Illustration by Raul Arias

The Paradox of Amenities

Cultural, entertainment, and recreational perks may be attractive, but they give government room to raise taxes.

The everyday joys of living in North Texas are many—the art museums of Dallas and Fort Worth, the Perot Museum of Nature and Science, big-league sports, theaters, parks, zoos, recreational facilities, restaurants of all types, symphonies, operas, and concerts to suit any musical taste.

Most big cities are like this. As populations grow and incomes rise, urban areas can support a greater variety of attractions and entertainment to offset the concrete, congestion, and crowding that makes city life a daily grind. Public or private, natural or man-made, amenities are a big part of what makes cities livable.

Because they’re so diverse, amenities are hard to measure with any precision, but we took a stab at it by compiling a database of 18 types of amenities—from museums and bars and restaurants to professional sports teams, nearby mountains, and beaches. There’s room for nitpicking about any one of the 18 categories; taken together, however, they fairly represent what most people mean when talking about urban amenities. 

To facilitate comparisons, we scored each metropolitan area’s amenities on a scale of 1 (least) to 10 (most) and combined them into a single number, weighted 75 percent for total amenities and 25 percent on a per-capita basis.

Among the 100 largest metropolitan areas, New York ranked highest in amenities—by no means a surprise. When it comes to fun, games, and interesting things, The Big Apple has a substantial edge over the cities that follow—Los Angeles, Chicago, Boston, Miami, and San Francisco. The Dallas-Fort Worth area came in a respectable eighth—the highest of any city without easy access to beaches. After the top 25 or so, the scores flatten out as cities get smaller, indicating little overall differences in amenities.

Amenities make cities more interesting places to live, so metropolitan areas with a lot of them would seem to have an advantage in attracting new residents. This “build it and they will come” idea drives all kinds of civic projects, from museums to sports stadiums and the like, sometimes at public expense.

many reasons to move

Are Americans beating a path to the amenity-rich metros? To find out, we used Internal Revenue Service data that track the movement of taxpayers from one year to the next. The numbers allowed us to calculate net migration for each of today’s top 100 metropolitan areas from 1992 to 2011. 

Then, we did what economic researchers typically do; we ran regressions—the analytical tool that made best sellers out of the Freakonomics books. The results surprised us by showing a negative relationship between amenities and net migration (see downward sloping line on the second chart). New York and Los Angeles, the nation’s two most amenity-rich metros, have each seen net out-migration of more than 4.5 million residents. (Keep in mind that we’re using IRS data—so it’s a good bet that these were bona fide taxpayers.)

Looking at the 18 amenities one at a time, all but access to nearby mountains showed a negative correlation to net migration. People enjoy the amenities that cities offer. Yet, more amenities, either in number or variety, don’t seem to provide an edge in attracting migrants. We scratch our heads at this result and wonder, “What could be going on here?”

We don’t for a minute believe that amenities actually repel migrants—that defies common sense. But we’re still left with a paradox to ponder: Why aren’t all these obviously terrific urban amenities the magnets they’re supposed to be? 

Finding the answer starts by acknowledging that people move from one city to another for a variety of reasons, most of which have less  to do with amenities than other factors. Residents of cities with high income and property taxes will find lower-tax jurisdictions tempting. In many cities, restrictive land-use policies constrict the supply of homes and apartments, pushing up housing prices and raising the cost of living. People will want to go where housing is more affordable.

These factors can lead people to pack up and leave, even from places with great amenities. Take long-time New Yorkers, for example. They may enjoy Broadway theaters, trendy Manhattan restaurants, and summer weekends at the Long Island beaches. Yet, they may eventually get fed up with the city’s high cost of living, which includes some the nation’s most onerous income taxes. So, they gather their belongings and head to DFW, where there’s no income tax and where a dollar will buy 50 percent more.

paying a high price

High taxes and living costs will make some people forsake amenity-rich metropolitan areas—that much seems clear. Our story, however, has one more wrinkle: Amenity-rich metropolitan areas are more likely to impose higher taxes.

We looked at local tax burdens in four ways—total, income, and indirect taxes as share of personal income, plus the highest marginal tax rates. To some degree, all the tax measures show a generally positive correlation with our 18 amenities. The strongest relationship is with indirect taxes, which includes property taxes. Places with more amenities tend to impose higher taxes on homes and businesses, the least mobile form of wealth.

It could be that amenity-rich areas tax residents to provide the cultural and recreational attractions that make life more enjoyable. There’s a bit of that going on, of course, but public spending on amenities usually makes up only a small portion of cities’ budgets. Besides, people shouldn’t leave when asked to pay for urban amenities if they really value them. 

Resolving the paradox will take a little ingenuity. If the lure of amenities is strong, as we believe it is, then amenity-rich cities can impose higher taxes to pay for a larger public sector without residents leaving in droves. So that’s why metropolitan areas with great amenities tend to have higher taxes.

Cities that take this too far will find that even great amenities won’t be enough to overcome the burdens of high taxes and living costs; people will start to leave. Eventually, the out-migrants, exasperated by high taxes, will exceed the new arrivals, who are attracted in part by the amenities. This would seem to be the case in New York and Los Angeles and, to a lesser extent, Chicago.

The Dallas-Fort Worth area seems to strike a good balance, ranking relatively highly on amenities while maintaining strong in-migration. The same holds for Atlanta, Houston, and a half-dozen other cities. These markets may not have the amenities of New York or Los Angeles, but they also don’t impose the heavy burdens that lead to net out-migration.

Unraveling the paradox tells us that museums, sports stadiums, and other perks are important for cities to build and maintain. The urban environment would be dreary indeed without these attractions. Having few amenities won’t lure new people, even when taxes are low. 

So big cities need amenities to attract and hold taxpayers, but other things matter as well. High taxes and living costs can become so onerous that even world-class amenities won’t be enough to prevent net out-migration—and that’s what urban America needs to worry about.  

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