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Dallas’ Financial Woes Aren’t Unique. America’s Cities Are on a Path Towards Bankruptcy

After World War II, America embarked on a path of rabid growth and urban expansion. Now the bill is coming due and no one knows how to pay it.
By Peter Simek |
Texas Pothole

Dallas certainly has its own, particular financial problems: a police and fire pension fund that is facing insolvency, the legacy of a bungled affordable housing policity that lost millions of federal dollars in the couch cushions. But the city’s huge infrastructure needs, which, as council member Lee Kleinman pointed out during a recent conversation about the upcoming bond election, are something that the city can’t cover in its general fund, aren’t unique to Dallas. Faced with having to shell out billions just to keep the streets from not deteriorating any further, Dallas can’t pay for its own maintenance and has to go into debt just keep infrastructure status quo.

And so does the rest of America.

In a fascinating article on Strong Towns, Charles Marohn, the group’s founder and president, takes an in-depth look into the financial sustainability of Lafayette, Louisiana. What he finds is a fundamentally unsustainable financial outlook and a pattern of growth and deterioration that is repeated in almost every American town and city:

Like most cities, Lafayette had the written reports detailing an enormously large backlog of infrastructure maintenance. At current spending rates, roads were going bad faster than they could be repaired. With aggressive tax increases, the rate of failure could be slowed, but not reversed. The story underground was even worse. Ironically, this news had historically been the rationale for building even more infrastructure (theory: this is a problem that we’ll grow our way out of).

So Marohn and his team of consultants who were hired by Lafayette to sort things out dug deep into the numbers. What they found was not encouraging. In order get tax revenues to sustain the city’s infrastructure needs, an individual property owner in Lafayette would have to pay more than double in property taxes than what they currently pay. And that’s just for infrastructure. Factor in the other things that property taxes pay for –water, sewer, public buildings, etc. — and the total infrastructure revenue gap per taxpayer for Lafayette was around $8,000 per year. That’s in Lafayette, a small city with a median household income of $41,000.

So what’s wrong? Well, pretty much everything about the way America has built its towns and cities since World War II:

All of the programs and incentives put in place by the federal and state governments to induce higher levels of growth by building more infrastructure has made the city of Lafayette functionally insolvent. Lafayette has collectively made more promises than it can keep and it’s not even close. If they operated on accrual accounting — where you account for your long-term liabilities — instead of a cash basis — where you don’t — they would have been bankrupt decades ago. This is a pattern we see in every city we’ve examined. It is a byproduct of the American pattern of development we adopted everywhere after World War II.

How did this happen? Were mayors and city managers asleep at the wheel? Is there a giant corporate conspiracy to drain tax dollars and line private pockets? Not really. Marohn argues that, essentially, human nature happened. Faced with new technologies, new financial tools, and new ideas about how cities should look and function, governments have funded an urban development system that is fundamentally unsustainable because it allowed policy makers to kick the costs of their investments down the road and out of view:

The way this happened is pretty simple. At Strong Towns, we call it the Growth Ponzi Scheme. Through a combination of federal incentives, state programs and private capital, cities were able to rapidly grow by expanding horizontally. This provided the local government with the immediate revenues that come from new growth — permit fees, utility fees, property tax increases, sales tax — and, in exchange, the city takes on the long term responsibility of servicing and maintaining all the new infrastructure. The money comes in handy in the present while the future obligation is, well….a long time in the future.

Psychologists call this temporal discounting. Humans are predisposed to highly value pleasure today and to deeply discount future pain, especially the more distant it is. It’s easy today to rationalize that future expense, especially when you feel so assured that new growth will make those future people better off. This thinking is how you end up with two dollars of public infrastructure for every one dollar of private investment. This is how you spend yourself into bankruptcy.

This isn’t a political, cultural or social failing. As humans, we’re wired to act this way. Modernity removed most physical restraints, government removed the financial, and we did the rest.

So what do we do? The federal government plans to dump billions of dollars into shoring up the problem. But Marohn argues that that won’t really help solve the root cause of the country’s infrastructure predicament. What we really need is an entirely new way of building, funding, and maintaining cities and towns.

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