Photo Credit: Flickr/julianmeade
To recap, I consider the suburban decay facing inner ring suburbs across America, especially those of the 60’s and 70’s vintage built on a modern suburban pattern, as one of the key challenges facing urban leaders over the coming decades. I outlined a lot of the case in my review of the book “Retrofitting Suburbia”.
Why is this happening? One big reason cities tend to fall into decline is that they accumulate huge unfunded liabilities, and those liabilities attach to the territory, not the people. This lets one generation of residents rack up huge future bills, then skip town to leave the next generation or those not lucky enough to get out with the bill. It’s the equivalent of being able run up a huge balance on the civic credit card, then pawn the bill off on someone else.
Imagine if you will if your house worked this way. Your mortgage, your credit card debt, etc. all happened to be chargeable not to you, but to whomever was living in your house. If you simply stopped paying and moved elsewhere, you’d be relieved of all those debts. Sounds ridiculous, doesn’t it? But that’s exactly how municipal debt and unfunded liabilities work. It is a huge incentive for politicians and residents to vote for immediate gratification with the bill – infrastructure costs, pensions, redevelopment costs, or what have you – pushed out 25-30 years. Then these people or their children simply move to a greenfield and start the process over again.
I suspect this, perhaps more than any other force, is what drives urban and suburban abandonment in favor of newer towns.
For various reasons I won’t go into here, I don’t think it would be a good idea to have municipal debt follow people. So we have to find ways to prevent people from accruing unfunded debts and off balance sheet liabilities in the first place. My previous installment was about using more robust impact fees to ensure new development pays for the infrastructure it needs on a fully loaded basis. As with that one, my idea here is more of a concept to explore, not at this time a specific policy recommendation that could be implemented.
This one deals with redevelopment costs. Let’s imagine the life cycle of a strip mall. A developer comes in proposing to build a strip center full of big name retailers like Best Buy. The town council salivates over the prospect of a commercial taxpayer. They dicker about cosmetics such as facade materials. Then it is approved and the center built.
The developer goes into this with a certain business case lifespan – say 25 years. That’s a long way off, so for a long time, everything’s great. But eventually the next exit or two down the interstate opens up. And there are even newer malls. Some of those big name retailers move to the new mall. Maybe the owner invests in a refresh, or maybe he just sells it to some downscale operator.
Over time, the tenant mix changes. There are fewer upscale chains and more pawn shops. The mall is considered dowdy. It is old and run down and was cheaply constructed to begin with. And the format of the center is obsolete. The incomes in the area are stagnating or declining as too. And the infrastructure that was new 25-30 years ago is wearing out. Maybe stores close, leaving empty “grayboxes”. Maybe the owner demolishes them to save on taxes while holding onto the weedy remains as a speculator. Or maybe there are still some tenants, and not necessarily bad ones, but not the full range of neighborhood services the town would like to see.
The town as a problem on its hands. Where once it was locked into a virtuous circle as growth led to more growth and more increased taxes and fixed costs spread over more assessed value and income, it is now in a decline cycle. It’s taxes are going up as the tax base erodes and people leave. Many of the remaining residents are older and there is not a new generation waiting in the wings. Suburban decay has arrived.
What is this town to do? Many have fought back with subsidized redevelopment schemes such as new town centers or new urbanist developments or other flavors du jour, but that costs money – money the town doesn’t have. You have to buy out landowners looking for a big payout, you probably have to pay to scrape the site, and you have to give incentives to the new person to come in. It has a major redevelopment liability that has come due. To address it, the town has to borrow from the future, a risky bet that development will pay off enough not just to repay the bonds, but also add to the civic coffers. Some towns aren’t even in good enough condition to do that.
If you think about it, we spend virtually all of our time in the planning process thinking about the upfront side of the development. We charge impact fees to mitigate road needs from new development and such. We go through an extensive review process to make sure there are no adverse impacts on the surroundings. But we spent little time thinking about the back end of the project, of its end of life, and the types of negative externalities that occur there as people can simply abandon homes and malls and go elsewhere.
I suggest we need a lot more thought and more policy tools for managing the end of the life cycle – particularly around acquiring title if necessary and paying to get sites ready for redevelopment. We need to think and plan about the full lifecycle of what we are building up front.
One idea is to require developers to insure against redevelopment costs. That is, landowners and developers should be required to make some financial provision to indemnify municipalities against these types of costs. It could take all sorts of forms such a performance bond or even a credit default swap, but I like to think of it as redevelopment insurance.
Think about it, we don’t let people own and operate cars without liability insurance. Why let them operate strip malls that could fail and leave the town stuck with a bunch of grayboxes while the developer and retailers skip to the next exit down? Imagine if developers had to get insurance to cover any redevelopment costs from a third party in an open, competitive private market. We know the companies writing these policies would be keen to not lose money on them. It would also allow distinctions between good developers and bad ones. And it could encourage provisions such as guaranteed ongoing investment to make sure strip centers and such stay relevant.
The beauty of this is that the development could not be sold until the purchaser could also manage to get such a policy, sort of like title insurance. This would tend to prevent companies from scrapping developments by selling to sleazy operators – and make sure that the original developer could not try to easily wiggle out of his obligations.
This policy would be triggered when certain criteria were met. This is where it gets dicey. How could criteria be specified in advance? And what entitlement might the town have in terms of exercising these rights?
I won’t profess to have the answer. Unlike some of my other suggestions in this series, this one is again more of a thought experiment to show how we need to take more seriously the end and well as the beginning of developments, especially in suburban settings where preferences changes and older formats rapidly become obsolete. This is something I’d like to see academics and policy makers give more thought to know. (I believe some places have already started experimenting with this).
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