Sprawl and fiscal crisis

The recent bankruptcies of Stockton and San Bernardino have again highlighted the fragility of many California cities’ finances. In each case, the burden of public pensions has been blamed for the financial problems. However true that may be in the short run, the pension blame game masks another, deeper problem for the state’s taxpayers: the hidden but crushing cost of sprawl.

One California planning director calls this a cycle of addiction. Each new development project generates huge new revenues — impact fees upfront and greatly increased property taxes once the project is built. But the impact fees never cover the cost of the infrastructure and, because of Proposition 13, the buying power of property taxes declines dramatically over time. Sooner or later the new project is running a deficit instead of a surplus for taxpayers.

The only way to forestall a financial problem is to approve another sprawling development. And another. And another. Sooner or later, however, the real estate market crashes, this development Ponzi scheme collapses and taxpayers are left holding the bag. That’s what happened in California starting in 2008.

Although I think sprawl is as simplistic an explanation as pensions (and I think Fulton himself would nuance the discussion in a longer piece), there’s an important kernel here: the incentives created by local tax structures, municipal boundaries, and development financing. The ultimate costs of sprawl are externalized, by local governments, by individuals, by our entire economy. But the long-term costs of development are pretty easy to track, and the policies that create incentives for cities to continually seek new, dedicated, revenue streams, even at the expense of more money than those streams will ever amount to, are not difficult to identify.

Right now, municipal governments are internalizing the costs of healthcare and retirement, and the costs of private development. There’s no doubt that there are systemic problems contributing to cities’ problems, but I think we’re a long way from having a real discussion of what those problems are.

Read: Sprawl is another reason for California cities’ financial crises – Los Angeles Times.