My Journey from Free Market Ideologue, Part 2: Pequot Lakes Bypass

This is the second part of a multi-part series, My Journey from Free Market Ideologue to Strong Towns Advocate.

Pequot Lakes depot in winter. Image via Wikimedia Commons.

When I ran my own planning/engineering firm, one of the cities I consulted with was Pequot Lakes, Minnesota. I was their designated city planner and worked with a zoning clerk to process their permits, prepare information for their public hearings, and do ongoing long-range planning work.

Pequot Lakes was a fascinating place. It was a small railroad stop surrounded by a township—two separate governments—that had experienced a sudden surge of growth in the late 1990’s and early 2000’s. Growth in the city was the type you’d anticipate: linear development along major transportation corridors as a way to offset decline in core neighborhoods. In the township, the development was along the shoreline, which was more expensive and attracted a more affluent population.

Before I got there, township officials had done some planning and were very annoyed with the city, which had not. Township officials and residents did not want to see the highways lined with billboards, storage sheds and auto dealerships, but they were powerless to stop the city from annexing property and doing whatever they wanted with it. Then township officials looked at the demographic numbers and calculated that there were more year-round residents in the township than the city. They requested the city annex the entire township—a “merger” they called it—and, once that happened, township residents voted the town board onto the city council at the next election. That changed everything.

I was brought in to clean up the mess, to take the rural/shoreline planning documents and zoning codes of the township and rework them for this new city. This was challenging and lots of fun, and the complicated work, including a comprehensive rezoning of the entire city, earned me the respect of city officials who long wanted to make these changes, but didn’t know how. We were moving ahead with improving the downtown, planning changes to some of the key parks, and preserving the natural shoreline. Things were good.

That is, until the DOT came to us with a project to address the two-lane highway that went through the middle of town, which was a stroad death-trap. They were planning to widen the highway—make it a four-lane divided—and either run it through Pequot Lakes or, alternatively, bypass the city to the east. This debate would dominate all conversation there for years.

To Bypass or Not to Bypass

If the highway went through town, it would irreparably split the community in two. There would be five lanes (four travel lanes plus a center turning lane) right in the middle of the city. The expansion would take out a significant portion of the park, which would then be next to a major highway. We all knew (except the Chamber of Commerce and some of the business owners) that speeds would increase, and the damage to the character of the community would not be offset with decorative lights and banners.

The bypass was also problematic. Not only did it require the DOT to take the property of many friends and neighbors in the community, the businesses felt threatened by the change in traffic patterns. There was a very real and justifiable fear that, if the city were bypassed, the downtown would slowly wilt away.

Two factions arose: a very vocal through-town group and a more passive, but larger, collection of alternative route supporters. The through-town group narrowly carried one election and voted preemptively to give the DOT permission to go through town, a move that could not be rescinded. Following another election, the alternate route group won a majority and notified the DOT they would like to revisit the decision. MnDOT agreed to allow that, and it fell to me to figure out how to hold this contentious conversation.

We had an estimate for how many dollars the community would spend and now we were going to get one for how many dollars we would get back. I felt very confident, based on my years of experience, my expertise in community development, and my free market principles applied to a growth economy, that bypassing the city using the most aggressive infrastructure investment alternative was going to be the highest returning approach.

Pause here and note that I personally favored the bypass. The idea of having a highway moat running through the core of downtown was untenable, in my opinion. It was one of those things a city can’t recover from. Without the highway, there would be less traffic—and I respected the businesses’ concern on this front—but there was at least a chance to create a localized economic ecosystem that would support local businesses.

What I recommended was something you’d have gotten from any engineer/planner who believes humans are ultimately rational (they generally aren’t) and that passionate people can be convinced to change their minds with data and expert reasoning (they largely can’t). I suggested we hold one big community meeting where we got every possible objection or fear out on the table, then spend the following months hearing expert testimony from experts who could speak authoritatively on those fears. The city agreed, and in special meetings over the following months, we heard from forestry experts, wetland specialists, and developers, among others.

One of the most contentious issues dealt with how each alternative would impact the city’s capacity for future growth, and the effect that would have on the city budget, tax rates, and future prospects for prosperity. The city engineer had put together detailed cost estimates for six alternatives, three with the through-town option and three with the bypass. You can think of these alternatives as:

  • Minimal: The lowest amount the city would need to spend on infrastructure to accommodate the highway.

  • Prudent: Taking care of basic maintenance, such as replacing old pipes buried under the highway, during construction when the costs will be less. These improvements were basic maintenance the city needed to do someday soon, but it was much cheaper to do them now when the road was going to be ripped up anyway.

  • Aggressive: All the minimal and prudent actions, but also spending on additional capacity to set the city up for future growth potential. This included installing extra pipes, increasing the capacity of the system, and adding additional access so that future private development was as easy as possible.

With the engineer’s data, we had costs; we just needed revenue projections. The city hired a financial consultant named Jon Commers of Donjek (long time readers may recognize him as one of the founders of Strong Towns, but that was years in the future at this point—we had barely met). Jon was to evaluate the potential for private sector development with each alternative and then calculate, based on the current tax rates (which were high for the area), what the anticipated return on investment was.

We had an estimate for how many dollars the community would spend and now we were going to get one for how many dollars we would get back. I felt very confident, based on my years of experience, my expertise in community development, and my free market principles applied to a growth economy, that bypassing the city using the most aggressive infrastructure investment alternative was going to be the highest returning approach.

Return on Investment per Local Government Dollar Spent

Return on Investment per Local Government Dollar Spent

The data came in. For every dollar spent on infrastructure during the project, here is the estimated return on that investment:

 I wrote about this in my upcoming book, Strong Towns: A Bottom-Up Revolution to Rebuild American Prosperity (October 1 release date).

The city of Pequot Lakes was expected to lose money on all but one scenario. The only scenario they would not lose money on was one where the state highway bypassed the community with the city doing next to nothing, a giving up strategy that felt a lot like losing. In the alternative I personally supported, the city would spend $1.5 million and expect to see revenues, over the life of the improvements, of just $121,000. This just didn’t seem possible.

Yet, I had the numbers in front of me. I had set up the study asking a question I assumed I knew the answer to, yet had never seen calculated by any engineer, planner, or economic development advisor before. It was disorienting to look at the data in this way.

I became obsessed with understanding municipal finance. As an engineer, I knew how to calculate the cost of infrastructure. It had never occurred to me that I could calculate the associated revenues. I never needed to. Nobody had ever bothered to ask!

As with Remer (discussed yesterday), I’m willing to acknowledge that this is an extreme scenario, despite the resulting development pattern being very familiar to most Americans. It’s a small town in a mostly rural area with an overwhelming amount of public infrastructure investment being made through transportation spending. This is common nationally, but not a recurring set of conditions for any single place.

Yet, I also understand that the expense numbers didn’t include the additional cost of extending infrastructure to new sites, just the ante of doing what was necessary within the highway right-of-way. That additional cost would be far greater. And I also understood that the revenue projections assumed all the new money the city was collecting went just to building infrastructure. Who would pay to plow snow from the new streets? Fill those cracks and potholes? Provide police and fire protection to these areas?

In other words, as devastating as these numbers were, they presented an idealized, fictional, pro-growth scenario. Reality would be even less rosy.

It’s at this point in this series on growth, markets, and urbanism, that I’m going to take a step back and describe the unique nature of the investment that is municipal infrastructure. That will be my next column.

(Cover photo via Google Maps)