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The Suburbs: One Giant Ponzi Scheme?

There are many reasons America is in dire financial straits. You can blame excessive government spending (choosing either a war-focused flavor of the argument or the one that centers on entitlements), loosened financial regulations, technology shifts and job loss to competitors overseas. Now there's one more complementary explanation making its way around the internet -- suburban sprawl is a Ponzi scheme.

The idea was advanced in a report released by Minnesota non-profit Strong Towns a few days ago. Titled, "Curbside Chat: A Candid Talk About the Future of America's Cities, Towns and Neighborhoods" and written Charles Marohn, the report is available for free download. So what does it say? The Atlantic sums it up neatly:

Strong Towns have made a very compelling case that suburban sprawl is basically a Ponzi scheme, in which municipalities expand infrastructure hoping to attract new taxpayers that can pay off the mounting costs associated with the last infrastructure expansion, over and over. Especially as maintenance costs increase, there is never enough to pay the bill, because we are building in such expensive, inefficient ways.
For fans of numbers and those looking for quantitative evidence to back up the case, Business Insider has boiled down Smart Town's evidence into chart form. Or, if you're interested in the details, a long essay from Marohn, unpacks the Ponzi scheme claim:
Since the end of World War II, our cities and towns have experienced growth using three primary mechanisms:
  • Transfer payments between governments: where the federal or state government makes a direct investment in growth at the local level, such as funding a water or sewer system expansion.
  • Transportation spending: where transportation infrastructure is used to improve access to a site that can then be developed.
  • Public and private-sector debt: where cities, developers, companies, and individuals take on debt as part of the development process, whether during construction or through the assumption of a mortgage.
In each of these mechanisms, the local unit of government benefits from the enhanced revenues associated with new growth. But it also typically assumes the long-term liability for maintaining the new infrastructure. This exchange -- a near-term cash advantage for a long-term financial obligation -- is one element of a Ponzi scheme....

Revenue collected does not come near to covering the costs of maintaining the infrastructure. In America, we have a ticking time bomb of unfunded liability for infrastructure maintenance.... The reason we have this gap is because the public yield from the suburban development pattern -- the amount of tax revenue obtained per increment of liability assumed -- is ridiculously low.

What's to be done to diffuse this time bomb? Marohn suggests a full, transparent accounting of "all short and long-term financial obligations local governments have assumed for maintaining infrastructure," improvement of the public ROI for infrastructure projects, streamlined local zoning regulations and an increased focus on getting people to walk places, according to the organization's press release that accompanied the report.

The report arrives at a time when the debate about the future of America's built environment is already raging, with some commentators claiming that with house sizes decreasing, the economy continuing to struggle and poverty increasing on leafy streets, the suburbs are on the decline -- or at least undergoing a major shift to become more efficient and sustainable. Others say the claim is hogwash. Strong Towns' analysis will certainly stir more discussion.

Do you think the suburbs need a rethink?

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(Image courtesy of Flickr user jmd41280, CC 2.0)
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