating this into our present example, the total assessed value of $2,860,340 justifies a maximum of about $140,000 in public infrastructure investment (20:1 ratio). That’s for roads, sewers, water, etc. In other words, this road alone represents far more public investment for the neighborhood than any sensible person would be likely to accept in their own personal finances. And we haven’t even tallied the cost of the nearby sewer lift station and other infrastructure that makes this area habitable.
Now, my point isn’t to criticize the residents of the Lower Crossing neighborhood. They’re not receiving undue consideration or special treatment. In fact, that’s exactly the point. This inexorable math represents the financial reality in the vast majority of Spokane (and the rest of North America). I’ll quote Chuck again: “What we at Strong Towns have seen so clearly is that our cities struggle not from the lack of a cultural consensus, but because of one.” No one questions the provision of various municipal services and infrastructure. These are unassailable rights in our day and age, and this reality has put us in a predicament. I’m not here to suggest we cut municipal services, I’m simply doing math.
What Is to Be Done?
In fact, it’s worth thinking about reasonable responses to this problem. There are two sides to the equation. Cutting services and leaving infrastructure to rot attacks the problem from the cost side, but one could just as easily improve the situation by increasing private investment in the neighborhood. It’s difficult for a city to induce private actors to invest in an area, but at the very least the city can remove barriers that discourage it from happening.
To continue with our example, the city currently only allows single-family dwellings to be constructed in Lower Crossing. In other words, this area is built out with the maximum amount of private investment allowed under city code. Sure, an upgrade or a teardown and new build on one of the lots may increase the wealth a small amount, but we need orders of magnitude more investment. If the city needs more private investment here, the least it could do is modify the zoning to allow more of it.
Another reasonable response would be for the city to cut its losses by purchasing all the properties and abandoning the infrastructure completely. This would be politically challenging and costly, but not as costly as the perpetual maintenance and eventual rebuild of all the infrastructure serving the area.
The truth is, we will never marshal a level of private investment commensurate with public infrastructure in all areas of the city. We have vastly overbuilt. This isn’t unique to Spokane. I won’t pretend to know how this will play out across Spokane or elsewhere in the future. What I do know is we aren’t doing ourselves any favors by ignoring the financial realities at the root of the problem.
(Cover photo: Kate Hudson)